Commercial Business

On Tariffs: 'The Domestic Industry Does Not Need and Is Not Deserving of Protection'

Posted on January 26, 2017

This week, the International Trade Commission (ITC) heard testimony from all sides related to imposing tariffs on truck and bus tires from China. Tire manufacturers in China clearly have a stake in the issue, and the trade association representing them brought their issues to Washington, D.C.

The ITC is scheduled to make its final tariff decision on March 6.

Below are the opening comments from the Jan. 24, 2017, hearing from Max Schutzman, an attorney representing the China Rubber Industry Association. Schutzman's opening statement appears below in full, and is unedited.

"Good Morning. My name is Max Schutzman of Grunfeld, Desiderio, and we are here representing Chinese respondents. This is the 3rd investigation involving tires from China the Commission has adjudicated in the past approximately 8 years — Off-the-Road-Tires in 2008, Passenger Vehicle and Light Truck (PVLT) Tires in 2015, and now Truck and Bus (TB) Tires. Each of the first two investigations involved considerably different products and businesses, and the instant investigation is no exception. The TB tires industry is nothing like the PVLT tires industry, and the differences are critical to your determination.

"Consequently, you will hear from respondents’ witnesses that when a purchaser buys a premium truck tire from one of the Big 3 — Goodyear, Michelin and Bridgestone—it is not just buying a tire. It is buying a confluence of assets and benefits that accompany the purchase of that tire. This includes a substantial nationwide service and distribution network, extended tire and casing warranties, national account programs, company-owned and/or authorized retread facilities, prominent OEM business, tire tracking software systems, automated tire pressure monitoring systems, and a large nationally-available inventory. Even the better quality Chinese origin TB tires have very few if any of these attributes, and the one-time use Chinese tires at the bottom of the market have none of them. Because of this, there is no competition between Chinese origin tires and premium American made tires, and even at the so-called Tier 2 level, which includes Firestone, BFGoodrich and Continental brands, competition is virtually non-existent.

"Retreads have been expressly excluded from the scope of this investigation, but they clearly should not be excluded from your consideration as an important condition of competition. You see, U.S. producers derive significant revenue from their retread operations, since they control the overwhelming majority of U.S. retread operations for TB tires with their self-owned facilities, or facilities that are authorized by them and operate much like franchises. In considering the health of this industry, retread operations are a critical factor in that determination. Retreads compete mostly with imported TB tires, from China and elsewhere.

"In addition to the foregoing, please carefully consider that over the course of the POI (period of investigation):

  1. The domestic industry as a whole performed exceptionally well;
  2. Domestic industry capacity utilization rates were very high;
  3. Domestic industry capacity to produce TB tires cannot come even close to satisfying market demand for such tires;
  4. Lower raw material costs were the cause of lower unit values on domestic industry sales to OEM and National Account customers, not Chinese imports.
  5. Competition by subject imports was principally with non-subject retreads and non-subject imports, many of which are imported by the domestic industry, and not with U.S.-produced TB tires.

"In short, the domestic industry does not need and is not deserving of protection. An ailing industry, or one that is being injured by Subject Imports, does not commit billions of dollars in capital expenditures to construct new plants in the U.S. and to modernize older ones, as is being done in this industry.

"Finally, there is likewise no basis on this record to conclude that the domestic industry is being threatened with material injury in the foreseeable future. This is because:

  1. The domestic industry is not in a vulnerable state and, to the contrary, is especially healthy.
  2. The domestic industry itself projects future success, as evidenced, again, by the substantial financial commitments being made in new and older plants by domestic producers.
  3. Competition between Subject Imports from China and U.S. produced TB tires is very attenuated.
  4. China’s own internal policies pertaining to the TB tires industry in China encourages cessation of production by underperforming factories, consolidation and reorganization to eliminate excess capacity, and the adoption of more stringent barriers to entry.
  5. Raw material prices in China are increasing, which will result in increasing TB tire prices.
  6. Truck production in the domestic Chinese market is also escalating, leading to greater domestic demand for Chinese tires.
  7. Exports from China of TB tires to third country markets are significantly greater than exports from China of TB tires to the U.S.

"All these factors demonstrate persuasively that the domestic industry is not threatened with material injury in the foreseeable future by imports of TB tires from China.

Thank you."

Related Topics: China Rubber Industry Association, International Trade Commission, Max Schutzman, tariffs, TBR tariff

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