US imposes countervailing duties on China
This column will appear in early December, as much of the world's tire industry is in Shanghai for the Reifen China 2014 rubber tech fair.
I'll be there and I know what the main topic of conversation is going to be: The dual impact of countervailing duties and anti-dumping measures brought by the United States Government on light vehicle tires made in China.
This is the most recent in a series of duties imposed by the United States on China-made tires. Prior to this, the most recent set of duties applied to off-road tires (OTR) made in China, where the United States imposed duties in 2008 and these were renewed at a Sunset Review in 2013. In that review, the US Commerce Department named 50 different Chinese OTR tire importers. Antidumping duties varied from 5.1% to 12.83%. Most of the named companies suffered rates at the top end of this spectrum. Any company not specifically named was hit with anti-dumping rates of 210.48% of the nominal value.
This OTR issue has added to the confusion in the market about these two separate measures on passenger car tires. In June 2014 a union (United Steel Workers or USW) filed two petitions with the US Department of Commerce in relation to China-made passenger car and light truck tires. The allegations are separate and each petition can lead to a separate application of duties on Chinese imports.
One alleged up to 39 unfair subsidies from the Chinese government to Chinese tire makers and called for countervailing duties to redress the balance on these subsidies. The other alleged dumping by China tire makers – that is to say the sale of products on the US market below a fair value. That one called for anti-dumping duties to be applied to Chinese imports. The US Department of Commerce took a month or so to consider these petitions and in July began two separate investigations.
Countervailing duties imposed
America's International Trade Administration (ITA) issued its preliminary ruling on the first petition (countervailing duties) on November 24th (find the summary here)
To summarise, the ITA found that the Chinese government has been assisting Chinese tire makers with financial support and subsidies. They calculated that the subsidies amounted to 15.69 percent of value for most China-made tires, except for three companies, as follows:
• GITI Tire (Fujian) Co., Ltd., 17.69%
• Cooper Kunshan Tire Co., Ltd., 12.50%
• Shandong Yongsheng Rubber Group Co., Ltd. A punishing 81.29%
Not only is the duty effective immediately, but it is also retro-active for up to 90 days prior to the official announcement. It is scheduled to last for 5 years, but can be extended for a further 5-year period. These decisions are scheduled to be confirmed in early April 2015. The ITA is a unit of the US Department of Commerce. These duties are at the discretion of the US government. China has no recourse to international courts or institutions to dispute the ruling.
Anti-dumping duties under investigation
The second investigation – into alleged dumping-- is due to report its finding in January 2015.
USW originally petitioned that China is dumping tires that are as much as 88% percent below fair market value. Everyone in the industry makes the assumption that the ITC will find against China. Analysts estimate that the ITC is likely to impose anti-dumping duties of the order of 30%. This however, will have to be enacted through the International Trade Commission which is linked to the World Trade Organisation (WTO).
China has the option to dispute any anti-dumping duties the the WTO but the chances of success are limited, However, the process is likely to take six months or so. When the US imposed anti-dumping duties in 2009 China did dispute the ruling, but the WTO upheld the US position.
Cumulative duties will affect China tire makers
The two duties are additive and in addition to an existing duty of 4%. So from January Chinese-made car tires are likely to attract duties of 50% or more. Despite protests from some of the more aggressive China tire makers, this will have a significant impact on China's tire industry. The United States is the biggest export market for China's tire makers. China exports around half the tires it makes, but of that the United States represents the destination of around 36% of all PCR exports.
Three companies – Qingdao Sentury (Landsail and Delintê brands), GiTi (GT Radial, Primewell) and Yongsheng (Deke, Rocks and Rotalla) are heavily exposed to the US market with over 50% of their exports going to North America. None of these companies has a manufacturing base outside China, so their business will be significantly impacted. I outlined my own views in this column last July after the petitins were announced. I think they are entirely misplaced and wrong-headed. We saw he results of duties in the 2009 – 2011 period. Consumers paid more and big tire makers made more profit. We'll see the same again this time around.
Local comment suggests that any combined duty over 50% will kill off exports to the United States. I wonder where those tires will go. Europe perhaps? Let's see what the Chinese have to say in Shanghai. And if you are there – give me a call and we can meet up!