On Friday 12 June, the US Department of Commerce (Commerce) gave its final determinations in the antidumping duty (AD) and countervailing duty (CVD) investigations relating to the importation of Chinese produced passenger vehicle and light truck tyres. While many analysts and observers had expected the tariff percentages to be reduced – based on previous experience of similar cases – in fact they were increased. In some cases the combined anti-dumping and countervailing duties are north of 188 per cent. While this is at the top end of the range, and notwithstanding one or two exceptions, most tyre companies manufacturer in China or importing Chinese tyres into the US, will now have to pay significantly more than was first thought.
The department of commerce (DOC) determined that imports of certain passenger vehicle and light truck tyres from China have been sold in the United States at dumping margins ranging from 14.35 to 87.99 percent. According to the DOC, the 87.99 per cent rate is based upon “adverse facts available”, suggesting there were aggravating factors in the ways the DOC requests for information were answered by certain Chinese tyre manufacturers.
The DOC also determined that imports of certain passenger vehicle and light truck tyres from China have received “countervailable subsidies” ranging from 20.73 to 100.77 per cent. Again, the 100.77 per cent rate is based upon “adverse facts”.
Just as all the early determinations had suggested some companies will have to pay more than others. In the anti-dumping investigation, mandatory respondents Giti Tire Global Trading Pte. Ltd. and Sailun Group Co., Ltd. received final dumping margins of 29.97 per cent and 14.35 per cent, respectively, while the separate rate companies received a final dumping margin of 25.30 per cent. All other producers/exporters in China received a final dumping margin of 87.99 per cent
In the CVD investigation, DOC calculated a final subsidy rate of 37.20 per cent for GITI Tire (Fujian) Co., Ltd., 20.73 per cent for Cooper Kunshan Tire Co., Ltd., and 100.77 per cent for Shandong Yongsheng Rubber Group Co., Ltd. (Yongsheng). The rate for Yongsheng was based on adverse facts available, because the company failed to respond to the Department’s requests for information or otherwise participate in the investigation. All other producers/exporters in China have been assigned a final subsidy rate of 30.87 per cent.
However, while the latest decision is the final determination of the US Department of Commerce, the process is not entirely complete. If the US International Trade Commission (ITC) issues a negative injury determination, both investigations will be terminated and no producers or exporters will be subject to future cash deposits for either AD or CVD duties. In such an event, all cash deposits already collected will be refunded. However, it has to be said, with every step of the process continuing in favour of tariffs and – as we have seen – even increasing them, such an outcome is unlikely. Still, the ITC is scheduled to make its final injury determination on 27 July 2015.
Trouble in rubber valley spread through distribution chain
Once again Shandong Yongsheng Rubber Group is singled out for the most punitive tariffs. What the figures don’t reveal is that – quite apart from swingeing duties – Yongsheng already had problems of its own. Tyres & Accessories has already reported about how at least two Chinese factories used to produce millions of tyres destined for European wholesalers have fallen on hard times in recent months. The most high profile case was that of Deruibao Tire which ended up being saved for now due to a “collaboration” with another local tyre maker, which was engineered and no-doubt backed by the Chinese government. Because it was backed by the Chinese government, a large proportion of its output is likely to be saved. However, this will not be the case for every Chinese tyre maker.
Indeed, according to reports published in the Wall Street Journal, Yongsheng looked like it was in for a bumpy ride before the latest and highest tariff figures were announced. WSJ’s take on it is that Yongshen chief executive, Liu Zijun built a “thriving tyre-manufacturing business when China’s economy was roaring ahead. But when China’s growth weakened, he had to cut prices to keep his business afloat.”
Yongsheng was founded in 1986 and started off making rubber tubes, before growing into a large-scale tyre exporter. Figuring that demand would continue soaring, Yongsheng kept investing. WSJ reports that the company spent around 1.5 billion yuan ($242 million) last year, money that was invested in order to finish two new plants. The goal was said to have been to raise Yongshen’s capacity to 18 million tyres a year from 15 million units annually.
However, executives rapidly realised they had overestimated. The result was price cuts and mothballing of production. Indeed, one Yongsheng salesman told WSJ that product prices have dropped four times in the last six months and are now averaging 200 yuan or US$32 a tyre. With the price cuts not having the desired effect and – if the eye-watering duties the DOC have levelled against Yongsheng are anything to go by – having made things worse, the only other option available to Yongsheng has been the apparent mothballing of two factories in a bid to keep the Yongsheng business as a whole afloat.
Speaking with WSJ Liu explained that Yongsheng withdrew from the DOC anti-dumping/countervailing investigation because it couldn’t provide all of the detailed information requested “in a very short period”. However, DOC clearly hasn’t take this very well and through the determination process has levelled tariff figures of 70, 80 and now over 100 per cent against Yongsheng.
Seeing this coming, Yongsheng knew such tariffs would make its business totally unsustainable and so stopped shipments to the US. However distributors such as Del Nat that were then left in the lurch and, unable to find alternatives so their stock in January 2015 at the bargain bin price of $23 million – about 15 per cent lower than Del-Nat had paid for it. As a result the company imploded meaning contagion spread from the faltering Chinese tyre manufacturer to its distribution chain.
