Tag: duties

Washington Post Sees Solar Panel Duties for What They Are: Self-Flagellation

The Washington Post was channeling the Cato Institute’s Herbert A. Stiefel Center for Trade Policy Studies in this morning’s succinct and insightful editorial about the foolishness of taxing imports of Chinese solar panels.

The editorial picks up a few of the themes and draws very similar policy conclusions to those we have been advocating for many years and, without stating it explicitly, presents a compelling case for major reform, if not repeal, of the trade remedies laws.

For context, last week the U.S. Commerce Department published the final rates of duty calculated in both antidumping and countervailing duty (anti-subsidy) investigations of imports of Chinese solar panels, which were initiated in October 2011. (Here are some earlier thoughts on the matter.)

Formal antidumping and countervailing duty orders will take effect, probably, next month following a final determination by the U.S. International Trade Commission that the U.S. solar panel industry has been materially injured by these Chinese imports.

The thrust of the editorial is that the antidumping and countervailing duties, which are “calculated” by Commerce using an absurdly inaccurate, punitive methodology, will hurt other U.S. companies that are downstream and upstream of the solar panel producers in the production supply chain.

Noting the transnational nature of solar panel production, the editorial states:

U.S. firms that export polysilicon, a key material in the panels’ manufacture, or machinery to Chinese solar-panel makers could lose – if not because of the direct influence of the tariffs themselves, then because of the Chinese government’s likely reaction. Analysts worry that the Chinese will retaliate by slapping duties on U.S. polysilicon. Also at risk is the U.S. solar installation business, which has thrived during this period of low-cost panels.

This is one of the critical defects of the AD/CVD regime. It focuses like a laser on assisting industries seeking protection from competition while systematically—indeed statutorily—ignoring the adverse impacts of that “assistance” on downstream U.S. industries. (Bastiat points out that people tend to err by focusing on what is immediately seen, while failing to consider the ripple effects of actions that are less readily observed; U.S. trade remedy law demands that we commit that error!)

Much more often than not (80% of AD measures in the last decade), the foreign product subject to duties is an intermediate good required by downstream U.S. industries. And these downstream firms—the overwhelming victims of AD/CVD duties—have no legal standing in the proceedings that lead to the imposition of duties that raise their costs of production and drive them offshore or out of business. Under the statutes, the U.S. International Trade Commission is forbidden from considering the likely impact on downstream firms. In this age of globalized production and transnational supply chains, nothing could be more absurd.

About the so-called non-market economy methodology used to calculate margins of dumping and, ultimately, duty rates in Chinese (and Vietnamese) antidumping cases, the editorial asks:

But how much should a Chinese-made solar panel cost? The answer isn’t obvious. Commerce’s estimating methods—using Thailand’s economy as a surrogate for China’s—don’t inspire confidence.

These Cato papers (here and here) provide the dirty details of the capriciousness inherent in NME antidumping methodology. This brand new Cato analysis from Scott Lincicome, which documents—among other things—the global green energy subsidies race, explains how the U.S. countervailing duty law does not redress foreign subsidization, but rather punishes U.S. consuming industries and end-users. Getting tough on China means America’s wealth and jobs creators take it on the chin.

In closing, the editorial states:

And if the Chinese want to subsidize U.S. solar-panel buyers for the time being, there’s a good case to let them.

This is just another example of the administration’s policies working at cross purposes. To the fanfare of the Sierra Club and other environmental groups, President Obama has rhetorically championed the idea of greening our energy consumption profile. Of course, one of the biggest obstacles to that goal has been that the costs don’t justify the benefits. Hasn’t Chinese dumping and subsidization helped to reduce that obstacle? And aren’t duties on Chinese solar panels anathema to that goal?

Duties on solar panels, wind towers, and presidential interventions to block foreign investments in U.S. wind farms suggest that industrial policy—and not environmental policy—explains the president’s interest in green energy.

Recognizing in an editorial that duties imposed to benefit one industry or one firm (as is often the case with trade remedies measures) cause collateral damage to other industries is a laudable development for the Washington Post.  We look forward to the follow-up editorial calling for explicit repeal of the self-flagellating U.S. antidumping law.

Trade Law, Trade War, and the Case of Multilayered Wood Flooring from China

Public angst over China’s rise and the threat of populist currency legislation have prompted speculation about a U.S.-China “Trade War.” With the 2012 elections still a whole year away, there is ample opportunity for campaigning politicians to ignite that fuse.

But pyrotechnics aren’t necessary. Rather than a 1930s-style free-for-all, a trade war—if one were to begin—is more likely to be of the lowercase, “rules-based” variety, where trade restrictions are imposed in compliance (or under the pretense of compliance) with global trade rules. Many of the battles would be waged behind the façade of so-called trade remedy laws.

Antidumping and countervailing duty measures are the most commonly invoked forms of “contingent protectionism” permitted under World Trade Organization rules. Those rules allow member governments to maintain and administer national antidumping and countervailing duty laws to remedy—through the imposition of customs duties—the effects of imports determined to be sold at unfairly low prices (antidumping) or determined to be unfairly subsidized by a government (countervailing). But imposing “remedies” under these laws is contingent upon certain conditions being met. Two core conditions are that the administering authorities need to demonstrate that the imports in question are being dumped or subsidized, and that those dumped or subsidized imports are causing or threatening material injury to the domestic industry.

A determination expected tomorrow from the U.S. International Trade Commission offers a case in point. The Commission will vote on the question of whether dumped and subsidized imports of multilayered wood flooring (MLWF) from China are causing or threatening material injury to the U.S. MLWF industry. An affirmative determination could invite Chinese retaliation because the evidence of a causal connection between imports from China and injury to the U.S. industry is weak to non-existent. If the U.S. government is going to stretch or skirt the evidentiary standards established by domestic law and international treaty, the Chinese government may be inclined to do the same. (In fact, the Chinese government is already alleged to have broken those rules – and the United States is seeking recourse in the WTO – when it imposed antidumping and countervailing duties on U.S. chicken exports in 2010.)

Multilayered wood flooring is a floor covering product—used for the same practical purposes as hardwood flooring, tile, and carpeting. Sales of MLWF are highly dependent upon new housing starts and remodeling expenditures, both of which tanked when the housing bubble burst in 2008. As a result of U.S. housing starts declining from a seasonally adjusted annual rate of 1.1 million units in February 2008 to just 505,000 units in March 2009, as well as the large decline in remodeling activity over the same period, MLWF industry prices, shipments, revenues, and profits declined substantially, as did imports from China and other countries. But since the second quarter of 2009, housing starts have been stable at about 600,000 units per year and remodeling activity has been steady at about $112 billion per year.

Importantly for the injury analysis, this period of stability in housing starts and renovation activity enables an analysis that isolates the effects of imports on the domestic industry. And what is evident is that, as domestic consumption of MLWF picked up, so did U.S. imports, producer shipments, revenues, and profits (from -9.9 percent in 2009 to -1.0 percent in the first half of 2011). Increasing volumes of subject imports correlate with an improving condition of the domestic industry. Throughout the period of stabilization, prices in the U.S. market have been steady, as well. If imports from China were to have an injurious effect on the domestic industry, one would expect the increasing volume of such imports to drive down prices in the United States. But imports from China, on average, do not underprice domestic MLWF. According to the public version of the USITC Staff Report in this matter:

…prices for MLWF from China were below those for U.S.-produced MLWF in 60 of 110 instances; margins of underselling ranged from 1.5 to 36.4 percent. In the remaining 50 instances, prices for MLWF imported from China were above those for U.S.-produced MLWF; margins of overselling ranged from 0.1 to 30.4 percent.

An affirmative finding of injurious dumping and/or subsidization from the USITC tomorrow would require disregard of these and other crucial facts and would warrant closer scrutiny of the antidumping regime. It would also invite similar actions from Chinese trade remedies authorities and then who know where it will lead.

Why Trading with China is Good for Us

Back in February, more than 100 House members introduced a bill that would make it easier to slap duties on imports from China. I explain why picking a trade fight with China would be a bad idea all around in an article just published in the print edition of National Review magazine.

Titled “Deal with the Dragon: Trade with the Chinese is good for us, them, and the world,” the article explains why our burgeoning trade with the Middle Kingdom is benefiting Americans as consumers, especially low- and middle-income families that spend a higher share on the everyday consumer items we import from China.

We also benefit as producers—China is now the no. 3 market for U.S. exports and by far the fastest growing major market. Chinese investment in Treasury bills keeps interest rates down in the face of massive federal borrowing, preventing our own private domestic investment from being crowded out.

The article also argues that, “As the Chinese middle class expands, it becomes not only a bigger market for U.S. goods and services, but also more fertile soil for political and civil freedoms.”

You can read the full article at the link above. Better yet, pick up the April 4 print edition of the magazine, the one with Gov. Rick Perry on the cover. My article begins on p. 20. (It might be a holdover from my newspaper days, but I still get an extra kick out of seeing an article printed in a real publication.)

P.S. For a fuller treatment of our trade relations with China, you can check out my 2009 Cato book, Mad about Trade: Why Main Street America Should Embrace Globalization. China takes center stage in several places in the book, which—did I mention?—was just named a runner-up finalist for the Atlas Foundation’s 22nd Annual Sir Antony Fisher International Memorial Award for the best think-tank book of 2009-10.

If Only the USTR Were This Enthusiastic about Liberalizing Trade

There was really never any doubt that the United States would prevail in the dispute brought by China to the World Trade Organization over President Obama’s decision last year to levy duties on tire imports from China. The WTO verdict, revealed yesterday, simply affirms that the administration acted in accordance with U.S. WTO commitments—and leaves to others, such as myself, to conclude that the duties were a highly political act perpetrated with utter contempt for the significant economic and diplomatic costs of those actions.

Thus, “prevailing” in the WTO case should not be considered a source of universal joy for all Americans or even most Americans, as one might infer from the reaction of U.S. Trade Representative Ron Kirk, who jubilantly proclaimed, “This is a major victory for the United States and particularly for American workers and businesses.” Really, Ambassador Kirk? Tell that to the American workers and businesses involved in importing, trucking, wholesaling, retailing, and installing those Chinese-made tires. Tell it to the American workers and businesses who also happen to be U.S. tire consumers and are now lighter in their wallets or dangerously riding on worn treads as a result of the duties. Feel free to ask the workers and businesses in the U.S. poultry and auto parts industries—against whom the Chinese imposed antidumping duties immediately after the tire tariffs took effect—how they feel about having “prevailed.”

In fairness to Ambassador Kirk, in addition to working to open markets abroad, the USTR’s office is tasked with prosecuting challenges of our trade partners’ allegedly non-compliant policies and actions, as well as defending challenges to allegedly non-compliant U.S. policies and actions at the WTO. In that regard, warding off a challenge from China of the U.S. Section 421 law constitutes, arguably, a victory for the USTR’s office. But to be clear, Section 421 is a blatantly protectionist law that serves, at best, a sliver of the U.S. population slightly broader than the U.S. Congress.

As part of its WTO accession agreement in 2001, China agreed to allow the United States and other WTO members to treat it differently—indeed, discriminatorily—on several matters for a number of years after it joined the WTO. The China-Specific Safeguard mechanism (known legally as Section 421 of the Trade Act of 1974 and under which the tire tariffs were implemented in September 2009) authorizes the United States to impose duties if there is a surge in imports from China that is causing or threatening market disruption in the United States. Market disruption exists “whenever imports of an article like of directly competitive with an article produced by a domestic industry are increasing rapidly, either absolutely or relatively, so as to be a significant cause of material injury, or threat of material injury, to the domestic industry.” In other words, if U.S. industry is suffering the effects of normal competition—that is, if it must compete against more capable or more efficient foreign competitors—then the firms or workers in the U.S. industry can petition the U.S. government to raise those competitors’ prices through the imposition of trade restraints.

It is also important to appreciate what Section 421 is not. Contrary to the rhetoric of too many politicians, trade lawyers, and union bosses, 421 is not an “unfair trade” statute. Unlike the antidumping and countervailing duty laws, a Section 421 case does not include allegations of prices at less than fair value or prices that benefit from countervailable government subsidies. The evidentiary threshold is much lower. All that is alleged-and all that has to be established-in a 421 petition is that imports from China are increasing in such a manner as to be a cause of market disruption (or threat thereof) to the domestic industry.

Section 421 is not intended to remedy any wrongdoing on the part of Chinese exporters, but is intended rather to give U.S. producers the opportunity to holler “time out!” as they catch their breath, assess prospects, and attempt to adjust to a new level of competition. Of course there are huge costs to this kind of intervention in the marketplace, thus the president is granted discretion, under the law, to deny relief if he determines that the costs to the broader economy clearly exceed any benefits to the petitioning industry. While such discretion provides some comfort that the law’s relaxed evidentiary standards won’t be routinely abused by domestic interests seeking to stifle competition, there are no guarantees that the president’s discretion will be based exclusively on considerations of the national economic interest. If there were, it would be nearly impossible to conjure a scenario in which the concentrated, temporary benefits to a specific industry receiving protection were not overwhelmed by the costs of that protection on the broader economy. Political considerations always influence decisions that lead to protection.

Yesterday’s WTO decision was arguably a victory for the rule of law in international trade—but also a reminder that politicians write the rules of trade, including some that are so antithetical to its purpose. I would be willing to cut Ambassador Kirk more slack for his jubilation if he were to find religion on the WTO and abide the rulings–such as on zeroing, gambling, and cotton subsidies–that his (and his predecessors’) office has lost.

A Novel Interpretation of “Green Tariffs”

Here’s a nice follow up to my blog post on Tuesday: firms importing solar panels to the United States face a $70 million bill because of unpaid duties.

It seems to me that a government truly concerned about global warming–putting aside the merits of that position–would want to encourage the adoption of solar panels, including by keeping them as cheap as possible. Nor, I would have thought, is this the time to add more fuel to the fire that is starting to characterize the U.S. trade relationship with China. There’s plenty enough fuel for that already.

Obama to Impose Tariff on Chinese Tires

From the quiet shadows of the White House, at around 10 pm on Friday night, came word that President Obama will impose prohibitive duties of 35% on imports of Chinese tires.

Well, we at Cato and elsewhere have warned repeatedly of the dangerous consequences of this outcome (June 18, July 24, August 13, September 9, September 11). Former Cato colleague and coauthor Scott Lincicome has an excellent analysis on the ramifications right here.

The good news is that we now have clarity about where the president stands on trade. The bad news is that his stance reflects his isolationist primary election campaign rhetoric and not the post-election messages of avoiding protectionism and repairing the damage done to America’s international credibility by unilateralist Bush administration policies. Short of armed hostilities or political subversion, no state action is more provocative than banning another’s products from entering your market. I guess this paper was too audaciously hopeful. We’re chastened.

Technically, the Chinese are not legally entitled to retaliate because the United States has legal recourse to restrictions under this so-called “China safeguard” law until 2013. But plenty of American exporting interests have been worried enough to write numerous letters to Obama urging restraint–but to no avail.

Restrictions have never been imposed under this law because in all previous cases – all during the previous administration – President Bush exercised his discretion to reject the recommended duties because of the likely cost of those restrictions on the broader economy. Thus, the Chinese know the decision is a matter of presidential discretion, unlike the antidumping and countervailing duty laws, which are on statutory autopilot and don’t require the president’s attention. Accordingly, the tire restrictions are the edict of the American president, and thus carries more profound meaning for the Chinese.

One of the more thrilling spectacles in all of this, if politicians were capable of humility, would be watching President Obama explain his decision to impose tire duties on China at the G-20 meeting he is hosting in Pittsburgh in 12 days. Recall the president’s pledge (along with the other G-20 leaders) at the last G-20 meeting in London to avoid new protectionist measures.

American credibility on trade is spent. And maybe Obama will find comfort in that fact because he won’t be burdened with that historic responsibility, as he signs off on the slew of new requests for trade restrictions (which are undoubtedly coming soon) under this law from other U.S. industries seeking handouts.

Strap on your armor; the die has been cast.