DIRECT DIAL/EMAILDMurphy@GDLSK.com

Dear Mr. Tsao:

In response to published notice,[footnoteRef:1] on behalf of Staples Contract and Commercial LLC, 500 Staples Drive, Framingham, MA 01702 (“Staples”), we respectfully request that certain automated guided vehicle (AGV) products used in distribution centers be excluded from the additional duties for the following reasons: [1:   Procedures to Consider Requests for Exclusion of Particular Products from the Determination of Action Pursuant to Section 301: China’s Acts, Policies, and Practices Related to Technology Transfer, Intellectual Property, and Innovation (Docket Number USTR–2018–0025), 83 Fed. Reg. 32181 (July 11, 2018).  ] 

· Staples has no alternative source for supply, in the United States or elsewhere, for these products;

· Staples will suffer economic harm to its significant distribution operations in the United States, resulting in price increases for businesses that rely on Staples for their workplace solutions, and reducing Staples’ ability to create jobs by investing in new warehouses; and

· Staples’ relationship with the supplier of these products does not implicate the concerns raised by China’s technology strategy.

Staples is the purchaser of these products in the United States following importation from China. Staples does not resell the product after importation.  As such, please note that in response to Question 11 of the Form to Request Exclusion of Product, the gross sales amount is zero percent.  

These products are classified under Harmonized Tariff Schedules of the United States (HTSUS) subheading 8427.10.8060, which provides for “fork-lift trucks; other works trucks fitted with lifting or handling equipment: Self-propelled trucks powered by an electric motor: Other: Automated guided vehicle (AGV).”  Parts and components of the products are classified under HTSUS 8431.20.00 00 which provides for “parts suitable for use solely or principally with the machinery of headings 8425 to 8430: Of machinery of heading 8427.” 

Staples helps businesses work better by providing industry-leading products, services, and expertise across office supplies, facilities, breakroom, furniture, technology, promotional products, and print and marketing services. Headquartered near Boston, Massachusetts, Staples supports businesses of all sizes in the United States and Canada, with fast delivery capabilities across multiple channels, including direct sales, e-commerce and mobile. Staples currently has [__] distribution centers in the United States, with each one employing between [__] and [__] people, forming the backbone of Staples’ supply chain operations.

# PRODUCT Description

The products in question are components of a modular storage fetching system for inventory distribution centers, known as automated guided vehicles (AGVs). The components are imported together as a whole to form the [             ] model of AGV. The [           ] AGVs include a retrieval mechanism to pick batches of inventory from warehouse shelves into a cart, and a transport mechanism to move the cart to stations where Staples employees can assemble the inventory into specific orders for shipment to customers. The [         ] AGVs optimize the stations to allow employees to process a greater number of orders in a given amount of time, allowing Staples to compete from an efficiency perspective with Amazon and other large distributors. The [             ] AGVs also reduce the distance an employee has to walk on a given shift and save employees from having to move larger pallets from point to point within the warehouse, resulting in improved workplace health and safety. Staples’ employees are excited to be a part of implementing this next-generation solution. As detailed below, Staples is creating in the United States the intellectual property necessary to integrate and deploy the [________] AGVs in its warehouse environment, and retains full ownership of those developments.  

# THE EXCLUSION CAN BE EASILY ADMINISTERED

The items can be identified by U.S. Customs & Border Protection based on the following factors on each customs entry.  

· **Importer:** Great Star Industrial USA, LLC, 9836 Northcross Center Court, Huntersville, NC 28078, [IOR No. ___________]

· **Seller:**Hangzhou Great Star Industrial Co., Ltd, No. 35, Jiuguan Road, Juibao Town, Hangzhou, Sheijiang Province, China 310019.  MID: CNHANGREHAN.

· **Manufacturer:** Zhejiang Guozi Robotics Co., Ltd, 66 Dongxin Ave Building 4 Floor 5, Hangzhou, Zhejiang, China 310053.  MID: CNZHEGUO66HAN.[footnoteRef:2] [2:  The MID was formerly CNZHEGUO309HAN.] 

· **Ultimate Consignee:** Great Star Industrial USA, LLC, 9836 Northcross Center Court, Huntersville, NC 28078, [IOR No. ______________]

· **Model Number:** [_______________]

# the products are not available to staples from any other source

Staples began experimenting with AGVs in its warehouses in 2005, with Kiva Systems, Inc. (“Kiva”), acquired by Amazon.Com, Inc. (“Amazon”) in 2012, as the supplier. In 2015, Kiva changed its name to Amazon Robotics, LLC and it became increasingly clear that (i) AGVs would be critical to fulfilling shipments to customers at a similar speed and cost to Staples’ competitors, including Amazon, and (ii) Amazon would no longer sell the Kiva AGVs or support those already purchased by other distributors, which Amazon confirmed in writing in early 2018.    

As a result, Staples ramped up its AGV deployment strategy and undertook a thorough search for alternative suppliers, including multiple manufacturers based in the United States.  Staples found that the only vendor offering a combination of manufacturing capabilities and expertise in AGV dispatch systems comparable to Kiva, was Great Star Industrial USA, LLC and its affiliated Chinese manufacturing operations (“Great Star”).  For example, start-up companies in the United States like Locus Robotics, 6 River Systems, and Fetch might be able to address the transport functionality of the AGVs, but not the retrieval aspect.  In addition, Great Star has been building AGVs across many different industry applications for a decade, and Staples believes any other supplier would require roughly $100 million in capital investment to match their manufacturing capabilities.   

On [_________], Staples and Great Star entered into a [____] supply and maintenance contract, which can only be terminated for [___________________________ __________________________________________].  The parties committed to a long-term relationship due to the investment necessary to jointly develop the hardware, software and systems for integrating Great Star’s AGVs into Staples’ warehouses.  The parties have collaborated to create a solution where the technology owned by Staples, together with Great Star’s AGV technology such as chassis technology, traffic control, safety systems, and charging, is crucial for performance and product continuity in Staples’ supply chain.  Staples is therefore contractually bound to source the AGVs from Great Star, and cannot procure them from any other supplier. 

Even if Staples was not contractually prevented from engaging an alternative supplier (if such supplier even existed), Staples estimates that it would still take until [___], along with significant capital expenditure, to develop the alternative technology required for any other AGVs to operate in Staples’ warehouses.  Staples has recently deployed AGVs in warehouse locations in [___________________], with planned deployments in [____________________________________].  Staples would simply be unable to source the AGVs from any other supplier in the next [_____________], as required to maintain competitiveness in its supply chain.

# the 301 Duties will cause economic harm to united states businesses

Based on the long-term contract with Great Star, an initial [____] AGVs [____________________] were supplied in 2017.  Staples did not import this product prior to 2017. For 2018, Staples will acquire [_________] AGVs at a cost of [$____________].  Staples projects that it will purchase [__________] AGVs through [___] at an estimated cost of [$_________].  The additional duties will increase Staples’ cost for these AGVs by [$____________] in 2018 and [$________] through [____].  Please note that these projections are based on actual historical costs; costs may vary in 2018 and in the future.  

Staples would have no choice but to pass on these duties in the form of price increases to its customers.  As described above, Staples must purchase the AGVs to stay competitive with Amazon and other distributors, and can only source them from China.  Notably, Amazon would have a significant cost advantage and unfair competitive edge if the additional duties are imposed, since it has exclusive access to the former Kiva products.  Staples’ customers include United States businesses of all sizes across many industries, and raising prices for the solutions that Staples provides would either harm Staples’ business or harm its customers, reducing economic growth in both cases.  

The duties would also force Staples to cancel or delay its investment in additional warehouse space in the United States, and impact its ability to create jobs.  In 2018, Staples has built [____] large distribution centers in [____________] costing over [$________] for each building.  These investments require using newer AGV technology to build the foundation for next generation fulfilment so that Staples can continue to stay competitive with Amazon and other competitors.  These new distribution centers will generate more local employment, provide well-paying jobs, and foster community growth.  

Staples does not believe that employment in warehouse operations has been stunted by the increasing use of AGVs.  According the Bureau of Labor Statistics, overall employment in warehousing and storage industry has increased steadily from 622,000 in January 2010 to 1.014 million in January 2018, or a 36.6% increase.  Additionally, as the labor market has tightened significantly over the past 24 months, the health and safety benefits of a modern warehouse supported by AGVs and related training opportunities would be attractive in securing needed employees.  Subjecting the AGVs to the duties would cause economic harm by hampering Staples’ business growth and burdening its ability to invest in additional warehouses, thereby also reducing job creation. 

In summary, the duties would delay or prevent Staples’ plans for modernization of its remaining [____] distribution centers over the next [____] years, reducing associated investments across the United States; negatively affect prices offered to U.S. businesses, impacting Staples’ ability to compete effectively with Amazon which would have an unfair advantage through its exclusive access to the Kiva AGV technology; and hurt new job creation in the states where Staples operates its distribution centers and where its customers do business. 

# THE [____________]AGVs DO NOT IMPLICATE CHINA’S TECHNOLOGY STRATEGY

Staples is well aware of the United States Trade Representative’s findings of its investigation into China’s acts, policies and practices related to technology transfer, intellectual property and innovation.  However, none of those acts, policies and practices are involved in the case of the AGVs.  Great Star informed us that there is no government ownership of Hangzhou Great Star Industrial Co., Ltd or Great Star Industrial USA LLC, and that Hangzhou Great Star stock is and has been traded on the Shenzhen exchange since 2010.  Great Star further informed us that the [____________] AGVs are not related to the “Made in China 2025” program, that Hangzhou Great Star has not received and does not receive any Chinese government support under the “Made in China 2025” program or any other Chinese government program, and that Great Star developed the technology for the [___________] AGVs independently of any U.S. technology. 

In addition, Staples is not attempting to do business in China when it comes to the [___________] AGVs, and is therefore not subject to any foreign ownership restrictions or technology transfer requirements.  Similarly, there is no outbound investment from China to the United States, and Staples believes the deployment of the AGVs in its distribution business is not strategically important to the Chinese government’s industrial policy objectives.  Neither is there any cyber-theft of intellectual property or sensitive commercial information related to the [_____________] AGVs.  Staples is merely buying products that are manufactured in China, from a supplier whose manufacturing activities pre-date, and are far broader than, its relationship with Staples.  As noted above, the duties will only harm businesses in the United States, and will not have a negative or deterrent impact on the Chinese manufacturer, as Staples is contractually obligated to buy the [____________] AGVs only from Great Star. 

More importantly, Staples was not subjected to any mandatory adverse licensing terms due to China’s technology regulations.  The contract with Great Star provides that Staples will own the intellectual property developed to integrate the [_____________] AGVs into the warehouse environment, including but not limited to [__________________________] (the “Staples IP”).  The Staples IP is necessary to deploy the [____________] AGVs in an inventory distribution center, and Staples negotiated and will negotiate licenses to the Staples IP on an arms-length basis.  

In conclusion, because the [____________] AGVs in question can only be sourced from Great Star through [____]; the duties could cause severe economic harm; and the products are not strategically important, Staples requests that these products be excluded from the application of the 25% duty effective July 6, 2018.  

**CERTIFICATION**

We are requesting business confidential treatment, and hereby certify that disclosure of the information would endanger trade secrets or profitability, and that the business confidential information bracketed above is not customarily be released to the public.

Please contact us if you have questions about this submission.

Respectfully submitted,

GRUNFELD, DESIDERIO, LEBOWITZ, SILVERMAN & KLESTADT LLP

David M. Murphy

Tracey T. Gonzalez

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