The Bulgarian Surrogate: Why Are Chinese Steel Shelf Tariffs Important?

Chinese manufacturers have been sending pre-packaged steel shelves, without bolts, to the US and selling them at less than cost thanks to generous subsidies to manufacturers such as Zhongda United Holding Group Co. Ltd. (22.64%) and Zhejiang Limai Metal Products Co. Ltd. (50.23%) there.

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The Chinese steel shelves are sold at retailers and are mainly used for storage. They aren’t sold here in the volume of say hot-rolled or cold-rolled steel imports, but they were, nonetheless, found to have been dumped in the US by the Commerce Dept. in one of the first cases decided since new enforcement measures were put into place in June.

Also included in the determination was a China-wide rate of 112.68% for other companies dumping the shelves here. The imports eventually found their way to big box retailers.

Why is this Important?

This investigation is one of the first to use a new comparison structure for Chinese imports. Previously, Chinese imports would be compared to market-based economies.

Chicago-based Edsal Manufacturing petitioned Commerce and the US International Trade Commission for anti-dumping relief in January, claiming that Chinese shelving companies were selling their products at prices ranging from 40 to 211% below fair market value and also flagged scores of government subsidy programs bolstering their production.

This investigation marks the first time that Commerce made the decision to use Bulgaria as the surrogate country for China to determine dumping and countervailable duty margins for the shelving units. Surrogate countries, used for comparison purposes by Commerce, have been a contentious issue for both Chinese and US manufacturers.

What is a “public body” in China is still a matter of great dispute. Difficulties in obtaining accurate surrogate values to compare Chinese prices and subsidy levels to for countries on Commerce’s list of surrogates — especially usable public financial statements — have limited their use. So, Bulgaria was used as a country to compare production costs and subsidy rates from public bodies with China’s in the steel shelving investigation.

The Bulgarian Surrogate

Why Bulgaria? Bulgaria has similar “public bodies” as China and it was believed it could be a suitable comparison for determining the subsidies Chinese manufacturers are receiving and how much of those subsidies go toward the Chinese manufacturers’ actual bottom lines.

Peter Koenig of Squire Patton Boggs US LLP, who represents  Zhongda and affiliated companies in the case, told Law360.com Tuesday that he believed Commerce made the correct decision to use Bulgaria as the surrogate country to determine the dumping margins.

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“It is the first time that Commerce has used Bulgaria and it reflects changing world trends as to the most comparable country to China for use as a surrogate country to assess the dumping margin,” he said.

Koenig said he is hopeful his client’s preliminary anti-dumping duty margin, currently set at 22.64%, will become even lower once the facts are fully evaluated.