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July 1 ITC Ruling Decks Domestic Manufacturers

Trade commission says industry not harmed by Chinese imports.

In recent years, The People’s Republic of China has become the world’s largest producer and exporter of steel. The country’s economy is boosted by massive steel mills—some of which employ as many as 100,000 people who live in apartment towers on mill grounds. The Chinese produce the greatest amount of steel in the world, and at a much lower cost than anyone else. One of the driving forces behind this cost is the fact that instead of investing in efficient manufacturing technology, they use cheap labor. Where a U.S. steel mill might employ 500 people who earn $15.00/hour, a Chinese steel mill employs 5,000 at $0.25/hour.

The Chinese government decided it could make even more money if it stopped exporting raw steel to the rest of the world and instead made products from that steel and exported those products. To motivate its manufacturers to create these products, the government offered massive tax breaks and numerous subsidies for those companies that complied. These breaks were so large that, even after factoring in shipping costs, the Chinese companies were able to sell exported products for an even lower price than they could offer domestically. This led to an influx of Chinese-manufactured steel products into the American market. For a while, material handling didn’t feel the pinch, but by the late 1990s, signs of trouble started to show.

An Unwelcome Guest
According to Nashville Wire Products Division Manager Robert Rollins, Chinese-manufactured wire decking first started showing up in the United States in the late 1990s. “At first, just a few companies were importing it,” says Rollins. “Then it started picking up as the new millennium rolled around.” Eventually, Chinese decking companies started showing up at trade shows and several domestic distributors began distributing large amounts of inexpensive Chinese decks.

Typically, the wire decking industry wouldn’t have any complaints about the competition. But the Chinese weren’t competing on a level playing field. The U.S.-manufactured decking was superior in the quality department, but thanks to the massive government tax breaks, the Chinese companies could sell their decks at a much lower cost. With some products like forklifts, quality can overcome price, but with wire decking being such a commodity-based product, the American companies didn’t stand a chance. “I’ll put my decking up against anyone’s,” says Rollins. “As long as it’s a level playing field, none of the American companies are afraid of competition.” Unfortunately, due to the massive tax breaks and other government provided subsidies, the deck was stacked in the Chinese manufacturers’ favor, and the U.S. wire decking industry decided to do something about it. “The industry as a whole recognized the degree of damage these unfairly traded imports were causing,” says J&L Wire Cloth President Tim Selhorst. “It was either take action or die.”

An Unlikely Alliance
Recognizing the gravity of the Chinese threat, the major U.S. wire decking manufacturers decided that they either had to work together or die alone. An alliance was formed among Nashville Wire Products (Nashville, TN), J&L Wire Cloth (St. Paul, MN), American Wire Products (Frankfort, KY), ITC (Phoenix, AZ) and Wireway/Husky Corp. (Denver, NC). Typically competitors, the five companies were united with a common purpose—leveling the playing field for wire decking in the United States. In June 2009, the first step was taken: The alliance filed a formal trade case against four Chinese wire decking manufacturers.

The alliance and its team of attorneys first filed its case with the International Trade Commission to determine if the Chinese product was causing damage to the domestic industry. In July 2009, it was deemed that there was damage and the case was forwarded to the U.S. Department of Commerce (DOC) who would determine if dumping took place. That ruling also went in the alliance’s favor. In January 2010, the DOC issued a preliminary determination decision on the dumping duties. The duties for the four companies ranged from 42.61 to 289.00 percent. A few weeks after the decision was announced, the Chinese government released a statement specifically mentioning wire decking and condemning U.S. anti-dumping measures.

A Surprise Twist
On July 1, 2010, however, the International Trade Commission decided by a 4-2 vote that the domestic wire decking industry has not been harmed nor is in imminent threat of harm by Chinese imports. This decision overrules the preliminary antidumping duties that had been put in place by the Department of Commerce earlier this year. The vote came as a surprise to many in the industry, including Rollins, who says, “We are shocked and disappointed by this decision. It’s back to business as usual.”

The wire decking industry was the smallest steel-product industry that has ever brought a case before the Commission. Other fabricated steel products, such as wire hangers, nails and oil pipelines, to name a few, have all had successful votes in recent years, a major reason why this decision came as a surprise. The Commission is composed of six members who are not supposed to show political bias. But some people say that the International Trade Commission had become a rubber stamp for the domestic steel industry in antidumping cases, so they ruled against the wire decking companies to dispel that theory.

Whatever the Commission’s reasons, its decision is binding. The domestic coalition still retains the right to appeal this decision and can do so within 30 days of the decision’s official written publication in the Federal Register, which had not yet occurred as of the writing of this article. Once the decision is published, Rollins says the group will decide how to proceed. “Trade cases are very expensive to prosecute, so we’ll need to wait and see what happens,” he says. “But our heart is in American manufacturing and not being an importer. We’re about to find out how important that is to our customers.”

Material Handling Equipment Distributors Association

2 comments

  1. My name is Victor Kedaitis, and I am the President and CEO of Worldwide Material Handling Products, LLC and former Vice President and General Manager of Atlas Material Handling, Inc. Atlas entered the wire decking business in 1998 and I was instrumental in developing it’s relationship with a Chinese manufacturer that exported quality wire decking and related products that U.S manufacturers were unwilling to supply. In March of this year my new company purchased the assets of Atlas Material Handling when Atlas shifted their strategic direction away from wire decking. I took my team to my current location and created a new venture in order to continue to provide superior quality service and value to our customers.

    I am writing concerning MHEDA’s reporting of the ruling of the International Trade Commission (ITC) which, after exhaustive review and investigation, determined that the Chinese products were not causing actual material injury or threat of material injury to the U.S. wire decking industry. I was greatly troubled by the number of erroneous and misleading statements in the article appearing in The MHEDA Journal of July 15, 2010, and would appreciate the opportunity to set the record straight. I suspect that the author was simply not provided with all of the facts concerning a complex and exhaustive investigation by two independent agencies of the U.S. Government; the U.S. Department of Commerce, which investigates levels of dumping and subsidization and the ITC which determines whether a U.S. industry is injured by reason of imports of dumped and/or subsidized products. I regret that MHEDA did not scrutinize or research the facts provided by the losing side in a contested litigation still smarting from defeat.

    Please note below my rebuttal to the following myths:
    Myth: China employs people at $.25 per hour and cheap labor drives export prices.
    Fact: China has invested heavily in modern high-tech steel production facilities, has enormous buying power for raw materials that are purchased worldwide and may well be the most rapidly emerging economic power that this world has ever seen. China’s growth has resulted in a new educated middle class of citizens which has in turn put unprecedented upwards pressure on labor wages, led to increased trade unionizations, and increased worker welfare benefits, etc. I note that one of the 5 petitioners in the Decking Investigations quickly became the second-largest importer from China and resumed importing wire decking from China immediately after the ruling was issued–despite having testified to the ITC that they were no longer going to buy from China and contribute to the injury to the U.S. industry that they alleged in their petition.

    Myth: China heavily subsidizes its steel manufacturers creating unfair disadvantages for U.S. companies.
    Fact: For wire decking, the U.S. Department of Commerce determined that there were no “massive tax breaks” or government subsidies that the Petitioners claimed. At the end of the investigation, the two largest producers were found to be at very low levels in the 1% to 3% range. Approximately half of the three percent end of the range came from comparing Chinese wire rod pricing to a contemporaneous international benchmark reported in the steel industry. That an individual company may spend approximately 1.5% less than the broad international average is hardly remarkable and certainly no basis for a claim of injury. Moreover, U.S industries embrace and seek out these same subsidies in the form of low interest loans, employment tax breaks, free enterprise zones, tax concessions to relocate to one state or another, etc. In the U.S they are seen as smart business decisions, but are labeled “illegal” and “unfair” if they happen to occur in China.

    Myth: Chinese wire decking is an inferior product when compared to U.S. produced goods and our company had a competitive advantage on price which was the main driver of customer preference.
    Fact: The majority of wire decking manufactured in China is equal to or superior in quality to U.S.-made similar wire products. We found customers purchased the Chinese decks based on a superior fit and finish, our outstanding service and the unique distribution model that Atlas originated. In addition, Atlas invested significant resources and capital to comply with RMI’s R-Mark standard for wire decking and was the only deck importer whose decks were independently tested by a nationally recognized laboratory. Moreover, it was the U.S. producers that were the “price leaders” driving prices down.

    Myth: There were 85 Chinese producers and over $300M in annual sales volume of wire decking (Claims by the Alliance in their Petition to dramatize and exaggerate the scope of the case)
    Fact: There were only 4 major Chinese producers and an estimated $30M of annual sales volume at the very height of the market in the 2007-2008 period before the fullest effects of the recession set in.

    Myth: The Department of Commerce issued enormous duties against the importers because of “massive tax breaks and numerous subsidies.”
    Fact: The huge preliminary duties were default penalty rates imposed on factories that never produced a single wire deck and, appropriately, did not respond to the Commerce Department inquiries. The lowest duties were imposed on the largest producers who actually responded to the questionnaires, adding legitimacy to the fact they were responsible and effective producers that did not require significant subsidies to compete.

    Myth: The effect of all of the Chinese subsidies and the selling of products below actual cost caused price depression and suppression. These factors are what caused harm or potential harm to the U.S. market.
    Fact: Using the Petitioners’ own data, it was demonstrated to the ITC that there was no price depression or price suppression during the period of investigation. There was no net effect on their profit margins, either. In fact, towards the end of the period of investigation, the domestic producers’ margins and market share actually increased despite their claims to the contrary. It was the devastating effect of the recession that had the greatest impact and the Commission ultimately ruled that any harm or even potential harm to pricing or margins experienced by the U.S. manufacturers was due to the recession and other factors than the Chinese imports.

    Myth: The ultimate decision was a political decision to eliminate any tariff retaliation by the Chinese.
    Fact: The ITC decision was totally bi-partisan, and the vote was split equally between Republicans and Democrats. The ITC is an independent Executive Branch agency that is not answerable to the President, unlike the U.S Department of Commerce whose secretary is appointed by and answerable to the President. Moreover, a factual examination of the ITC’s record in 2010 disproves any theory that it is concerned about Chinese retaliation. The Wire Decking case is the only case where the ITC voted no injury with respect to Chinese imports all year. This demonstrates that the ITC is extremely sensitive to the well being of U.S. industry and will not hesitate to find injury when justified.

    Material handling distributors benefit the most from healthy and legitimate competition amongst their suppliers. It allows them to bring additional value to their customers and maintain reasonable margins for higher service levels and sustainability. Sometimes it’s this service level that is the only differential they have to sell to their customers, and therefore they depend on the importers to deliver this difference. The Wire Deck Alliance was not motivated to eliminate Chinese producers, rather, they wanted to eliminate legitimate competition from a single importer–Atlas–that had innovated and developed a better business model.

    Petitioners are attempting to diminish their legitimate defeat in administrative proceedings via a media smear campaign. MHEDA and the industry as a whole would be better served by a more balanced understanding of the facts surrounding this case and its ultimate conclusion. Thank you in advance for your consideration in delivering this message with a very different perspective to your membership.

    Best Regards,
    Vic Kedaitis
    President and CEO
    Worldwide Material Handling Products, LLC

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