Tilting the Rules of Fair Trade
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By GREG RUSHFORD
America plays fair. Other countries, particularly China, don't. Just ask U.S. Commerce Secretary Don Evans. "Free trade only works if both sides play by the same rules," asserted Mr. Evans in a speech to a business audience in Minnesota earlier this month. "And right now, China is not competing on a level playing field."
Such words could very well have come from the lips of former President Bill Clinton's commerce secretary in the late 1990s, William Daley. In fact, they did. Mr. Daley (and Presidents Clinton and George W. Bush) also regularly called for "fair trade" and a "level playing field." Using almost the same language as does Don Evans these days, Mr. Daley argued that "people will not support free trade, unless they believe we are protecting them from those who do not historically play by fair rules." Like China.
Many Americans, no doubt, believe that America holds the high moral ground in its China trade. But if the American public knew more about the machinations that the federal government undertakes when officials label China as an "unfair trader" according to U.S. antidumping laws, they would have to conclude otherwise.
Since 1993 -- the decade encompassing the Clinton-Bush administrations -- U.S. antidumping officials have slapped punitive tariffs on China 33 times. They have taxed an array of "unfairly traded" Chinese products ranging from various chemicals and metals to steel, garlic, honey, pencils, crawfish tailmeat, aspirin and apple juice concentrate. In each case, the U.S. government has determined that Chinese businesses were guilty of pricing their products too cheaply, thus deliberately injuring their American competitors. Another 10 Chinese export products are currently under investigation, including television sets, the plastic bags that consumers see in their grocery stores, and bedroom furniture. If there is evidence of China not playing by the rules of the marketplace, it would be in the official files. I've looked at case after case, and the evidence simply isn't there.
The evidence that is in the antidumping files shows that the U.S. antidumping laws are designed to let the Commerce Department bureaucrats do pretty much anything they want, as they go about the business of sticking it to China. In the 1995 antidumping investigation that targeted Chinese honey, to cite a typical example, Commerce Department officials sent lengthy questionnaires -- in English -- to 28 Chinese companies like the Shanghai Bee Product Factory, and asked for detailed information on their pricing. Then, the officials ignored 24 of the responses on grounds they had no time to analyze them -- assessing these Chinese firms with an antidumping tariff of 141%. The four remaining cooperating companies were assigned antidumping tariffs of up to 157%.
Faced with the prospect of being taxed out of the U.S. market entirely, the Chinese then agreed to a deal whereby Commerce Department officials replaced the tariffs with a "reference price." Private citizens entering into such a price-fixing scheme -- driving up the cost of honey for American consumers -- would be prosecuted. But the U.S. Congress has written the antidumping laws to allow officials to do things like this.
After the original 1995 antidumping case from the Clinton days lapsed in 2000, the U.S. honey producers filed another dumping case in October 2000, which the Bush administration inherited when it assumed office in January 2001. The Chinese asked how they could have been dumping when they had been following a pricing scheme dictated by the U.S. Commerce Department. Yet that didn't stop the bureaucrats at Commerce from concluding further dumping had taken place. This issue is now on appeal at the Court of International Trade in New York.
The worst abuses are associated with a bureaucratic prescription for trickery called the "nonmarket economy" methodology. This is the key provision in the U.S. antidumping code that regularly punishes China. The theory is that since China's economy is not yet fully market-driven, the Commerce Department should use economic data from comparable surrogate market economies -- usually India -- to determine China's true costs of production. While that may sound semiplausible in theory, in practice it results in one story of bureaucratic abuse after another.
Take the 1995 sebacic acid case. While hardly a household word, sebacic acid is the chemical that helps put the bristle in toothbrushes. To calculate that China was selling sebacic acid at about 243% below what it cost to produce it -- an assertion that was absurd on its face -- the Commerce Department checked economic statistics from India. Problem was, India wasn't even in the business of producing sebacic acid.
In 1997, the Commerce Department cooked the books to conclude that China was selling crawfish tailmeat to Americans up to 201.6% below cost. This time, India and Spain were the surrogate countries -- neither of which had a crawfish tailmeat industry. The Commerce Department consulted the Spanish customs records in Madrid to see how much Spain paid for imports of fresh whole crawfish from Portugal. To figure the value of China's foreign inland freight, the bureaucrats in Washington looked at truck rates as published in an article in the Times of India back in 1994.
Perhaps the worst U.S. antidumping abuse was documented in a 35-page decision penned in June 2002 by Judge Richard Eaton of the New York-based U.S. Court of International Trade. In an extraordinary indictment of the U.S. antidumping regime, the judge took a bite out of the nonmarket methodology application in the case brought by the American apple industry against Chinese producers of apple juice concentrate.
The Commerce Department had determined that China had been dumping by using the price of concentrate produced by India's Himachal Pradesh Horticultural Produce Marketing & Processing Corp. as a benchmark. The problem was, HPMC is "a government-controlled company" that subsidizes Indian apple growers by artificially raising prices, Judge Eaton found. "HPMC has not historically made a profit, and its losses are made up by loans from the Himachal Pradesh state government and from other government sources." With commendable understatement, the judge found that "HPMC activities do not appear to be market driven."
Currently, the U.S. trade police are peering into American bedrooms, looking to tax nearly a billion dollars in trade in Chinese-made bedroom furniture, on grounds that it is priced too cheaply. Twenty-seven American furniture makers in states like North Carolina and Virginia are asking for antidumping tariffs ranging from 158% to 441%. Chinese furniture manufacturers, they allege, are getting an "unfair" advantage because the cost of labor in China is far lower than that in the United States.
The domestic petitioners -- calling themselves the American Furniture Manufacturers for Legal Trade -- cite a Chinese company named Lacquer Craft Manufacturing Co. as a "prime example" of China's unfair furniture trade. Lacquer Craft is in the township of Dongguan in the Pearl River Delta region in southern China, near Hong Kong. Lawyers for the petitioning American furniture makers complain that companies like Lacquer Craft benefit from China's comparatively low wage scales. Lacquer Craft, the lawyers note with apprehension, is also expanding in Shanghai, and has invested "at least $25 million to purchase the brand name and sales and marketing network of Universal Furniture, which has long been a major player in the U.S. wooden furniture market." The petition reads like a conspiracy.
But what's unfair about what China's furniture entrepreneurs are doing? The American furniture petitioners are describing perfectly reasonable economic activity. When jobs are attracted to towns in the American south because of low labor rates compared to, say, Manhattan, it's cited as evidence of comparative advantage.
Moreover, in order to make their furniture the Chinese manufacturers buy significant amounts of oak, cherry, walnut, and other hardwoods from U.S. southern states like Virginia which have been actively pursuing export opportunities for their wood products at trade fairs in Shanghai and Guangzhou. When Chinese businessmen buy American wood, nobody says that that is unfair.
And nobody says that it is unfair for American furniture concerns like Ethan Allen Home Interiors to operate inside China. Ethan Allen has opened stores in Shanghai, Tianjin and Urumqi, and wants to develop an entire chain of retail stores on the mainland.
Rather than serving as an example of unfair trade, what's going on between Americans and Chinese in the furniture industry looks like a model of the benefits of free trade. Alas, since the U.S. antidumping laws are written to tilt the "level playing field" against foreigners who become too successful, that doesn't matter much.
American commerce secretaries and presidents of both political parties keep insisting that China doesn't play by the rules of "fair trade." But whether the product is furniture or apple juice, the politicians' claims just don't hold up. The fact that they continue repeating such smears is really unfair.
Mr. Rushford is editor of the Rushford Report, a Washington-based newsletter on trade politics. |
