Consumers of aluminum extrusions in the US could face higher prices following the decision of the US Trade Commission (ITC) to approve a Commerce Department investigation into harm caused by the sale of aluminum extrusions from China at below US market prices.Ã‚Â The petitioners for the action are the United States Union and the Aluminum Extrusions Fair Trade Committee (a coalition of domestic manufacturers of aluminum extrusions), notice of the decision can be found here.
The action will cover products with the subheadings 7604.21.00, 7604.29.10, 7604.29.30, 7604.29.50, and 7608.20.00 of the Harmonized Tariff Schedule. Apparently from 2007 to 2009, imports of aluminum extrusions from China increased 90% by volume. And in 2009, imports of aluminum extrusions totaled $514 million, according to US government figures quoted on various reprints of a Reuters article.
The petitioners claim Chinese producers enjoy rebates and other government subsidies that allow them to unfairly compete with domestic producers. The position has some merit. Chinese extruders support is overtly in two forms and covertly in others. Overtly they are able to reclaim most of the VAT they pay on raw materials when they export goods, in itself this is not different than any other country in the world which operates a VAT system such as the EU. It simply makes value added tax a neutral sum game for business conducted outside the economic zone in question. But in addition to gaining most (but not all) of this VAT back, the exporter can more controversially claim export subsidies of between 3 and 15% depending on the product. This is a direct government subsidy designed to promote exports. Producers in the US can fairly claim this should be countered with an import duty. In addition, Chinese producers benefit from two further advantages. First, their currency is kept artificially pegged to the US dollar. If allowed to free float it would unquestionably be at a higher level than the current approximate 6.83 peg to the detriment of exporters ability to compete on price. The second covert support is in cheap loans. Chinese state banks literally forced cash onto manufacturers over the last 18 months stimulating a frenzy of investment and resulting in the case of aluminum extrusions in significant over capacity. To keep presses busy we are seeing the results of that investment in a rise in aluminum semi’s exports.
According to the Fabricating and Metalworking website www.fandmmag.com, the ITC will make its preliminary determination of injury to the domestic industry by mid July. Commerce will then investigate dumping and subsidies and make preliminary determinations within 4-6 months. If dumping and subsidies are preliminarily found, the Customs Service will suspend liquidation of imports of aluminum extrusions, and importers will be required to post a bond in the amount of the estimated duties. The entire case is expected to take 12-14 months but meanwhile expect imports from China to plummet. No importer is going to want to post a bond if there is a fair chance duties will be later imposed. With significant excess capacity among domestic extruders, upward price pressures will be muted in the short term by domestic competition but as the recovery continues and mills become busier prices will undoubtedly rise faster without import competition than they would do with.
On the flip side consumers can look forward to a more comprehensive range of domestic supply options as a result of this action than probably would have been the case if it went unchallenged. In the end, an industry already operating at below optimum capacity rates would have seen casualties if Chinese imports had continued to take significant market share and depress prices. The US has seen casualties in the extrusion market during this recession and probably risked seeing more if imports continued to rise.