Market News

 November 20, 2009
China Opposes the U.S. Special Safeguard Measure to Chinese-Made Tires

 1. Process of this case

On April 20.2009, The United Steel Workers (USW) filed an action, on behalf of 15,000 workers employed at thirteen tire factories in the United States, asking the U.S. International Trade Commission (ITC) to adopt a "special safeguard measure" affecting Chinese made consumer tires. The USW action indicated that Chinese tire exports to the U.S. have substantially increased during the last 5 years. Compared to 2004, tire exports in units had increased by 215% in 2008, reaching 46 million units, with the sum total of $1.788 billion USD, up 295% during that period. The USW action claimed this increase injured the U.S. tire industry.

On April 29.2009, ITC announced its intent to formally launch a Special Safeguard Investigation. This is the seventh U.S. special safeguard investigation into products from China, and it is also the largest and most influential one.

On June 18, 2009, according to the voting result of 4-2 by the six members of ITC in the case of U.S. special safeguard measure into Chinese made tires, the ITC came to the conclusion that Chinese tire imports created a market disruption.

On June 29, 2009, the ITC published its recommendations for special safeguard relief measures proposing a remedy of 55%, 45% and 35% special import duties on Chinese passenger and light truck tires in addition to the current import duty of 4.0%.

According to the relevant U.S. investigation procedures, Mr. Barack Obama, President of the United States, before Sep. 17, will make the final decision on whether to implement special safeguard measures.

2. China Position

At the recent G20 Summit, in response to the international financial crisis, all member countries expressed their opposition to trade protectionism, and pledged to reduce the impact of the financial crisis through international cooperation; thus, we are firmly opposed to this measure. For the U.S. to apply a special safeguard measure at this moment, restricting exports of a particular country through the mechanism of U.S. domestic laws, can only be seen as protectionist.

(1) We are firmly opposed to the special safeguard measure proposed by the U.S. ITC.

Chinese made tires largely do not compete with U.S. made tires in the U.S.; rather, they serve different market segments. The U.S. made tires are largely sold to car manufacturers (OEMs) for assembly on new cars and into the premium priced, manufacturer name brand replacement market. In contrast, the Chinese made tires are mainly sold in a different market segment - i.e., the lower budget, generic brand, replacement tire market for U.S. consumers with severe financial constraints. Long before any significant Chinese entry into the U.S. market, the U.S. tire manufacturers were in the process of abandoning this lower end market segment in order to concentrate on the market segments they viewed as more profitable. Because of the good quality and moderate price of Chinese tire exports to the U.S., some U.S. consumers are very glad to choose Chinese made tires. Moreover, Chinese tire enterprises are responsible to U.S. consumers, providing good after sales technical service, which contributes to the development of Sino-US bilateral trade. Affected by the financial crisis, the U.S. domestic auto industry has slumped and automotive vehicle production and sales have dropped, which has resulted in decreasing demand for tires; thus, the U.S. tire industry is experiencing trouble. There is however, no direct causal relationship linking this trouble with Chinese made tires. Looking back historically, on the one hand, the U.S. tire industry was losing money long before Chinese tires entered the U.S. market. On the other hand, the U.S. tire industry had restored profitability during the growth peak period for Chinese tires in 2007. From 2004 to 2007, Chinese made tires imports increased by about 300%. During the same period, the U.S. tire manufacturers' operating profits rose by almost 200%. There are many reasons why the U.S. tire manufacturers shifted the production of lower cost tires overseas, and this shifting of production overseas began long before the importation of Chinese made tires. The reasons the tire manufacturers shifted production overseas has nothing to do with Chinese tires imports, and these reasons include: the pursuit of more profit; capacity constraints limiting their ability to produce the lower cost tires for value oriented tire consumers; their desire to compete with the imported tires coming to the U.S. from lower cost, third-world countries other than China; and an effort to meet the corresponding market demand. Therefore, even if the U.S. restricts Chinese tires imports, the U.S. manufacturers will not transfer their overseas low cost tire production back to the U.S. market, instead importing them from countries such as possibly South Korea, Brazil and others. There are two reasons that have resulted in the U.S. tire industry recession: one is poor management by the U.S. manufacturers of their own business, the other is the current economic recession caused by the global financial crisis.

The involved Chinese tire exports to the U.S. only increased by 3.5 percentage points from 2007 to 2008 as a percent of U.S. apparent consumption. Further, according to statistics, Chinese tires exports to the U.S. were reduced by 26%, 29% and 16% respectively in Mar. April, May of this year.

(2) The U.S. special safeguard measure is virtually an upgrade of trade protectionism. China is a large tire producer and exporter. The tire output of 2008 reached 350 million units, of which, 40% is exported to other countries, one third of this export is sent to the United States. Affected by global financial crisis, tire export volume dropped significantly in the first half of 2009. It is likely to appear as the first negative growth since China's reform and opening-up. Under such circumstances, if the U.S. special safeguard measure is implemented, more industries will also possibly seek trade protection, which will bring unprecedented difficulties to not only the tire industry but also other industries.

If the U.S. special safeguard measure is approved by the U.S. government, Chinese tires imports will be totally eliminated from the U.S. market. This measure, if implemented, will also affect the survival and development of domestic tire industry and related upstream and downstream industries, not only causing a waste of production capacity, but also resulting in more than 100,000 workers losing their jobs, which is harmful to social stability and harmony.

(3) Chinese tire exports to the U.S. are not the direct cause of the U.S. workers unemployment, and does not injure the U.S. tire industry. The U.S. tire industry has a long history of depression; this is because the tire industry is in a period of structural adjustment. Further, the global financial crisis has exacerbated the restructuring of the industry. The proposed compulsory restriction of Chinese tire imports would only force the U.S. dealers to choose similar products from other countries, not only failing to keep the U.S. tire manufacturing jobs, but also resulting in damage to the U.S. distributors and consumers. Also, we can see that no U.S. tire dealers or tire manufacturers participated in this special safeguard investigation. Therefore, restrictions on Chinese tires imports cannot solve the problem of the U.S. tire industry.

Therefore, the compulsory restriction of Chinese tire imports is unjust, and it will damage the benefit of U.S. consumers. Chinese tire exports to the U.S. are primarily sold in the retail market. According to incomplete statistics, there are more than 200 U.S. tire distributors, 43000 retailers engaged in sales of Chinese made tires, creating the jobs for 100,000 U.S. workers.

Although there are about 15,000 workers in the U.S. tire manufacturing industry represented by the USW, there are as many as 100,000 workers involving in tire sales in the downstream tire industry. Many U.S. importers and distributors rely on low cost tires supplied by Chinese tire manufacturers. Restriction of Chinese tire imports will result in the U.S. importers and distributors sales dropping, and also will cost these organizations a lot of money to find alternative sources of products.

In order to lower production costs and speed up global expansion, the U.S. tire manufacturers transferred tire production to developing countries in recent years, taking advantage of their technical and financial resources, as well as transferring the country's workforce and other resources to build tire factories or joint ventures factories; so, tire output is declining in the U.S., and naturally it is a normal phenomenon that some tire industry workers have lost their jobs. There are four companies manufacturing tires in the U. S. that enjoy the preferential policies made by the Chinese government, and they have developed very fast with their tire output expanding rapidly. For example, the Goodyear Dalian Tire Co., Ltd. passenger tire output reached more than 4 million units in 2008, and now this factory has relocated to expand their production capacity, which will reach more than 5.3 million units. Furthermore, the Goodyear Tire Corporation plans to set up their Asia-Pacific regional headquarter in Shanghai City. Another example is the Cooper (Chengshan) Tires Co., Ltd. In 2008, truck tire output reached 2.4 million units, passenger tires output totaled 3.5 million units, and the company's sales volume was 4.128 billion RMB, the second largest for foreign-invested enterprises. The profits from this business activity are sent back to the parent company in the U.S., and help to promote Cooper Tire's further development. Of all the tires manufactured by these two companies, the majority are sold in the Chinese market, a part returned to the United States or sold to other countries. In addition, the U.S. tire companies in China begin to produce OEM tires, and quite a number of these are sold back to the United States. If the U.S. special safeguard measure is approved by the U.S. government, the U.S. tire enterprises' benefits will be damaged, and so the U.S. tire manufacturers did not declare their support for the special safeguard measure.

Many U.S. suppliers of raw materials will be subject to substantial damage. Exxon Mobil Corporation supplies a large quantity of butyl rubber to China every year, accounting for about 70% of market share, which is used for producing the radial tire inner liner. The U.S. Cabot Corporation has opened three carbon black factories in China, and their production reached 250,000 tons in 2008, accounting for 10% of total amount of carbon black consumed in China. Their production is predicted to reach 400,000 tons in 2010. Cabot's carbon black is widely used in the manufacturing of radial tires in China. High-performance polyester tire cord reinforcing materials manufactured the U.S. AlliedSignal Corporation, as well as a variety of high-performance rubber chemicals additives manufactured by Red Avenue Group and Flexsys Company are all used by the Chinese tire manufacturing industry.

We can see that, on the one side, the U.S. tire manufacturers set up factories in China, and produce a large number of tires to occupy the Chinese market; on the other hand, the U.S. has proposed restricting Chinese tire imports through a special safeguard measure. This is a kind of trade protectionism, and not fair. We are strongly opposed.

3. Countermeasures

A Spokesman of Ministry Of Commerce of the People's Republic of China said on April 30, "Today, passing more than three years, the U.S. initiated a special safeguard investigation into Chinese products once again, moreover, the amount of money involved is huge, and the Chinese Government expresses strong dissatisfaction and resolute opposition." The terms of the special safeguard measures, in the protocol for China ' s entry into WTO, is formed under specific historical conditions, which is targeted at restricting imports on Chinese products, and has a lack of objective standards and impartiality, moreover a lack of transparency in the procedures. A long time ago, the Chinese Government had expressed high concern on launching special safeguard measures invoking this term. To invoke and implement this term not only hurts the legitimate rights of China industries, but also causes a negative impact on Sino-US economic and trade relations.

The financial crisis led to a drop in tire demand in the world's tire market, which is the main reason resulting in the poor operation of the U.S. industry. Restriction of Chinese tire imports cannot solve the problems faced by the U.S. industries. Further, there are still some problems that exist in The Application for Special Safeguard Measure on Chinese Made Tires, such as the evidence is not accurate and adequate. However, the U.S. administration is still starting the special safeguard investigations against Chinese products, which is not only a discrimination against goods from China, but also an abuse of the special protective measures.

It is hoped that the U.S. will strictly abide by WTO rules, based on the objective facts, when making a final verdict on the case. The U.S. should not regard the special safeguard investigations against China as a tool for the implementation of trade protectionism. The Chinese Government will continue to help the tire industry to negotiate, and strive to create fair and stable business environment.

(1) The role of government is to seek a variety of communication channels.

The attitude and consultation efforts of government play a decisive role in this Special Safeguard Investigation. Government departments should adopt various measures, in particular, and make solemn representations to the United States through various channels during closed-door negotiations, and express our government's position. The industry sector also suggested that our government should prepare strong counter-measures in many fields, and form an effective pressure to the U.S. Government, so as to force the U.S. government to veto the ITC ruling and relief measures.

The value of this Special Safeguard Investigation is large, and it has a great influence on the bilateral trade between China and the U.S, and especially the domestic tire industry. If the President of the United States approves this Special Safeguard Investigation, the interests of the Chinese tire enterprises will be seriously affected. The Chinese government will be forced to resort to the WTO to seek the treatment of this issue by the WTO.

In April 30, Ministry of Commerce Bureau of Fair Trade held a case analysis meeting for making response measures. 20 tire manufacturers and China Rubber Industry Association, CCCMC attended this meeting. Through analyzing this case, they made the conclusion that we should see the three harm points of (1) discrimination, (2) short procedures and (3) low threshold of these special safeguard measures, if viewed impartially. Once implemented, the measure will have a knock-on effect; then WTO member countries will implement trade remedy protection, without investigation procedures. In the meeting, the participants called the enterprises involved to actively cooperate, fill out a questionnaire, and help do a good job in data collection and participation in response work. It was also decided to set up a Committee for the contacting and coordinating for the tire special safeguard case, to collect the information and materials and make for better communication coordination.

(2) Take a variety of ways to strengthen public relations, and send a clear voice of the Chinese industry

The China tire industry delegation, organized by the Ministry Of Commerce of the People's Republic of China, attended the first hearing in this case in early June in Washington D.C. According to the voting results of 4-2 by six members of the ITC, the U.S. came to the conclusion that Chinese tire imports created market disruption. This result aroused strong dissatisfaction from Chinese tire industry.

The responsible officer in the Department of Commerce Fair Trade Bureau pointed out, in his statement on the U.S. ITC '... tire relief special protection measures, the Chinese government is highly concerned about this measure and is strongly opposed to the proposed U.S. restriction of Chinese tire imports. China has repeatedly expressed the consistent position: strong opposition to foreign governments to invoke the terms of special safeguard investigations against Chinese products. The Chinese tire industry have filed much evidence demonstrating that Chinese tire imports do not injure the U.S. tire industry. The restriction of Chinese tires cannot solve any problem faced by the U.S. tire industry, and further would hurt U.S. tire distributors and consumers. The Chinese Government has also expressed the above-mentioned point of view to the U.S. relevant departments several times. High-tariff measures, proposed by U.S. ITC, have a lack of reasonable and objective basis, which not only seriously impede the normal development of the tire trade between China and the United States, but also would undermine the interests of the U.S. tire consumers.

In the following stage of consultations with the United States, China will urge the United States to give full consideration to the actual situation of the case, and consider the overall interests of the industry of China and the U.S and also to not take the special protective measures and avoid making the wrong signal of trade protectionism. The Ministry Of Commerce of the People's Republic of China will continue to help the tire industry to actively negotiate in their defense, and strive to create fair and stable business environment.

On July 6, China Rubber Industry Association held an emergency consultative meeting. The Ministry of Commerce Bureau of Fair Trade, the Ministry of Industry and Information Technology of the People's Republic of China, the CCCMC and the tire enterprises involved attended the meeting, and they all were firmly opposed to the ITC proposed relief measures. At the same time, they sent an open letter to the President of the United States and other relevant organizations to explain the Chinese position. An emergency report developed jointly by the companies was submitted immediately to the State Council in an effort to seek the attention of national leaders. On July 24, Premier Wen Jiabao and Vice Premier Wang Qishan made important instructions, endorsed by the leaders of the Ministry of Finance, National Development and Reform Commission and the Ministry of Commerce. This greatly encouraged the Chinese tire industry to fight against the special safeguard measure on Chinese tires to the end. In accordance with the recommendations of the Ministry Of Commerce of the People's Republic of China, the China Rubber Industry Association composed a delegation to the United States on August 3 with the lobbying efforts aimed at further promoting the Chinese position, and to put pressure on the U.S. government.

(3) Conscientiously do a good job for the lobbying of the Trade Representative during consultation stage

The enterprises involved are mobilized to communicate with the U.S tire distributors actively. Through their lobbying of the U.S. Government, Congress, and media celebrities to illustrate the adverse consequences and potential losses brought by the implementation of special safeguard measures, so as to obtain support, and increase pressure on the government decision-making process. In addition, the China Rubber Industry Association and CCCMC have sent a letter to President of the United States, the United States Trade Representative Office and American Rubber Manufacturers Association to show the Chinese position. At the same time, the China Rubber Industry Association and the related tire companies retained a large public relations firm to carry out lobbying work. Through this effort, China can publicize the Chinese position to the US Congressional Leaders, community groups, and media celebrities, as well as television, newspapers and other news media, and enhance the voice against the implementation of special protection. In addition, domestic enterprises will directly, or through their U.S. importers and distributors, express their opposition to the special safeguard measures to the relevant U.S. government departments, trade organizations, and individuals. Because none of the U.S. tire manufacturer openly support the applicant of this case or support restrictions on Chinese products at present, we also have not found a U.S. tire manufacturer to support the Chinese position clearly, The attitude of the U.S. tire manufacturer enterprises has a considerable influence. Therefore, we should mobilize or consult with the US-owned tire enterprises in China, and persuade their U.S. parent company to express their support of the Chinese side clearly.

The tire special safeguard case has reached a critical moment. The China Rubber Industry Association and all enterprises involved will spare no effort of resistance to the end, and strive for the fair treatment that the Chinese tire industry should enjoy.

Mr. Fan Rende - Chairman of China Rubber Industry Association