China’s Trade Rules and Subsidies: Down the Stainless Drain (Part 1)

In an earlier installment in this series, we examined some of the philosophical underpinnings of why those who care about free markets should also care about preserving them in dealing with those attempting to manipulate the rules for their own gain. In this installment, we turn our attention to bringing the topic alive through a recent anti-dumping case that our sister site MetalMiner recently covered.

The context for this coverage is that “Elkay Manufacturing recently ‘won’ [against China on the] …. anti-dumping front (with the International Trade Commission [ITC] approving considerable duties on stainless steel sinks.” The ruling cited “unlawful pricing by Chinese producers of drawn stainless steel sinks which caused material injury to Elkay Manufacturing Company and other domestic producers.”

MetalMiner interviewed Kathleen Deighan, VP, Chief Human Resources Officer & General Counsel, who led the efforts on behalf of Elkay. Here are some excerpts from the interview (whose full version you can read on MetalMiner).

MetalMiner: What sort of metrics do you monitor on a regular basis that began to tip you off that there may be a dumping issue? Is it just import levels, or fast surges of imports? Is it something more than that?

Kathleen Deighan: We watch the import data that comes out on a monthly basis to see which countries are importing stainless steel sinks into the U.S. and look for trends that suggest imports are increasing from a particular country. When we see that a country is a significant exporter to the U.S., we try and determine the pricing of that product in the marketplace. Chinese imports have grown quickly, 60% over the last four years. They now make up over 80% of all imports from foreign countries. But we are also very aware of pricing in the market. The pricing of Chinese sinks in the U.S. market is extremely low, which indicated to us that the product is either heavily subsidized by the Chinese government…

MM: Presumably, there is a lot of value-added labor that goes into a drawn stainless sink. In a case like this, do you think the Chinese are selling the stainless at below cost, or are they just lowering the price of the labor piece?

KD: Production of drawn stainless steel sinks is not labor-intensive. Thus, while labor costs in China are lower than in the U.S., these differences do not explain the Chinese producers’ ability to under-sell domestic producers to such a significant extent. The Chinese also benefit from lower costs on other inputs, including stainless steel that is provided by state-owned steel companies. Additionally, it is difficult to calculate the full benefit that Chinese producers receive from the Chinese government.

While some direct subsidies are captured in the countervailing duties, the effects of the Chinese government’s efforts to encourage employment through exports extends beyond direct subsidies. In some instances, the Chinese government’s VAT refund constitutes the totality of any economic profit that a producer might reap from export sales. It is not uncommon for state-owned producers to be afforded the separate rate if their specific operations are not government-controlled.

To be continued.

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