China's tire industry faces adjusted anti-dumping and countervailing duty (CVD) rates imposed by the U.S. Department of Commerce on passenger vehicle and light truck tires, according to a Federal Register notice announced on August 10. Anti-dumping rates range from 14.35 percent to 87.99 percent, while countervailing duty rates vary between 20.73 percent and 116.33 percent.
Among those tire makers, Shandong Yongsheng Rubber Group Co. Ltd., receiving a final CVD rate of 116.33 percent, will suffer the most. Giti Tire Global Trading Pte Ltd. and six other Giti-affiliated companies will see their anti-dumping duty rates raised from 29.97 percent to 30.74 percent. However, the CVD duty rate for Giti Tire (Fujian) Co. Ltd. will decrease to 36.79 percent from 37.2 percent.
"The cheap prices of Chinese tire products in the U.S. market are not manipulated, but decided by the market itself," said Jiang Yun, a tire industry analyst with consulting firm SCI Group, when interviewed by International Financial News. "The action by the United States is just to protect their domestic industries."
Xu Wenying, Secretary General of the China Rubber Industry Association (CRIA), said the anti-dumping and CVD duties imposed by the United States will seriously affect not only China's tire industry. More than 200 companies with a value of $3.37 billion will be affected along with 350,000 workers in the tire industry and at least 1 million workers in the upstream and downstream industries, according to Xu.
A frequent target
China's tire industry has faced anti-dumping and CVD sanctions from the United States before. Liu Danyang, deputy head of the Trade Remedy and Investigation Bureau of the Ministry of Commerce (MOFCOM), said since China's accession to the World Trade Organization (WTO) in 2001, the country has become the prime target of anti-dumping investigations for 14 consecutive years and the prime target of CVD investigations for nine consecutive years. In 2014 alone, China was subjected to 97 CVD and anti-dumping investigations, with the tire industry being one of the industries suffering the most.
The United States imposed punitive duties on imports of Chinese passenger vehicle and light truck tires from September 2009 to September 2012, raising the tariff rate from 4 percent to 35 percent in the first year, then down to 30 percent in the second and 25 percent in the third year.
After that, the Chinese tire industry had expected to gain relief from such high tariffs but instead has been faced by new sanctions from the United States. On July 14, the U.S. International Trade Commission said in a final ruling that the U.S. tire industry is materially harmed by Chinese tire imports that the Department of Commerce has determined are subsidized and sold in the United States at less than fair values.
"To those companies suffering duties of nearly 200 percent, the door of U.S. market is almost closed," said Bai Ming, Deputy Director of the International Market Research Department of the Chinese Academy of International Trade and Economic Cooperation (CAITEC). "With tariffs doubling the product price, their products will be completely uncompetitive in the U.S. market."
"It is predictable that sales revenues of most Chinese tire companies will decline," an anonymous executive of a Chinese tire company told International Financial News. He is concerned that exports of Chinese tires will fall appreciably because of the anti-dumping and CVD duties.
The adverse impact on tire exports has been evident since the United States began anti-dumping and CVD investigations against Chinese tire manufacturers in June 2014. According to the figures from the SCI Group, between January and May, exports of Chinese passenger vehicle tires declined 23.8 percent from the same period of the previous year. Of the total exports, tires sold to the United States dropped by 40.7 percent year on year.
Statistics from the Ministry of Industry and Information Technology show that in the first half of 2015 both output volume and prices declined across the tire industry, for which the slowdown in China's economy and the anti-dumping and CVD investigations by the United States are to blame.
China's passenger vehicle and light truck tire manufacturers are highly reliant on the U.S. market. According to the CRIA, 40 percent of China's tire output is exported, with the U.S. market receiving 25 percent of the exports.
The position of the U.S. market for China's tire exports has been changing due to the anti-dumping and CVD duties. Figures from the General Administration of Customs for the first half of 2015 show tire exports to the European Union surpassed those to the United States for the first time, with 48.7 million tires, a year-on-year increase of 7.7 percent.
"Once exports to the United States shrink, the overcapacity problem for the tire industry will be exacerbated," said Zhang Qing, an analyst with First Futures Co. Ltd.
Jiang also believed that the reduction of exports to the United States will also intensify the problem of overcapacity in China's tire industry. "Domestic producers have already recognized the problem, and started industrial reorganization to eliminate outdated production capacity. Expansion of some domestic tire companies has been significantly reduced," said Jiang.
Jiang suggested Chinese tire companies increase exports to developing countries in Africa and Southeast Asia.
In the face of frequent anti-dumping and CVD investigations by the United States, China's industry and government are becoming increasingly capable in their response. For example, on May 19, the U.S. International Trade Commission determined that 53-foot dry containers from China do not materially retard the U.S. industry and so no anti-dumping or CVD orders will be issued.
Shen Danyang, spokesman for the MOFCOM, said it is the first case in 2015 where Chinese companies have successfully defended themselves in a U.S. trade remedy case, which will encourage Chinese companies to respond actively in the future.
Zhang said Chinese tire companies must also be united in their response while at the same time making adjustments to their product structures.
Bai at the CAITEC said the anti-dumping and CVD investigations against Chinese tires are not beneficial to the U.S. industry.
"Against the background of economic globalization and the emergence of more international industrial conglomerates, trade protectionism adopted by the United States is contradictory to the WTO rules. Such protectionism will not only damage the legitimate interests of Chinese companies but also make U.S. companies and consumers suffer unnecessary losses," he said.
Chinese companies have gained advantages in the middle range and low end of the U.S. market, according to Bai. Even if the United States restricts the sale of Chinese tires, similar products from other countries will soon fill the gap in the market. High-end U.S. products will remain uncompetitive.
Zhang believes the trade remedy investigations against Chinese tires present an opportunity for the Chinese tire industry.
"The industry used to be highly reliant on the U.S. market, which is very dangerous, and exports with low prices and low technology content cannot continue forever," he said.
The trade remedy action by the United States has forced Chinese companies to realize that only with products of high added value can they have a greater say in international markets.
Copyedited by Calvin Palmer
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