Wednesday, July 2, 2014

• U.S. Manufacturer Wants Commerce Dept. to Penalize China for Cyberattack - BY SHANE HARRIS

U.S. Manufacturer Wants Commerce Dept. to Penalize China for Cyberattack

  • The government of China's theft of SolarWorld's trade and financial information has inflicted, and will continue to inflict significant and, as yet, unquantified harm on SolarWorld.
  • SolarWorld's case appears to be the first time that a U.S. company has brought allegations of cyberhacking into a trade dispute. 
BY SHANE HARRIS
A U.S. solar panel manufacturer whose business secrets were stolen by Chinese computer hackers has asked the U.S. government to investigate the matter, setting in motion a process that could see the United States impose trade penalties for the first time in response to state-sponsored cyber-espionage against an American company.

In a filing with the Commerce Department on Tuesday, July 1, the U.S. subsidiary of German company SolarWorld, which builds solar panels and equipment, asked officials to investigate allegations contained in a recent criminal indictment accusing five members of the People's Liberation Army with hacking the company's computers and stealing proprietary information. 
 
Prosecutors say that the hackers took SolarWorld's price lists, product designs, and communications between the company and its lawyers in a series of computer incursions that began in 2012.

"The [government of China's] theft of SolarWorld's trade and financial information has inflicted, and will likely continue to inflict significant and, as yet, unquantified harm on SolarWorld," the company told the Commerce Department. 
But the hackers weren't just after SolarWorld's product information. 
 
They also stole information about a trade case that SolarWorld has been pressing against Chinese solar panel manufacturers, which it accuses of unfairly dumping their cheap products in the U.S. market. 
The compromised information could give Chinese officials a peek at the evidence the company planned to use in its trade case.

"As the indictment makes clear, the focus of much of the cyber theft was related to SolarWorld's trade remedy cases against Chinese solar manufacturers," the company said. 
This suggests that the hacking has a "direct bearing" on the Commerce Department's investigation of Chinese dumping, which has been occurring for years.

SolarWorld's case appears to be the first time that a U.S. company has brought allegations of cyberhacking into a trade dispute. 
 
Under long-standing agreements, China is required to respond to questions from the United States as part of any investigation of unfair practices alleged by U.S. companies.
"We think it's extremely important for the Commerce Department to immediately investigate what occurred and what information was taken and to make clear that it will not tolerate cyberhacking of U.S. companies that file trade cases," Tim Brightbill, the lead counsel for SolarWorld and a partner at Wiley Rein LLP, said in an interview. 
"There's a need to have a strong precedent here."

SolarWorld wants Commerce Department officials to question Chinese officials and request documents about Beijing's cyberspying. 
 
The company wants any documents or communications that the hackers stole from SolarWorld, as well as any information that links the intruders, and by extension the Chinese military, to Chinese solar panel manufacturers. 
 
It's also asking for any agreements or consulting contracts between the People's Liberation Army (PLA) and Chinese solar companies. 
 
The criminal indictment against the five alleged Chinese hackers accuses them of passing information from the PLA to particular Chinese firms. 
 
In all, the indictment names six victims in the United States, four of which were companies in the midst of trade disputes with China when they were hacked.

Despite the voluminous evidence contained in the indictment, it's all but certain that the Chinese government will deny the hacking claims, as it has done consistently for years. 
 
If the Commerce Department deems China's response lacking, it could impose cripplingly high tariffs and import duties against Chinese solar goods, effectively blocking them from the U.S. market.
U.S. intelligence officials and corporate executives have long known that American companies are relentlessly hacked by spies working for the Chinese government. 
 
They steal all manner of proprietary data, including trade secrets and product designs, in order to give their firms a leg up on American competitors or to manufacture cheaper knockoffs. 
 
If the United States imposes stiff penalties as a result of SolarWorld's complaint, it would mark the first time that the United States has imposed an economic penalty for activity stemming from cyber-espionage.
"Companies here and in Europe have been hesitant to take any legal or political action in response to cyber-espionage for fear of annoying the Chinese," said Joel Brenner, who served as the top counterintelligence official in the U.S. government and was among the first to issue public warnings about Chinese cyberspying against American companies. 
"But state-sponsored espionage directed at the private sector has become so pervasive," Brenner said, "I think we're on the edge of a tipping point."

SolarWorld's request puts the Commerce Department in the unusual position of weighing whether state-sponsored economic espionage harms trade and free markets. 
 
Since unveiling its indictments against the five Chinese military hackers, Justice Department officials have taken great pains to distinguish spying on foreign officials, which they say is essential to protecting U.S. national security, from governments spying on corporations for economic gain, which they consider forbidden. 
 
A Commerce Department finding that Chinese cyber-espionage gives companies an unfair advantage would bolster the Obama administration's contention that governments shouldn't spy on foreign corporations to benefit their domestic industries.

"It is imperative ... that the Department further investigate the effects of the espionage on this proceeding and determine the extent of harm to SolarWorld's competitive position," the company's complaint states.

SolarWorld has been battling its Chinese competitors since 2011, when it first filed a complaint of unfair business practices. 
Chinese solar companies receive large subsidies from the Chinese government, which allows the companies to sell their products for less than it costs to make them, SolarWorld alleges. 
 
American solar panel makers cannot match Chinese companies' prices, forcing them to shutter factories and lay off thousands of workers, SolarWorld claims. 
The company has convincing data to back up that allegation. 
Imports of Chinese solar panels and cells skyrocketed from less than $100 million in 2006 to nearly $1.2 billion in 2010. 
U.S. manufacturers slashed their prices between 30 and 40 percent that year.

SolarWorld considers the hacking retaliation for the initial trade complaint, which it eventually won this year. Although the United States imposed duties averaging 31 percent on certain Chinese solar-materials manufacturers at the time, it could have gone much higher. 
But the duties did little to blunt Chinese dumping. 
 
Chinese producers "seized a loophole," SolarWorld alleges, and used a third country to carry out part of its solar panel production in order to evade the high duties. 
That led SolarWorld to open a new case, which is pending.