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Government researches Chinese tire import case

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The issue of whether to implement the United States International Trade Commission's proposal of tariffs on consumer tire imports from China is being reviewed by the Office of the U.S. Trade Representative.

On Friday, Aug. 7, office panelists heard arguments for and against the proposed tariffs at an open forum in Washington, D.C. The International Trade Commission (ITC), by a 4-2 vote, is asking for a 55% tariff increase in 2010, and 45% and 35% tariffs, respectively, the following two years.

(For background information, see the B.O.B. blog for July 6, 2009, “Here’s how tariffs on Chinese tires will affect tire dealers, at www.moderntiredealer.com/Blog/B-O-B/Story/2009/07/Here-s-how-tariffs-on-Chinese-tires-will-affect-tire-dealers.aspx.)

"Tariffs will not create manufacturing jobs in the United States," said Jim Mayfield, president of Del-Net Tire Corp., as reported by Judith Burns for Dow Jones Newswires. He said U.S. tire manufacturers such as Bridgestone Americas Inc., Goodyear Tire & Rubber Co., Michelin North America Inc. and Cooper Tire & Rubber Co. are focused on more profitable premium tires and have ceded the low end of the market to private-label brands imported from China and other low-cost manufacturers.

If tariffs are imposed, Mayfield said the biggest hit would be felt by American consumers who buy $50 Chinese-made tires and can't afford U.S. brands that cost upwards of $150, reported Burns. Some low-income consumers already are stretching their tires well beyond their useful life, coming in "with duct tape wrapped around the tire" to cover fraying steel belts.

Tire distributors will have to scramble to find alternate suppliers, and if they can't act fast enough, they'll go out of business, according to Mayfield. He said even a 25% tariff would preclude U.S. purchases of low-end Chinese tires, but added that tire sellers could probably handle additional tariffs of 6% to 8%.

Chinese officials are against the additional tariffs. (The general rate of duty on radial consumer tires is 4% of the U.S. Customs value.)

The United Steelworkers union (USW) says it not only backs the proposed tariffs, but also is urging the president to raise the percentage in the first year “so domestic tire workers get the full relief prescribed to prevent the undermining of any frontloading of inventories by Chinese exporters or U.S. importers who are dumping higher volumes prior to the President's decision.”

"Our trading relationship with China is complex and often contentious, but this case should not be," said Leo Gerard, USW International president. "The record is clear and the decision to provide effective relief should be a simple one."

In a prepared statement, the USW said there is a direct relationship between the increase in Chinese tire imports over the last five years and the loss of some 5,100 domestic tire production jobs  over the same time frame. An additional 3,000 tire production jobs are scheduled for elimination by consumer tire plant closures by the end of this year, added Tom Conway, USW International vice president.

According to the Dow Jones Newswires report, labor officials blasted U.S. auto makers for asking to be exempt from any tariffs on factory-installed tires. (Burns reported that manufacturers of temporary spare tires asked for similar relief.)

In a statement regarding the hearing, GITI Tire (USA) Ltd. Executive Vice President Vic DeIorio (pronounced Dee-oar-e-oh”) opposed the tariffs.

“First and foremost, a border measure, such as the tariff proposed by the International Trade Commission will not produce the desired results,” he said. “According to an economic analysis conducted for the American Coalition for Free Trade in Tires, it will only result in a tiny increase in the number of Americans who are employed in the manufacturing of tires. (GITI is a member of the coalition.)

“Instead, the true impact will be felt by tire dealers affiliated with U.S. producers and independent tire dealers. The study, conducted by Rutgers University professor Thomas Prusa, indicates that the protectionist tariff would put at least 25,000 U.S. jobs in the greater tire industry in jeopardy -- or about one out of eight jobs in the entire sector.

“At the same time, the tariff would lead to market disruptions and higher prices on all low-cost tires, regardless of manufacturer, for American consumers. Under Dr. Prusa’s conservative scenario, the cost to the consumer would be some $300,000 per job protected.”

DeIorio said that accepting the commission’s proposed remedy “would put the administration at odds with its public statements about refraining from taking protectionist measures in response to the global economic meltdown.”

President Obama will receive the U.S. Trade Representative’s recommendation by Sept. 2, 2009. Whether he accepts or rejects the ITC's proposal -- or amends it -- the president will make his decision by Sept. 17, 2009.

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