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US tire duties protectionist, say experts

By Li Fangfang (China Daily)
Updated: 2009-07-08 09:16

US President Barack Obama should not approve the proposed tariff remedy plan on Chinese tires, as it is an unfair and unreasonable consideration, Chinese officials and experts said.

The Ministry of Commerce said last Friday on its website that the Chinese government "strongly opposes" the US' proposed limitation on Chinese tire imports, as such a move is a sign of trade protectionism.

"China is highly concerned about the proposed duties recommended by the US International Trade Commission (ITC), and will urge the US government to give up the proposed impost," said an unnamed official with the Bureau of Fair Trade for Imports and Exports under the ministry.

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In April, the United Steelworkers, a union that represents some American tire workers, filed a petition with the US government accusing Chinese tire manufacturers of dumping tires in the US market. This, they claimed, weakened the US tire industry and led to job losses.

The Union has also urged the US government to limit the numbers of tires it imports from China.

Last week, the ITC urged President Obama to impose an additional tariff on imports of certain passenger vehicle and light-duty truck tires from China for three years, 55 percent ad valorem in the first year, 45 percent in the second and 35 percent in the third year.

The US president has to make a final decision in this regard by mid-September.

Tires made by China United Rubber Group Corp at an exhibition in Beijing. The US is planning curbs on Chinese tires. [CFP]

Over the past four years, the number of Chinese tires exported to the US has tripled and Chinese manufacturers' market share in the US market rose from 5 to 17 percent.

Last year, China exported almost 46 million tires to the US, with total value surpassing $1.7 billion. The US is the major export destination for Chinese tire makers.

"Chinese tire imports are in no way the reason for rising unemployment in the US tire sector. The Chinese imports actually fills a gap in the low price tire segment of US," said an anonymous official with GITI Tire, China's largest tire maker.

"Rather than punishing Chinese tire manufacturers for their success, the US government should realize that the Union's arguments are unreasonable," China Chamber of Minerals & Chemicals Importers & Exporters said in a statement. The chamber is helping Chinese tire manufacturers fight the tariff dispute.

According to GITI, there are three different tiers of American tires. The main difference between the tiers is price and profit margin. "There is very little difference in performance or quality," said the GITI official.

Tires in Tier 1 have the highest price and profit margin and are marketed to affluent Americans. Tires in Tier 2 are marketed to the average US tire consumers who want a brand name tire, but don't want to pay a premium price. Tires in Tier 3 are marketed to Americans who want a good, quality tire at a low price and don't require a brand name.

"US tire manufacturers dominate Tier 1 and 2, while imported tires from China and other countries make up the bulk of Tier 3," he said.

Like in the case of other manufacturing segments, the entry of foreign manufacturers in the American Tier 3 tire market saw the exit of domestic tire manufacturers. "China and other manufacturers can produce high quality tires at lower prices because our cost of production is lower, and not because we did anything illegal," said the official. "Given that the profit margin on these are already low, US manufacturers chose to concentrate on the more expensive tiers where they can make money."

Moreover, "even if the US government decides to limit the sale of Chinese tires, there is no guarantee that American manufacturers will reenter this market," said the statement.

US manufacturers also import tires from other countries, such as Venezuela, and sell them under one of their own brands. In short, it is quite likely that tires from other countries would replace Chinese tires. It is also quite likely that the price of these tires will increase.

"They (the union) are just pushing Washington to use America's economic crisis as an excuse to engage in protectionist measures," said Xu Fengxian, economist, Chinese Academy of Social Sciences.

However, he is optimistic on the final judge, as Obama administration has sent friendly signals on trade with China. Xu also said he believes that the Chinese government would make great efforts on the issue to appeal for a fair trade between the two countries.