What happens when an illegal business practice becomes so common and virtually accepted that it ultimately gets difficult to break?
Many U.S. manufacturers would argue that we’re in a period of global trade that features one such practice: trade circumvention. The most slippery aspect of ferreting out circumvention is first defining which segment of industry gets harmed the most, before even knowing what to do about it. Is it the upstream sector, including primary steel, textiles or plastics production? Or the downstream sector, such as the residential washing machine business?
MetalMiner Executive Editor Lisa Reisman makes the case that the lines between upstream and downstream manufacturing have blurred in this new report, Rules-Based Trade Remains Critical to Manufacturing Health.
But first we must understand the basics. Here’s an excerpt from that paper defining the landscape of trade circumvention in a short primer.
What is Trade Circumvention?
According to the Organization for Economic Cooperation and Development, circumvention refers to “getting around commitments in the WTO such as commitments to limit agricultural export subsidies. It includes: avoiding quotas and other restrictions by altering the country of origin of a product; measures taken by exporters to evade anti-dumping or countervailing duties.”
Four steel producers filed a petition last September, charging China with circumventing anti-dumping and countervailing duty orders for corrosion-resistant carbon steel and cold-rolled carbon steel by sending substrate materials to Vietnam for processing and re-export. The claim appears to be supported by trade data (as shown by an spike in Vietnamese cold-rolled and CORE imports after November 2015 while the same Chinese imports drastically decreased after duties were imposed on the latter, for example).
Circumvention also occurred with regard to Whirlpool’s case, which we go into detail later in this full report. Samsung and LG moved washer production from South Korea and Mexico (both subject to the dumping order) to China to avoid the duties.
The practice of circumvention, however, is nothing new. In fact, MetalMiner first covered a trade case in 2008 involving mattress innersprings from China. Chinese producers received anti-dumping duties of 165 to 235% while South African and Vietnamese producers received duties of 121 to 116%. Chinese producers began shipping innersprings to Malaysia that were then re-exported to the U.S. to avoid duties.
In trade cases involving furniture, Chinese producers have actually shipped goods to and through “low duty” factories and even paid those factories commissions to avoid higher duty rates into the U.S.
The craftiness of global exporters to avoid duties has become somewhat professionalized.