Contributing Lawyers

Canada

Cyndee Todgham Cherniak

United States

Susan Kohn Ross

Australia

Andrew Hudson



China Rubber Dispute

On June 18, 2009, the International Trade Commission (ITC) made a finding of market disruption related to certain passenger and light truck tires imported into the U.S. from China. As a result, the ITC recommended on June 29, 2009 that for a three-year period, the President should impose a duty, in addition to the current duty rate. That surcharge should be 55% in the first year, 45% the second year and 35% the third year. The ITC also recommended expedited Trade Adjustment Assistance. The action was brought under Section 421 of the Trade Act of 1974, 19 U.S.C. 2451, which at (b)(1) provides:

"Upon the filing of a petition by an entity described in section 2252(a) of this title, upon the request of the President or the United States Trade Representative … , upon resolution of either the Committee on Ways and Means of the House of Representatives, or the Committee on Finance of the Senate … or on its own motion, the United States International Trade Commission … shall promptly make an investigation to determine whether products of the People's Republic of China are being imported into the United States in such increased quantities or under such conditions as to cause or threaten to cause market disruption to the domestic producers of like or directly competitive products."

Notably, under this provision, the ITC is not asked to make a finding of unfair competition in the form of sales at less than fair value (antidumping) or that an improper subsidy is being paid to the exporting company by its home government (countervailing duty), just that the market has been disrupted. Equally notable is the fact it was the United Steelworkers which brought the petition and it was not joined by the tire companies or the tire workers. President Obama makes the final decision on such petitions and his decision is due at the end of September.

In response, the China Rubber Industry Association (CRIA) is fighting back. In materials being circulate by its U.S. public relations advisors, CRIA is making points such as: 

1) "Not a single US tire manufacturer has joined the union in their Section 421 efforts."

2) :The USW simply demands the White House restrict trade because they believe "organized labor" now has an ally in the Oval Office who will support them regardless of the legitimacy of this particular claim or its potential outcomes."

3) "We hope the USW is wrong."

4) "We urge President Obama to make a principled choice to reject this restrictive effort to subvert trade law and make China a scapegoat. China had no part in the process that led US tire manufacturers to decide over a decade ago to stop manufacturing entry-level tires in the US. These same companies have made clear that they still have no plans to manufacture entry-level tires in the US. Their decision to abandon entry-level manufacturing allowed others from around the world to fill this void." 

5) "Most importantly, it is well-known that China’s entry-level tire imports simply don’t compete with US-produced premium tires. Sales of US-produced premium tires is affected by the woes of American automakers and recent high gas prices, not imports of entry-level tires from China, Mexico, South Korea or anywhere else."

6) "This is the first protectionist action aimed at a product that is widely used by individual consumers. President Obama’s rejection of this bid will protect American families. A price increase on entry-level tires will hit low-income families hardest. These families might even defer replacing worn tires – not a good thing for highway safety."

7) "According to the International Trade Commission’s report to the President, the "USW tariff" will likely not have the intended effect of adding a single USW job; however, independent studies suggest that 25,000 other American workers will be victimized by losing their jobs as a direct result of this politically-motivated and ill-conceived attempt to manipulate US-China relations."

8) "This attempt seems aimed at forcing the White House to redefine its China strategy into a policy of confrontation instead of cooperation. Rejection of the 421 petition will send a strong signal that President Obama is committed to the balanced and cooperative approach necessary to keep the US and world economies growing—something that is front-of-mind for all American workers, consumers and job-creators."

9) "We in China look to President Obama for his international leadership. His pending Section 421 decision will indicate the type of leader he wants to be."What do the Steelworkers say? From their website we learn "Leo W. Gerard, USW international president, declared: "American workers are struggling to make it through the worst economic crisis in 80 years. Our tire industry is collapsing under the weight of 46 million Chinese tires entering our shrinking market annually.""

In his testimony before the ITC, USW International Vice President Tom Conway said: "First, opponents put great weight on their theory of attenuated competition between Chinese and U.S. tires based on three supposed "tiers" in the market. The Commission found there was one problem with this argument: there are no facts to support it."
• "The information in the record does not support their claim that competition between U.S.-produced tires and the subject imports is attenuated."
• "There is significant competition between the subject imports and domestic tires in the U.S. market."
• "Shipments in 2008 of both domestically produced tires and subject imports from China … fell into all three categories."" He then goes on in some details to address each of these points further. His testimony can be found at http://www.usw.org/media_center/speeches_interviews?id=0018. Mr. Conway then closes with the following testimony: "A meaningful tariff on imports will enable the domestic industry to sell more product at more competitive prices. This will allow companies to attain a reasonable level of profitability so that they can sustain American jobs and communities, all at a minimal cost to consumers. And that is exactly how section 421 was intended to work." 

Against this backdrop, trade associations and other industry groups view this effort by the USW as a slippery slope. If successful, it might lead to safeguards being imposed on a wide range of products just as the American consumer is trying to recover from the devastating effects of the current economic climate. Products made in China are to be found everywhere. What would happen if their cost rose dramatically? What sort of retaliation by China would follow? Would other countries undertaken similar steps to restrict trade? Could protectionism be far behind? What else might happen to hinder the sorely-needed economic recovery?

USTR was to provide its recommendation by September 2nd. No word yet on whether that recommendation has been made or what it contains. There is a G-20 meeting in mid-September. Surely President Obama will have issued his decision by then. 

Good arguments are being made by both sides. The question for the public to consider is which side has the more solid argument and how will the political ramifications of our relationship with China influence the final outcome. How much of the American tire makers abandoning the lower cost tires had to do with changing worldwide manufacturing relocations and how much had to do with company bottom lines? If you decide it was all about profit, will validating the high tariffs proposed really make a difference to U.S. tire makers? Do we really expect they will start making tires in the U.S.? What are the odds these tires will be made somewhere other than China?

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