Seeking Alpha

Mike Holt's  Instablog

Mike Holt
Send Message
Mike Holt is a Senior VP, Wealth Management Strategist with The MDE Group, an innovative Wealth Management Firm located in Morristown, NJ that manages over $1 billion for corporate executives and other high net worth individuals located across the US. Mike's diverse background includes auditing... More
My company:
The MDE Group
  • Epilogue to TREM '11 -- A Focus on Chinese Trade Restrictions and the WTO 16 comments
    Sep 9, 2011 8:31 PM
    The purpose of this article is to research and compile information related to the topic of restrictions placed on China on foreign access to rare earth based materials and the potential implications this has for US national security, the health of the US economy, and the fates of high tech companies that rely upon access to rare earth based materials.
    It was inspired by the memory of Thomas Jefferson’s reason and imagination, and by the main reading room of the Library of Congress, pictured below.
     LOC Main Reading Room
    The LOC Main Reading Room is encircled by bronze portrait statues paying tribute to great thinkers on various topics. Let’s call them the smartest guys in the room, who were very influential in their fields. This article is intended to serve as a virtual reading room that likewise seeks inspiration from great thinkers, but rather than relying upon statues with plaques known as pendentives, this virtual reading room will draw upon the knowledge of credible experts in fields related to the topic of this article.
    Comments posted to this article should therefore include links or references to primary sources of information, and the comments themselves should consist only of brief descriptions of the source material or its author accompanied by a key quote or passage capturing the essence of the main point(s) deemed to be of greatest interest or importance. If it is believed that personal knowledge or interpretations might be helpful, they should be clearly identified as being your own thoughts or opinions, so that the integrity of information compiled in this virtual reading room is preserved to the greatest extent possible.
Back To Mike Holt's Instablog HomePage »

Instablogs are blogs which are instantly set up and networked within the Seeking Alpha community. Instablog posts are not selected, edited or screened by Seeking Alpha editors, in contrast to contributors' articles.

Comments (16)
Track new comments
  • Mike Holt
    , contributor
    Comments (1464) | Send Message
    Author’s reply » In 2001, when China was admitted to the WTO, Robert Zoellick was the US Trade Representative. In fact, according to the USTR website, Robert Zoellick completed negotiations to bring China and Taiwan into the WTO.


    Prior to his appointment as USTR, Robert Zoellick served as a foreign policy advisor to George W. Bush in the 2000 presidential election campaign as part of a group led by Condoleeza Rice. Zoellick continued his role as USTR until 2005 when Bush nominated Zoellick to be Deputy Secretary of State.


    On September 21, 2005, Zoellick presented a speech to the National Committee on U.S.-China Relations that stirred controversy on both sides of the Pacific. In this speech, titled "Whither China: From Membership to Responsibility?" much of the rationale for the US policy in favor of admitting China to the WTO is explained. He introduced the notion of China as a "responsible stakeholder" in the international community, and sought to allay concerns that mercantilist Chinese policies will try to direct controlled markets instead of opening competitive markets. Americans were also concerned about China's rapid military modernization and China's lack of transparency into the purposes of this buildup.


    The full text of Zoellick's speech is no longer available on the US Department of State website, but it can be accessed via the following link:




    I don't believe it is possible to summarize this speech in a sound bite, but the following excerpt may help to put the thought process behind the decision to admit China to the WTO into better perspective:


    "If it isn't clear why the United States should suggest a cooperative relationship with China, consider the alternatives. Picture the wide range of global challenges we face in the years ahead -- terrorism and extremists exploiting Islam, the proliferation of weapons of mass destruction, poverty, disease -- and ask whether it would be easier or harder to handle those problems if the United States and China were cooperating or at odds."


    Knowing what we know today about China, the question may be whether the desired cooperation with China is a realistic expectation.
    9 Sep 2011, 08:58 PM Reply Like
  • Mike Holt
    , contributor
    Comments (1464) | Send Message
    Author’s reply » As indicated in my Insta-Blog titled "TREM '11 -- Part One: The Challenges," Terence Stewart is the Managing Partner of the Law Offices of Stewart and Stewart located in Washington, DC, and he was kind enough to participate in one of the panel discussions at the 2011 TREM Conference.


    The paper provides an excellent summary of the issues and controversies surrounding a series of restraints applied by China to limit the exportation of rare earth's, including export duties and export quotas, both of which are direct violations of China's WTO comitments and its obligations under its protocol of accession to the WTO. The paper also cites a number of sources that should be very helpful toward developing a better understanding of these issues, how they developed, and options for policymakers to address both:


    (1) the need to develop domestic rare earths resources, and


    (2) the need to secure more equitable access to essential rare earth resources by ensuring that China adheres to its international obligations by eliminating export restraints on such materials.


    The paper can be accessed through the link below.

    9 Sep 2011, 09:06 PM Reply Like
  • Mike Holt
    , contributor
    Comments (1464) | Send Message
    Author’s reply » On June 9. 2010, Congress conducted a hearing before the US-China Economic and Security Review Commission to evaluate China's past and future role in the World Trade Organization [WTO]. The link below provides a record of this hearing.


    Anyone wanting further perspective on this vitally important topic should find this document to be quite helpful. Note, in particular, Panel IV: Recommendations for Future US-China Relations with the WTO, which represents the full prepared statement of Terence P. Stewart, Managing Partner of the Law Offices of Stewart and Stewart, an international trade law firm that has helped U.S. companies and workers compete in the international marketplace for more than 50 years.


    I would encourage you to read his full Statement, but in the meantime, here is the Conclusion.


    The United States has talked about the need to rebalance the economic system to address massive surpluses and deficits. China's begger-thy-neighbor policies compound the challenges faced by the U.S. and other countries in reestablishing balance in the system.


    While it is not unusual for major trading partners to have occasional disputes, such disputes typically revolve around different interpretations of rights or obligations where no obvious answer is included in the agreements themselves (while this is not always the case, it is often the case). This has not been the situation in disputes with China. For example, in the case of export restraints on raw materials, one must assume that China's restrictive actions are motivated by a desire to back track on clear commitments they undertook in joining the WTO, or alternatively, they are an effort to buy time for their local industries to fortify positions before complying with obligations to open markets. It is also possible they are intended to force foreign investment in certain sectors in China before removiing WTO-inconsistent actions. Whatever the motivation, China's mercantilist policies flout the bedrock WTO principles of national treatment and MFN.


    Admitting China to the WTO was a great experiment -- no other country with such a large economy had been brought into the WTO before it was ready. The challenges for China to change its system to one that would operate relatively consistently with other WTO Members have been large and the will for such change has seemingly faltered if not retreated. What is clear is that the future vitality of the WTO will depend on whether the U.S. and China and other major trading partners can ensure basic compatibility and a fundamental respect for not only the letter but also the spirit of the agreements and a willingness to adjust the system to achieve a sustainable structure. The first nine years of China's membership do not suggest that we are headed in a sustainable direction.
    9 Sep 2011, 09:13 PM Reply Like
  • Mike Holt
    , contributor
    Comments (1464) | Send Message
    Author’s reply » Here are missing links intended for inclusion in the comment above.


    9 Sep 2011, 09:17 PM Reply Like
  • Mike Holt
    , contributor
    Comments (1464) | Send Message
    Author’s reply » The following link to a Wikipedia article on Section 301 of the Trade Act of 1974 may be helpful toward putting the recent Section 301 petitions and claims described in the post above into better perspective:




    In summary, Section 301 of the US Trade Act of 1974 authorizes the President to take all appropriate action, including retaliation, to obtain the removal of any act, policy, or practice of a foreign government that


    violates an international trade agreement, or


    is unjustified, unreasonable, or discriminatory, and that


    burdens or restricts US commerce.


    Section 301 cases can be self-initiated by the US Trade Representative [USTR], or as the result of a petition filed by a firm or industry group.


    The law does not require that the US government wait until it receives authorization from the WTO to take enforcement actions, but the US has committed itself to pursuing the resolution of disputes under WTO agreements through the WTO dispute settlement mechanism, which has its own timetable.
    9 Sep 2011, 09:20 PM Reply Like
  • Mike Holt
    , contributor
    Comments (1464) | Send Message
    Author’s reply » Section 301 of the Trade Act of 1974 became known as Super 301 after it was amended by Section 1302 of the Omnibus Trade and Competitiveness Act of 1988 to require the U.S. Trade Representative [USTR] to identify US trade liberalization policies within 30 days following the National Trade Estimates (foreign trade barriers) Report to Congress in 1989 and 1990. This identification included priority trade barriers as well as priority countries and estimates of the amount by which U.S. exports would be increased if the barriers did not exist.


    USTR was required to initiate (regular) section 301 investigations on all priority practices within 21 days after submitting the report to the House Ways and Means and Senate Finance Committees. USTR was required to negotiate agreements which provided for the elimination of, or compensation for, the priority trade barriers within 3 years after the initiation of the investigation.


    This authority expired in 1990. However, since 1994, Super 301 has been implemented by USTR under an executive order of the President. The "Special 301" Report is now an annual review of the global state of intellectual property rights [IPR] protection and enforcement conducted by the USTR in which USTR must identify those countries that deny adequate and effective protection for IPR or deny fair and equitable market access for persons that rely on intellectual property protection. Countries that have the most onerous or egregious acts, policies, or practices and whose acts, policies, or practices have the greatest adverse impact (actual or potential) on the relevant US products must be designated as "Priority Foreign Countries."


    USTR has created a "Priority Watch List" and a "Watch List" under Special 301 provisions. Countries placed on the Priority Watch List are the focus of increased bilateral attention concerning the problem areas.


    Additionally, under Section 306, USTR monitors a trading partner's compliance with measures that are the basis for resolving an investigation under Section 301. USTR may apply sanctions if a country fails to satisfactorily implement such measures.


    As in prior years, China is at the top of the Priority Watch List under Section II. Country Reports of the 2011 Special 301 Report issued in April 2011, and is subject to Section 306 monitoring. Here is a link to this report:




    I have also extracted some important excerpts from the Country Report on China below, which can be found on pages 19-25 of the 2011 Special 301 Report.


    China's enforcement of IPR, as well as its implementation of its WTO obligations, remains top priorities for the United States. China made constructive commitments related to intellectual property generally, and software legalization specifically, during the December 2010 Joint Commission on Commerce and Trade [JCCT] meeting, and during President Hu's visit to Wasington in January 2011. The US is focused on seeing significant and measureable progress on these commitments in the coming year.


    The U.S. Government has also been following the development of China's indigenous innovation and other intellectual property-related industrial policies and is paying particularly close attention to China's policies that require or encourage U.S. parties to transfer their IPR to Chinese parties or to Chinese subsidiaries of U.S. firms.
    Chinese government agencies, including at national, provincial, and local levels, frequently release documents, including regulations, rules and regulatory documents (e.g., opinions, notices, circulars) that seek to promote China's development into an innovative, IP-intensive economy. The US recognizes the critical role of inovation in development and in improving living standards in the US and China. However, the US has also expressed concerns to China regarding its innovation-related policies and other industrial policies that discriminate against or otherwise disadvantage US exports or US investors and their investments. Chinese regulations, rules and other regulatory documents frequently call for technology transfer, and in certain cases, condition, or propose to condition, eligibility for government benefits or preferences on intellectual property being owned or developed in China, or being licensed, in some cases exclusively, to a Chinese party. Such arrangements may not ordinarily be commercially optimal but for the conditions or incentives established by the government. Government intervention in the commercial decisions of enterprises regarding intellectual property ownership, development, registration or licensing is not consistent with international practice, and may raise concerns relative to China's WTO obligations. [Oh Boy, has it ever.]


    Further discussion of concerns such as this, and the status of actions taken and continued bilateral dialogue that the US hopes can lead to further progress in these and other areas can be found in the 2011 Special 301 Report.
    9 Sep 2011, 09:26 PM Reply Like
  • Mike Holt
    , contributor
    Comments (1464) | Send Message
    Author’s reply » The WTO website provides the following flowchart illustrating the process and timetable for completion of the settlement of disputes filed under the WTO Dispute Settlement System.




    Other helpful background information regarding the WTO Dispute Settlement System is also available through this link.
    9 Sep 2011, 09:28 PM Reply Like
  • Mike Holt
    , contributor
    Comments (1464) | Send Message
    Author’s reply » According to "The Law and Policy of the World Trade Organization," an undergraduate/graduate level textbook on WTO law authored by Peter Van den Bossche, a Professor of International Economic Law at Maastricht University,


    "The WTO Agreement does not provide for a general procedure for the expulsion of a Member. There is no procedure to exclude States from the WTO that systematically breach their obligations under the WTO agreements. There are also no rules or procedures for the expulsion of Members that are guilty of gross violations of human rights or acts of aggression. The expulsion of a Member is, however, provided for as a possibility in the specific case of the non-acceptance of an amendment."


    Footnote 161 to the penultimate sentence in the above paragraph explains:


    "Note, however, that the UN Security Council could impose trade sanctions or a trade embargo on such Members and that, pursuant to Article XXI of the GATT 1994 and Article XIV bis of the GATS, other Members would be able to apply these sanctions or that embargo...."
    10 Sep 2011, 12:02 AM Reply Like
  • Mike Holt
    , contributor
    Comments (1464) | Send Message
    Author’s reply » On Tuesday, USA Today reported that China is offering consumer incentives of up to $19,000 to purchase vehicles like the extended range plug-in hybrid Chevrolet Volt -- but only if the vehicles are assembled in China:



    Michigan Senator Carl Levin [D] has requested the US Trade Representative Ron Kirk and Acting Commerce Secretary Rebecca Blank to investigate China's handling of the Volt and to file a WTO complaint if necessary.


    In a letter on Friday, he wrote:


    "The Chevrolet Volt represents intellectual property developed in the United States and paid for by General Motors research and development dollars," Levin wrote. "The U.S. government must not allow China to coerce American companies to give their technology away to their foreign competitors in order to have access to their markets."


    Further details can be found in the attached link from The Detroit News:

    25 Sep 2011, 10:17 PM Reply Like
  • Mike Holt
    , contributor
    Comments (1464) | Send Message
    Author’s reply » In response to a long-awaited ruling by the WTO intended to crackdown on Chinese raw materials export restrictions issued under the guise of environmental concerns but which, in practice, provide preferential treatment to domestic companies relative to their foreign competitors, China issued the following letter to The Global Times.



    In this letter, China argues that it is unfair to challenge their export quotas and other trade restrictions that favor domestic companies and sometimes coerce foreign companies to establish operations in China in order to obtain access to these materials on comparable terms since “the high tech export embargo by the US against China has never been questioned.” In reality, the answer to that question is that such restrictions are necessitated by China’s flagrant disregard for intellectual property rights. If China truly believed in free trade, they should abide by the WTO rules under which they were granted access to trade with other member countries, rather than habitually violating such rules and then crying “foul” when they are prevented from doing so.


    A short while ago, I questioned whether the United States Trade Representative would ever take meaningful steps to prevent free markets from being undermined by the exploitative practices orchestrated by the Chinese Communist Party. I am quite relieved that the USTR has finally woken up to this reality. Hopefully, the Obama Administration’s recent proposal to consolidate the USTR with five other government entities that deal with business and trade – the Commerce Department, the Small Business Administration, the Export-Import Bank, the Overseas Private Investment Corporation, and the US Trade and Development agency – into a single department will allow such efforts to be further implemented more efficiently and effectively. Allowing China a seat at the table was not intended to result in a free lunch with everything we have worked so hard to achieve on the menu.
    6 Feb 2012, 12:06 AM Reply Like
  • Mike Holt
    , contributor
    Comments (1464) | Send Message
    Author’s reply » The following January 2012 report prepared by the Washington DC law firm of Stewart and Stewart titled “China’s Support Programs for Automobiles and Auto Parts under the 12th Five-Year Plan” should put the concerns raised about the dominant role played by the Chinese government in China's economy, particularly in what it has identified as "strategic industries."



    For over 50 years, Stewart and Stewart has helped companies, workers, and governments succeed amid the complexities and rapid change of international trade. They are experts in both U.S. domestic laws and World Trade Organization mechanisms that address issues of global commerce and fair trade. As such, this report focuses upon the many subsidies that China provides to its automobile industry, and the impact that this has for individuals, companies, and governments outside the US. In sum,


    “The Chinese government has played a central role in the growth of China’s automotive industry, and it will continue to do so in the coming years.”


    “In 2009, …China became the world’s largest auto producer and the world’s largest automotive market. In 2010, China produced more than twice as many motor vehicles as the United States, 90 percent more than Japan, and more than all of Europe combined. China has also become a major source of automotive parts for the rest of the world, including the big three U.S. automakers. These trends are likely to intensify over the coming years. China plans to invest more than $18 billion over the next ten years to become the world’s leading producer of electric and hybrid vehicles and their key components.”
    6 Feb 2012, 08:24 AM Reply Like
  • renim
    , contributor
    Comments (1047) | Send Message
    From 1965 to 1974, world oil production increase by 1,168 million tonnes from 1,567 (40% of peak) million tonnes to 2,877 (73% of peak) million tonnes current production is 3,913 million tonnes (100% nominal peak)


    From 2001 to 2011 China steel production increased to 626mtpa-670mtpa ( page 11 ) from 151mtpa a 500mtpa increase. If we use the approximation that steel uses 770kg of coal and 1,600 kg of iron ore, 2.4tonne of raw materials per tonne of steel. We see that China’s steel industry’s raw material use on a tonnage basis over last decade has matched the global world oil production during it’s golden years. Except whereas oil is burnt away, steel strengthens a country.


    In support of its steel industry China is now embarking on building what is called ‘universal refineries’. These are mineral processing refineries for key steel alloying ingredients like Nickel, Cobalt and Manganese, these refineries are designed to handle ore from any deposit on the globe, examples in the West have a swing capacity to make ‘specialty oxides’


    The Chinese are taking effective precautions to hide from other Chinese competitors the capabilities of these new generation of universal refineries, it will be even more difficult for the Korean and Japanese to grasp.


    The more open, listed, companies in the Chinese Li ion supply chain will


    When they disclose a flow chart, will add in additional steps that would appear to increase their cost.
    The same flow chart they will exclude additional steps that increase their quality.
    During factory construction, they submit a ‘late change’ under the Chinese EPA, where these are actioned. These late changes are not public.
    Their factory ‘nameplate capacity’ excludes 20%-30% design capacity…


    This is how listed companies work in China, the fog surrounding state affiliated companies is far thicker.


    The west can see the nimble LiFePO4 producers in China transition from batch processing to continuous processing. But they won’t see the 'whales' until they surface..
    5 Mar 2012, 06:51 AM Reply Like
  • Mike Holt
    , contributor
    Comments (1464) | Send Message
    Author’s reply » While I was attending a "Rare Earths Boot Camp" sponsored by Technology Metals Research last October, one of the other attendees asked why the US had not yet filed a WTO complaint regarding China's restrictions on exports of rare earths. Although I shared his frustration, I explained that the US and other affected countries were waiting for the outcome of a similar WTO complaint filed against China's restrictions on exports of other critical metals so that they could take into consideration any lessons learned from that case.


    Well, that case was finalized recently, and the WTO ruled that China's gross violations of the WTO trade rules to which China had agreed to abide in order to become a member of the WTO were, in fact, in violation of the WTO rules. What that means in a pragmatic sense remains to be seen, but it was at least a first step toward putting an end to China's mercantilist trade policies. It also paved the way for the long overdue filing of a WTO complaint by the US, Europe, and Japan against China's export restrictions on rare earths that are so critical to America's defense needs and to a great many high tech industries.


    I was, therefore, enthusiastic when Barack Obama announced the filing of the WTO complaint against China's rare earths export restrictions on Tuesday. There is such a political divide within the United States right now, that such an endorsement of this action may be frowned upon by some. However, I believe this WTO action is in the best interest of free markets and a just society, and I refuse to allow internal political squabbling to diminish my committment to these fundamental principles. There may be some near-term fallout that could lead to increased uncertainty and market volatility in the short-term, but I believe that preventing the Chinese Communist Party from exploiting its near-monopoly over rare earths will be in the best long-term interests of all concerned, including businesses, investors, the Chinese people and the public at large.
    18 Mar 2012, 11:29 PM Reply Like
  • renim
    , contributor
    Comments (1047) | Send Message
    there is an element of quid pro quo going on.


    The US and her east asian allies maintain a semiconductor advantage over China by delaying the sale of semiconductor fabrication equipment (as many ICs can be considered as dual-use devices)


    China endeavors to counter this by manipulation of REEs.


    On a further note, China did intend to fund Lynas when no one else would , my take is that China honestly does not consider its REE supply to be sufficient for her own domestic consumption. (long term)
    20 Mar 2012, 08:04 AM Reply Like
  • Mike Holt
    , contributor
    Comments (1464) | Send Message
    Author’s reply » China sought to obtain a controlling stake in Lynas, and backed out when the Australian government would not allow them to exercise this degree of control over the only rare-earth mining company outside of China that could potentially reduce China's monopoly over these critical materials.


    China had already imposed export quotas and tariffs on rare earths that made it difficult for companies in high tech industries to access these critical materials unless they located their manufacturing facilities inside of China, where they would also be subject to local content requirements that would jeopardize their proprietary know how and closely guarded intellectual property. However, after a Japanese patrol boat took custody of a Chinese naval officer acting as the captain of a Chinese fishing vessel patrolling in disputed waters off the coast of Japan, China then withheld supplies of rare earths to Japan. Although the fishing boat incident seemed to be of little significance in and of itself, it drew global attention because it demonstrated a willingness of China to restrict access to these vital materials for geopolitical purposes. Prior to that this hidden agenda was not entirely clear, even though China had made no secret of their intentions to exploit their near monopoly over rare earths. For example, the lobby of the largest rare earth mining company in China displays a sign that reads: "OPEC has oil, China has rare earths."


    China claima that is attempting to reduce the environmental impact of its rare earth mining activities, but its actions demonstrate that it is encouraging domestic activities and discouraging only exports. And, regardless of its intentions, the WTO rules make it clear that any restrictions imposed for environmental reasons must be directed against both domestic and foreign companies -- not only against foreign companies. When viewed against the backdrop of many other well-documented activities, it becomes clear that the Chinese Communist Party is exploiting free markets for the purpose of advancing its own narrow interests, including the perpetuation of the Chinese Communist Party's control over the Chinese economy and the Chinese people, rather than seeking to become a responsible member of the global community.


    The Chinese people deserve better, and are capable of improving their lots without the illegitimate means being employed by the Chinese Communist Party. The Chinese Communist Party therefore jeopardizes, rather than enhances, the opportunities available to the Chinese people to benefit from their efforts.
    20 Mar 2012, 04:01 PM Reply Like
  • Mike Holt
    , contributor
    Comments (1464) | Send Message
    Author’s reply » When I introduced many of the interrelated topics that I wanted to discuss in my Instablog, I included references to the importance of technology to the growth and development of an economy, and efforts by China to acquire technology from others through various illegitimate means. However, other than a link here or there to sources of information on this topic in general, such as an article in the December 2010 issue of the Harvard Business Review titled “China vs. the World: Whose Technology Is It?” (by Thomas Hout and Pankaj Ghemawat) I have focused primarily on China’s restrictions on rare earths as one of their key means of achieving this objective. But, cyber-theft, and even cyber-espionage, are also an important part of their strategy, as this CNBC article published earlier this afternoon attests:



    For a more complete explanation and analysis of this topic, I would direct readers’ attention to a September 29, 2011 book by Joel Brenner, former head of counterintelligence for the US department of intelligence, titled “America the Vulnerable: Inside the New Threat Matrix of Digital Espionage, Crime and Warfare.” This is a fascinating book written in an engaging manner, but it is also a serious book written by a serious author, and it will likely cause you to take the risks associated with these developments more seriously as well.


    In a sense, rare earths and cyber-theft are related in that both may be used to capture the technology and other intellectual property rights that China either can’t develop itself, or doesn’t want to pay for. Perhaps this is why Joel Brenner argues in the final chapter of his book that efforts to contain threats such as this should be organized based upon the aims to be achieved, rather than functional backgrounds. Otherwise, important patterns with important implications may be overlooked, and the higher ground on different parts of the wei chi board could be lost. It's an odd dynamic because both paticipants (the term players may be too gentle) recognize the need for growth, but both are also seeking to gain an upper hand in the process.
    9 Jul 2012, 03:25 PM Reply Like
Full index of posts »
Latest Followers

Latest Comments

Posts by Themes
Instablogs are Seeking Alpha's free blogging platform customized for finance, with instant set up and exposure to millions of readers interested in the financial markets. Publish your own instablog in minutes.