HICKSVILLE, N.Y.—When news of the first preliminary ruling in the federal case against Chinese suppliers of engineered wood floor was heard at the Domotex asia/ChinaFloor (DACF) market in Shanghai, China, last month, a large sigh of relief could be felt in the numerous halls housing exhibitors of these types of products. At the same time, those who filed the original petition asking the government to investigate their claims of dumping and unfair competition proclaimed a positive result.
On March 22, the Department of Commerce (DOC) announced its “affirmative preliminary determination in the coutervailing duty (CVD) investigation of imports of multilayered [engineered] wood flooring from China.” For purposes of CVD investigations, the DOC said subsidies are “financial assistance from foreign governments that benefit the production, manufacture or exportation of goods.”
The result was a preliminary determination that “Chinese producers/ exporters have received countervailable subsidies ranging from 0% to 27.01% ad vaorem” —a tax based on the assessed value of an item.
While this is just one, and arguably the smallest, aspect of a multi-pronged investigation involving the DOC and the International Trade Commission (ITC), both sides were quick to choose favorable points from the CVD decision. Jeffrey Levin, legal counsel for the Coalition for American Hardwood Parity (CAHP), which is made up of the group of U.S. manufacturers that filed the unfair trade competition petition with the government, said while this part of the investigation “was not intended as the principal focus” it was “an important step forward in our overall aim to bring pricing parity and fair competition back to the U.S. market.”
The reason for this, he added, is “all but two manufacturers in China are now subject to deposit requirements and the attendant suspension of liquidation. At this point, the burden is on the Chinese respondents to demonstrate the accuracy and comprehensiveness of their questionnaire responses when the DOC conducts its on-site verification in the CVD investigation.”
Interestingly, Jonathan Train, president of the Alliance for Free Choice and Jobs in Flooring (AFCJF), a group comprised of Chinese manufacturers as well as U.S. distributors and importers who are against the petition, called the initial DOC ruling “good news” for his side. “These findings certainly undermine the overblown allegations of the petitioners that they are injured by overseas subsidies.”
Some of his reasons include: “Only three Chinese companies were chosen by the DOC for in-depth investigation for subsidies; two of the three received a zero rate, meaning ‘no subsidy found,’ with the third receiving a 2.25% rate; 67 other companies responded to DOC requests for information and received 2.25% rates. These 70 companies are estimated to represent at least 95% of the U.S. imports for 2011.”
Train added the 127 companies listed by the DOC to receive the 27.01% rate not only “represent a negligible quantity of multilayered flooring exports to the U.S., they are on the list because they did not reply to the DOC questionnaire.” And, he pointed out, “Most of these 127 companies listed are inaccurately categorized,” noting many “do not focus on exports to the U.S. [and] the list does not reflect company mergers, consolidations or closures.”
While those Chinese suppliers hit with either the zero or 2.25% duty were able to temporarily smile, many said moving their production to other countries was an option depending on the final outcome of the investigations.
From Vietnam to Malaysia to Indonesia, manufacturers ran off a litany of countries they could switch production to within one year’s time.
Along with finding new places to produce their floors, many executives told FCNews that advanced technologies and new ways to produce wood floors, not to mention how certain species and types are not affected by the case, the longterm impact will be negligible.
They also pointed out the so-called “advantages” they are alleged to have either do not exist or are not as bad as presented. For instance, executives kept pointing to the fact they are faced with price hikes for raw materials, transportation and energy. And, their labor costs are continuing to rise. (Editor’s note: During the week DACF took place, the central government in China raised minimum wages between 10% and 20% depending on the region, and this followed wage hikes by 30 individual provinces last year and three others to start off 2011.)
As noted, the CVD ruling was not only the first in a series of rulings, it was just a preliminary decision. There was already supposed to be a preliminary determination by the ITC in December but that got pushed to May 19 by the request of the petitioners. Following the preliminary rulings, both the DOC and ITC will make final determinations and, if need be, a final “Issuance of Order.”
As such, CAHP’s Levin said, “Contrary to some impressions that have been communicated, there is no connection between the preliminary CVD determination and whatever the preliminary dumping determination will be. In other words, the preliminary CVD margins do not, in any manner, serve as a ‘predictor’ of the preliminary dumping margins. These are entirely different forms of unfair trading, and are handled separately, using different methodologies.”
Nonetheless, he added, “We look forward to the preliminary determination in the antidumping segment of the investigation in mid-May, and anticipate that [it] will constitute another, significant step toward providing relief for this critical U.S. manufacturing industry in its efforts to combat unfair trade. CAHP will do everything it can to ensure that government subsidies—whether those referenced in the petition, or any other subsidies that are brought to the attention of the [government]— are thoroughly evaluated.”
Speaking on behalf of the opposing party, Train said while the group applauds the DOC for it initial “diligent and careful review” there is more work to be done. “As an industry, we need to be prepared for the anti-dumping preliminary decision final CVD and dumping determinations as well as the all- important final ITC decision on injury this fall.”
During this time, AFCJF “remains committed to presenting compelling evidence to prove the petition should be dismissed and these punitive duties should be removed. We believe the petitioning manufacturers were not materially injured by imports from China but rather by the recession and their own business decisions about which flooring products U.S. consumers and builders demanded.”