The Honorable Robert E. Lighthizer

United States Trade Representative

Office of the United States Trade Representative

October 9, 2018

can be used for quality control in the food industry, by separating and analyzing
additives, vitamins, preservatives, proteins and amino acids. Drug testing labs use our

products to find drug compounds in urine or other body fluids. Customs Agencies and

Health Agencies use these items to determine if a product is counterfeit or adulterated.

To learn more about Phenomenex products: http:/www.phenomenex.com.

To learn more about Agela products: http://www.bonnaagela.com.

Product Background

The history of chromatography spans from the mid-19th century to the
21st. Chromatography was used in the first decade of the 20th century, primarily for the
separation of plant pigments such as chlorophyll and carotenoids. New forms of
chromatography developed in the 1930s and 1940s made the technique useful for a
wide range of separation processes and chemical analysis tasks, especially
in biochemistry.

The timeline of the development of chromatography techniques is as follows:

e Partition Chromatography — 1938

e Thin Layer Chromatography ~ early 1940’s

e Paper Chromatography - 1947

¢ Gas Chromatography — 1952

e High Performance Liquid Chromatography — 1960s

e Affinity Chromatography - 1987


The Honorable Robert E. Lighthizer
United States Trade Representative
Office of the United States Trade Representative
October 9, 2018

Pursuant to 19 U.S.C. § 2411(b), the USTR is authorized to take “all
appropriate and feasible action . . . to obtain the elimination” of an “act, policy or
practice of a foreign country [that] is unreasonable or discriminatory and burdens or
restricts United States commerce.” (Emphasis added.) We respectfully submit that
imposing the additional duties on products manufactured by WFOEs in China cannot
be an “appropriate” means of eliminating China's harmful acts, policies and practices,
given that WFOEs are recognized in the Section 301 determination as the investment
structure least susceptible to forced technology transfers. For this reason, imposing
duties on goods manufactured by Agela, a WFOE in China is arguably inconsistent

with the authorizing statute, and may leave the USTR’s determination vulnerable to

being set aside upon judicial review.

2. PHENOMENEX IS A NET EXPORTER TO CHINA

Tariff will hurt Phenomenex in these ways, and consumers, and X% is imported
into China and Tariffs will hurt the exports to China and it will be further hurt by China
retaliation. One of the President’s main concerns reflected in the Memorandum to the
Trade Representative 82 (FR 39007) issued on August 14, 2017 was the US trade
deficit with China.

China has implemented laws, policies, and practices and has taken
actions...[T]hat may otherwise negatively affect American economic
interests. These laws, policies, practices, and actions may inhibit United
States exports, deprive United States citizens of fair remuneration for their
innovations, divert American jobs to workers in China, contribute to our
trade deficit with China, and otherwise undermine American
manufacturing, services, and innovation. [Emphasis added]


The Honorable Robert E. Lighthizer
United States Trade Representative
Office of the United States Trade Representative
October 9, 2018
Neither able to relocate the manufacturing of Agela products in an

economically feasible manner nor shift away our tariff burden, we will most likely have

»§ [|
a

Beyond quantifiable short-term losses in profits and personnel, these tariffs are
likely to stunt our business’s growth over the next 12 months by preventing us from
reinvesting our profits—both in the physical capital that allows our operations to
expand and in research and development activities that enable us to innovate our
products, processes, and services. At best, these missed opportunities for development
represent a temporary, if significant, setback for Phenomenex. Lz:
|

3. HEALTHCARE RELATED PRODUCTS HAVE NOT BEEN SUBJECT
TO TRADE SANCTIONS
Historically, healthcare related products have been excluded from trade
sanctions on imported goods. The additional 25% duty contradicts the spirit and intent
of the Pharmaceutical Tariff Elimination Agreement (PTEA). The PTEA eliminates
tariffs on all finished pharmaceutical products. In addition, Section 7202 of the Trade
Sanctions Reform and Export Enhancement Act of 2000 exempts healthcare related

goods sold to countries that the U.S. has deemed as risky from trade penalties imposed

° Ibid.
1 Tid.


The Honorable Robert E. Lighthizer

United States Trade Representative

Office of the United States Trade Representative
October 9, 2018

3. ASSESSING DUTIES ON THESE LOW-TECH PRODUCTS DO NOT
ACHIEVE THE USTR’S STATED OBJECTIVE IN THE SECTION 301
REPORT.

The manufacturing processes and the Filters, at issue in this petition display
none of the features of Intellectual Property Rights (“IPR”) violations outlined in the
Section 301 report. Specifically, Phenomenex has never been pressured to license or
transfer technology to any local Chinese firm, nor has it ever been required to take on
Chinese investors or to sell any assets to a Chinese company. Furthermore, our
computer systems in China have never been compromised or attacked in any way.

We believe our immunity to China’s aggression is due to the standard nature of
the Filters, which have been on the market for years and do not represent the cutting-
edge technology targeted by the Made in China 2025 initiative. The Filters do not fall
under any of the major product categories as strategically important or related to the
“Made in China 2025 initiative’. The Filters do not possess any new technology and
there are no patents involved in the production of these goods.

Furthermore, the Chinese government has shown a clear lack of interest in
Agela’s production processes in China, which are characterized by relatively simple
and conventional techniques and have remained largely unchanged. In stark contrast to
the novel and sophisticated R&D work done by our employees in Torrance, California.
Agela’s manufacturing and sourcing of Filters in China demands only average domain

knowledge and, at most, moderately complex equipment. From the perspective of the

6 In the Made in China 2025 initiative, China names the following focus industries: High-end digital
control machine tools and robots, aerospace equipment, ocean engineering equipment and high-tech
ships, railway equipment, energy saving and new energy vehicles, power equipment, new materials,
medicine and medical devices, and agricultural machinery.


The Honorable Robert E. Lighthizer

United States Trade Representative

Office of the United States Trade Representative

October 9, 2018

Phenomenex sales of its U.S. manufactured products in China (a
a ee ee Te
Phenomenex’s strong export performance is exactly what the President wants to
achieve as a way of reducing the U.S. trade deficit with China. By increasing the tariffs
on Agela products manufactured in China, Section 301 duties will deprive Phenomenex
of money it could re-invest in technologies in the U.S. that will lead to more cost-
efficient manufacturing techniques, better quality goods and an increase in U.S. exports
into China.

Another concern expressed in the USTR’s Section 301 Investigations were
China’s efforts to increase outbound investment in the United States. Specifically, the
investigation states:

USTR determines that the Chinese government directs and unfairly
facilitates the systematic investment in, and acquisition of, U.S. companies
and assets by Chinese companies, to obtain cutting-edge technologies
and intellectual property (IP) and generate large-scale technology transfer
in industries deemed important by state industrial plans.
Phenomenex has been proactive in increasing its market share of US Manufactured
Products in the Chinese market, by appointing Agela as its distributor in China. Rather
than using a Chinese owned distributor, Phenomenex now uses Agela, a WFOE as its
distributor. Section 301 duties on Agela products would only inhibit Phenomenex’s

strong export performance, which is one of the administration’s primary trade

objectives.

5 Business Confidential. The information would not be customarily released to the public, and
disclosure of the information would endanger trade secrets or profitability.


The Honorable Robert E. Lighthizer

United States Trade Representative

Office of the United States Trade Representative

October 9, 2018

new facilities to increase manufacturing capacity would take at least 9 to 12 months — a
huge delay in our operations and an enormous opportunity cost. Moreover, higher

wages in the U.S. would take their toll on our operating expenses, forcing us to either

produce far below our normal capacity or face a significant increase in costs. In

partic,
|. 4 ela, 2 WFOE, is the only facility

directly related to Phenomenex that is capable of manufacturing Filters, including those
for sale into the United States. Therefore, neither Phenomenex nor its US customers

can source all of these Filter products from anywhere other than Agela in China.

Unfortunately, several of our major customer’s contract terms do not permit us
to transfer these additional costs. Phenomenex’s business relationships with these major
customers are often governed by multi-year supply contracts, which strictly limit our
ability to increase prices. Even if we manage to change our contracts in the medium
term, transferring the tariff burden to our customers will surely result in further loss of
business in a globally competitive marketplace. If increases in pricing are passed-on to
the end customer, the purchases will take a larger proportion of the customer’s budget,
resulting in less availability for other purchases. This will have the additional effect of
allowing the end-user to purchase fewer, higher value, U.S. manufactured filters.

Fewer purchases from Phenomenex will have an effect on its manufacturing and

distribution facility in Torrance, California.

® Ibid.


(2 phenomenex’

breaking with tradition

411 Madrid Avenue / Torrance, CA / 90501-1430 / USA
Tel: 310-212-0555 / Fax: 310-328-7768

Email: info@phenomenex.com / www.phenomenex.com

PUBLIC VERSION

FILED VIA REGULATIONS.GOV

The Honorable Robert E. Lighthizer

United States Trade Representative

Office of the United States Trade Representative

600 17" Street Northwest

Washington, D.C. 20508

Subject: Docket Number USTR-2018-0025

Phenomenex Inc.’s Request for Exclusion of: Plastic Solid
Phase Extraction (SPE) Filters Used in Different
Chromatography Techniques Classified under HTS
Subheading $421.29.0065 from the Determination of Action
Pursuant to Section 301: China’s Acts, Policies, and
Practices Related to Technology Transfer, Intellectual
Property, and Innovation

Dear Ambassador Lighthizer:

Phenomenex, Inc. (“Phenomenex”) respectfully submits these written comments
in response to Docket No. USTR-2018-0025, Notice of Action and Request for Public
Comment Concerning Proposed Determination of Action Pursuant to Section 301:
China's Acts, Policies, and Practices Related to Technology Transfer, Intellectual
Property, and Innovation, 83 Fed. Reg. 28710 (Jun. 20, 2018). In particular, Phenomenex
respectfully requests the exclusion of the following SPE filters as referred under HTS
subheading 8421.29.0065: separation, purification and filtration products made of
polypropylene tubes packed with sorbent to be used in liquid chromatography analysis
(“Filters”) from the 8-digit line of products targeted by Section 301 tariffs. We have
provided a formal description of examples of these filters in Appendix A.

BACKGROUND

Phenomenex is a global life science company founded in 1982 and

headquartered in Torrance, California, USA. Phenomenex is committed to developing

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Belgium @
Canada ©
China ©
Denmark @
Finland @
France @
Germany ©
India @

Ireland @

ltaly @
Luxembourg @
Mexico @
Netherlands @
New Zealand @
Norway ©
Puerto Rico @
Spain @
Sweden @
United Kingdom ©

USA @

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The Honorable Robert E. Lighthizer

United States Trade Representative

Office of the United States Trade Representative
October 9, 2018

For the reasons stated in this petition, Phenomenex requests that the USTR
exclude certain filters under HTS subheading 8421.29.0065 from the list of goods subject

to the Section 301 tariffs.

Sincerely,

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The Honorable Robert E. Lighthizer

United States Trade Representative

Office of the United States Trade Representative

October 9, 2018

by the U.S. Section 7202 limits the President’s ability to impose unilateral sanctions
when it concerns medical or humanitarian aid. While our Filters are not considered
medical devices, they play a critical role in improving healthcare in the United States.

These past exemptions prove that public health initiatives will be at risk if trade

sanctions are imposed on these Filters.

By harming Phenomenex’s business, these duties will, inadvertently harm the
company’s extensive customer base—research universities, clinical and government
research laboratories and biotechnology and pharmaceutical companies, all use
Phenomenex’s Filters to further their cutting-edge research. While Phenomenex cannot
increase its prices in the foreseeable future, in the long run the company may have to
pass on part of the duty burden to its consumers-who will in turn, face higher prices for
the lab equipment that they use in their everyday research. It is also likely that higher

prices for research would increase costs in the medical sector.

CBP’S ABILITY TO ADMINISTER THE EXCLUSION
U.S. Customs and Border Protection can easily administer the exclusion. The
products are described under HTS subheading 8421.29.0065 as “Filtering or purifying
machinery and apparatus for liquids: Other; Other”. In addition, the manufacturer
identification (MID) codes (which are part of existing customs entry declarations) could
help ensure that only articles produced by the WFOE were entered under the exemption.
CONCLUSION
Over the past 30 years, Phenomenex’s products have won many industry awards
and have been used by researchers, food and beverage and pharmaceutical companies to

advance the future of scientific analysis and investigation.


The Honorable Robert E. Lighthizer

United States Trade Representative

Office of the United States Trade Representative

October 9, 2018

Chinese government, the Filters simply are not an attractive target for IP theft. None of
Agela’s physical or virtual systems in Tianjin have ever been compromised or attacked

in any way.

4. TARIFFs WILL CAUSE HARM TO PHENOMENEX’S BUSINESS
WITHOUT EQUIVALENT BENEFITS TO RELATED AMERICAN
INDUSTRIES.

The tariffs on Phenomenex’s Filters will have a severe impact on
Phenomenex’s business and could require the company to make changes to its
operational models. In addition, the financial burden associated with the additional
tariff will place a strain on our business, requiring us to make [several costly cuts (e.g.
further investment and headcount) to absorb the increased cost]’. Further, the
tariffs will cause harm on Phenomenex’s customers, who are in vital to America such

as pharmaceuticals and healthcare industries.

It is economically infeasible to set up a new manufacturing plant in a third
country because of the time and capital expenditures required. We estimate that such a
process—including relocation, process validation, and product qualification—would
take at least 18 to 24 months. In addition, any alteration of the manufacturing of Filters
will require validation pursuant to Phenomenex’s ISO 9001:2015 Certification —a

stringent, lengthy process that would most likely slow down our operations further.

Nor can we onshore our manufacturing in an efficient manner. First, our U.S.
manufacturing facilities in Torrance, California is already at capacity, with more than 2

shifts, and a new manufacturing plant expected to be operational in Q2 2019. Installing

7 Business Confidential, The information would not be customarily released to the public, and
disclosure of the information would endanger trade secrets or profitability.


The Honorable Robert E. Lighthizer

United States Trade Representative

Office of the United States Trade Representative
October 9, 2018

This exclusion would be easy for U.S. Customs & Border Protection (“CBP”) to
administer due to the classification of the product at this 10-digit level. CBP currently
enforces Chapter 99, HTSUS miscellaneous tariff measures as well as antidumping and
countervailing duty measures at the ten-digit level.

DISCUSSION

1. SECTION 301 DUTIES SHOULD EXCLUDE WFOES, SUCH AS
AGELA, AS IT IS INCONSISTENT WITH THE PURPOSE OF
SECTION 301 AND WOULD CAUSE HARM TO U.S. COMPANY’S
AND CUSTOMERS.

The entire goal of the Section 301 determination is to eliminate China’s policy
of forced technology transfers, including via compelled joint ventures or other
ownership restrictions. The Section 301 determination recognizes that the preferred
mechanism for non-Chinese companies investing in China is through a WFOE, rather
than through a joint venture (“JV”)*. Section II(B) of the Section 301 determination is
entirely focused on the extent to which China uses foreign-ownership restrictions as

part of a regime to obtain forced technology transfer.

In view of this, we respectfully submit that it would be illogical, unfair and
inappropriate to penalize companies which manufacture in (or source from) China
under conditions consistent with the end goals of the Section 301 determination (i.e., in

WFOESs, without involuntary technology transfers) in order to achieve those goals.

4 Section 301 determination at 27 (“Foreign companies typically prefer to invest in China through a
WFOE, rather than a JY, if the option is available. This preference often stems from concerns about
the loss of control over their valuable technologies.”).


The Honorable Robert E. Lighthizer
United States Trade Representative
Office of the United States Trade Representative
October 9, 2018
As you can see, Phenomenex is importing products with technology developed 40

to 80 years ago. There is no threat to US technology and these products are not

representative of the cutting-edge technology targeted by the Made in China 2025

initiative.

Product | Tariff Code Picture Description

Type

Plastic 8421.29.0065 Plastic SPE Cartridges/Tubes — Solid

Solid Phase Extraction cartridges are made of

Phase high purity polypropylene plastic and

Extraction filled with silica (common sand) used in

Tubes sample preparation techniques that

with silica concentrates and separates analyte. An

(aka sand) analyte is the substance whose chemical
constituents are being identified and
measured,

APPENDIX B: ANNUAL QUANTITY AND VALUE OF IMPORTS

TYPE TARIFF ANNUAL QUANTITY AND VALUE
2015 | 2015 2016 | 2016Import | 2017 2017 Import
QTY | Import QTY | Value (est) QTY Value (est)

(est) | Value (est) | (est) | (est)
Phstic | | | a pil

Solid
Phase
Extraction
Tubes
with silica
(aka sand)



The Honorable Robert E. Lighthizer

United States Trade Representative

Office of the United States Trade Representative
October 9, 2018

Phenomenex is grateful for the administration’s ongoing efforts to curb China’s
unfair trade practices. For decades, China’s policies of licensing restriction, forced
technology transfer, and cyber theft have undermined U.S. global competitiveness and,
more generally, subverted international norms of intellectual property (“IP”) protection.
As a leading supplier of chromatography consumables, Phenomenex stands to benefit
from robust IP Enforcement. Such policies safeguard our innovations and business assets
and allow us to expand our operations, develop our staff, and re-invest our profits in
research and development (“R&D”) activities that help us refine, innovate, and pioneer
critical products. The benefits of IP protection, however, extend beyond our firm’s
interests. Strong IP laws also protect American consumers, foster a safe environment for
American producers to conduct business, and further U.S. technological leadership in the
global arena.

However, we are concerned that the particular set of tariffs imposed on our
products do not serve the purpose of the USTR’s Section 301 investigations. To the
contrary: it puts our business at considerable risk without providing equivalent benefits
to American manufacturers and consumers. In the long run, we fear that these tariffs will
stymie the production of a whole category of goods instrumental for research and
discoveries in the life sciences and many other significant industries. Given significant
evidence for China’s lack of interest in Phenomenex’s products and processes, we
contend that such costs represent an imposition fully at odds with the administration’s
desire to protect and promote American entrepreneurship.

Accordingly, we respectfully request that these items classified in the 10-digit

tariff provisions detailed below be excluded from the above-referenced USTR action.


The Honorable Robert E. Lighthizer

United States Trade Representative

Office of the United States Trade Representative

October 9, 2018

novel analytical chemistry solutions that solve the separation and purification
challenges of researchers in industrial, government, and academic laboratories. From
drug discovery and pharmaceutical development, food safety to environmental analysis,
Phenomenex chromatography products, technical services, and chemical reference
standards accelerate science and help researchers improve global health and well-being.
Phenomenex was acquired by Danaher Corporation] (“Danaher”) in November 2016.

Currently, Phenomenex employs 550 employees in its US headquarters with a total of

800 globally that sell and support U.S. manufactured Phenomenex-brand products.

Tianjin Bonna-Agela Technologies Co., Ltd. (“Agela”), a manufacturer and
supplier of chromatography products and general lab supplier in China, was acquired
by Danaher in 2016 and is a wholly foreign-owned enterprise (“WFOE”). Due to
Agela’s synergies with Phenomenex, in the beginning of 2018, Agela began reporting
under Phenomenex and Phenomenex began importing Agela products into the
U.S’. Agela and Phenomenex together provide their customers access to a larger

portfolio of chromatography separation products and purification and preparation

instr,
ee

! Danaher Corporation is a Fortune 500 company, publicly traded and listed on the New York Stock
Exchange as DHR.

2 Note: Prior to January 1, 2018, Agela products were primarily imported into the U.S. by Bonna-
Agela Technologies, Inc., a subsidiary of Agela and a Danaher company.

3 Business Confidential. The information would not be customarily released to the public, and
disclosure of the information would endanger trade secrets or profitability.


The Honorable Robert E. Lighthizer

United States Trade Representative

Office of the United States Trade Representative
October 9, 2018

APPENDIX A: PRODUCT DESCRIPTION

Chromatography is the most widely used technique for separation of mixtures.
Various applications of chromatography techniques are used across industries such as
pharmaceutical drug discovery (pharmaceutical companies, life science research,
Clinical Research Organizations, etc.), food and beverage, forensics, oil & gas,
chemicals, sports, polymers, and medicine.

Chromatography accessories and consumables constitute instruments and
laboratory equipment which together complement chromatography systems.

To more easily understand how our separation, filtration and purification products are
used in our daily life, an example would be Pharmaceutical/Biopharmaceutical drug
discovery and development. Phenomenex sample preparation, chromatography and
filtration products are a critical part in the purification and characterization of drug
candidates, as well as quality control of said drug products. They are a critical part of
the workflows used to determine the purity and stability of therapeutic drugs and are
important in monitoring drugs inside of patients. Pharmaceutical manufacturers and
environmental testing laboratories also look for trace quantities of contaminants such as

PCBs in waste oil, and pesticides such as DDT in groundwater.

Organic food has become an important part of the diet of many Americans.
Our products would be used to identify pesticides that are used on produce to see if it
meets USDA requirements for labeling as organic. The Environmental Protection
Agency uses our products to test drinking water and to monitor air quality.

Forensics labs use our products to assist identify the precise chemicals

contained in unknown samples recovered from a crime scene. In addition, our products