China Opposes the U.S. Special Safeguard Measure to Chinese-Made Tires

1. Process of this case

On April 20.2009, The United Steel Workers (USW) filed an action,
on behalf of 15,000 workers employed at thirteen tire factories
in the United States, asking the U.S. International Trade Commission
(ITC) to adopt a “special safeguard measure” affecting Chinese
made consumer tires. The USW action indicated that Chinese tire
exports to the U.S. have substantially increased during the last
5 years. Compared to 2004, tire exports in units had increased
by 215% in 2008, reaching 46 million units, with the sum total
of $1.788 billion USD, up 295% during that period. The USW action
claimed this increase injured the U.S. tire industry.

On April 29.2009, ITC announced its intent to formally launch
a Special Safeguard Investigation. This is the seventh U.S. special
safeguard investigation into products from China, and it is also
the largest and most influential one.

On June 18, 2009, according to the voting result of 4-2 by the
six members of ITC in the case of U.S. special safeguard measure
into Chinese made tires, the ITC came to the conclusion that Chinese
tire imports created a market disruption.

On June 29, 2009, the ITC published its recommendations for special
safeguard relief measures proposing a remedy of 55%, 45% and 35%
special import duties on Chinese passenger and light truck tires
in addition to the current import duty of 4.0%.

According to the relevant U.S. investigation procedures, Mr. Barack
Obama, President of the United States, before Sep. 17, will make
the final decision on whether to implement special safeguard measures.

2. China Position

At the recent G20 Summit, in response to the international financial
crisis, all member countries expressed their opposition to trade
protectionism, and pledged to reduce the impact of the financial
crisis through international cooperation; thus, we are firmly
opposed to this measure. For the U.S. to apply a special safeguard
measure at this moment, restricting exports of a particular country
through the mechanism of U.S. domestic laws, can only be seen
as protectionist.

(1) We are firmly opposed to the special safeguard measure proposed
by the U.S. ITC.

Chinese made tires largely do not compete with U.S. made tires
in the U.S.; rather, they serve different market segments. The
U.S. made tires are largely sold to car manufacturers (OEMs) for
assembly on new cars and into the premium priced, manufacturer
name brand replacement market. In contrast, the Chinese made tires
are mainly sold in a different market segment - i.e., the lower
budget, generic brand, replacement tire market for U.S. consumers
with severe financial constraints. Long before any significant
Chinese entry into the U.S. market, the U.S. tire manufacturers
were in the process of abandoning this lower end market segment
in order to concentrate on the market segments they viewed as
more profitable. Because of the good quality and moderate price
of Chinese tire exports to the U.S., some U.S. consumers are very
glad to choose Chinese made tires. Moreover, Chinese tire enterprises
are responsible to U.S. consumers, providing good after sales
technical service, which contributes to the development of Sino-US
bilateral trade. Affected by the financial crisis, the U.S. domestic
auto industry has slumped and automotive vehicle production and
sales have dropped, which has resulted in decreasing demand for
tires; thus, the U.S. tire industry is experiencing trouble. There
is however, no direct causal relationship linking this trouble
with Chinese made tires. Looking back historically, on the one
hand, the U.S. tire industry was losing money long before Chinese
tires entered the U.S. market. On the other hand, the U.S. tire
industry had restored profitability during the growth peak period
for Chinese tires in 2007. From 2004 to 2007, Chinese made tires
imports increased by about 300%. During the same period, the U.S.
tire manufacturers’ operating profits rose by almost 200%. There
are many reasons why the U.S. tire manufacturers shifted the production
of lower cost tires overseas, and this shifting of production
overseas began long before the importation of Chinese made tires.
The reasons the tire manufacturers shifted production overseas
has nothing to do with Chinese tires imports, and these reasons
include: the pursuit of more profit; capacity constraints limiting
their ability to produce the lower cost tires for value oriented
tire consumers; their desire to compete with the imported tires
coming to the U.S. from lower cost, third-world countries other
than China; and an effort to meet the corresponding market demand.
Therefore, even if the U.S. restricts Chinese tires imports, the
U.S. manufacturers will not transfer their overseas low cost tire
production back to the U.S. market, instead importing them from
countries such as possibly South Korea, Brazil and others. There
are two reasons that have resulted in the U.S. tire industry recession:
one is poor management by the U.S. manufacturers of their own
business, the other is the current economic recession caused by
the global financial crisis.

The involved Chinese tire exports to the U.S. only increased by
3.5 percentage points from 2007 to 2008 as a percent of U.S. apparent
consumption. Further, according to statistics, Chinese tires exports
to the U.S. were reduced by 26%, 29% and 16% respectively in Mar.
April, May of this year.

(2) The U.S. special safeguard measure is virtually an upgrade
of trade protectionism. China is a large tire producer and exporter.
The tire output of 2008 reached 350 million units, of which, 40%
is exported to other countries, one third of this export is sent
to the United States. Affected by global financial crisis, tire
export volume dropped significantly in the first half of 2009.
It is likely to appear as the first negative growth since China’s
reform and opening-up. Under such circumstances, if the U.S. special
safeguard measure is implemented, more industries will also possibly
seek trade protection, which will bring unprecedented difficulties
to not only the tire industry but also other industries.

If the U.S. special safeguard measure is approved by the U.S.
government, Chinese tires imports will be totally eliminated from
the U.S. market. This measure, if implemented, will also affect
the survival and development of domestic tire industry and related
upstream and downstream industries, not only causing a waste of
production capacity, but also resulting in more than 100,000 workers
losing their jobs, which is harmful to social stability and harmony.

(3) Chinese tire exports to the U.S. are not the direct cause
of the U.S. workers unemployment, and does not injure the U.S.
tire industry. The U.S. tire industry has a long history of depression;
this is because the tire industry is in a period of structural
adjustment. Further, the global financial crisis has exacerbated
the restructuring of the industry. The proposed compulsory restriction
of Chinese tire imports would only force the U.S. dealers to choose
similar products from other countries, not only failing to keep
the U.S. tire manufacturing jobs, but also resulting in damage
to the U.S. distributors and consumers. Also, we can see that
no U.S. tire dealers or tire manufacturers participated in this
special safeguard investigation. Therefore, restrictions on Chinese
tires imports cannot solve the problem of the U.S. tire industry.

Therefore, the compulsory restriction of Chinese tire imports
is unjust, and it will damage the benefit of U.S. consumers. Chinese
tire exports to the U.S. are primarily sold in the retail market.
According to incomplete statistics, there are more than 200 U.S.
tire distributors, 43000 retailers engaged in sales of Chinese
made tires, creating the jobs for 100,000 U.S. workers.

Although there are about 15,000 workers in the U.S. tire manufacturing
industry represented by the USW, there are as many as 100,000 
workers involving in tire sales in the downstream tire industry.
Many U.S. importers and distributors rely on low cost tires supplied
by Chinese tire manufacturers. Restriction of Chinese tire imports
will result in the U.S. importers and distributors sales dropping,
and also will cost these organizations a lot of money to find
alternative sources of products.

In order to lower production costs and speed up global expansion,
the U.S. tire manufacturers transferred tire production to developing
countries in recent years, taking advantage of their technical
and financial resources, as well as transferring the country’s
workforce and other resources to build tire factories or joint
ventures factories; so, tire output is declining in the U.S.,
and naturally it is a normal phenomenon that some tire industry
workers have lost their jobs. There are four companies manufacturing
tires in the U. S. that enjoy the preferential policies made by
the Chinese government, and they have developed very fast with
their tire output expanding rapidly. For example, the Goodyear
Dalian Tire Co., Ltd. passenger tire output reached more than
4 million units in 2008, and now this factory has relocated to
expand their production capacity, which will reach more than 5.3 
million units. Furthermore, the Goodyear Tire Corporation plans
to set up their Asia-Pacific regional headquarter in Shanghai
City. Another example is the Cooper (Chengshan) Tires Co., Ltd.
In 2008, truck tire output reached 2.4 million units, passenger
tires output totaled 3.5 million units, and the company’s sales
volume was 4.128 billion RMB, the second largest for foreign-invested
enterprises. The profits from this business activity are sent
back to the parent company in the U.S., and help to promote Cooper
Tire’s further development. Of all the tires manufactured by these
two companies, the majority are sold in the Chinese market, a
part returned to the United States or sold to other countries.
In addition, the U.S. tire companies in China begin to produce
OEM tires, and quite a number of these are sold back to the United
States. If the U.S. special safeguard measure is approved by the
U.S. government, the U.S. tire enterprises’ benefits will be damaged,
and so the U.S. tire manufacturers did not declare their support
for the special safeguard measure.

Many U.S. suppliers of raw materials will be subject to substantial
damage. Exxon Mobil Corporation supplies a large quantity of butyl
rubber to China every year, accounting for about 70% of market
share, which is used for producing the radial tire inner liner.
The U.S. Cabot Corporation has opened three carbon black factories
in China, and their production reached 250,000 tons in 2008, accounting
for 10% of total amount of carbon black consumed in China. Their
production is predicted to reach 400,000 tons in 2010. Cabot’s
carbon black is widely used in the manufacturing of radial tires
in China. High-performance polyester tire cord reinforcing materials
manufactured the U.S. AlliedSignal Corporation, as well as a variety
of high-performance rubber chemicals additives manufactured by
Red Avenue Group and Flexsys Company are all used by the Chinese
tire manufacturing industry.

We can see that, on the one side, the U.S. tire manufacturers
set up factories in China, and produce a large number of tires
to occupy the Chinese market; on the other hand, the U.S. has
proposed restricting Chinese tire imports through a special safeguard
measure. This is a kind of trade protectionism, and not fair.
We are strongly opposed.

3. Countermeasures

A Spokesman of Ministry Of Commerce of the People’s Republic of
China said on April 30, “Today, passing more than three years,
the U.S. initiated a special safeguard investigation into Chinese
products once again, moreover, the amount of money involved is
huge, and the Chinese Government expresses strong dissatisfaction
and resolute opposition.” The terms of the special safeguard measures,
in the protocol for China ’ s entry into WTO, is formed under
specific historical conditions, which is targeted at restricting
imports on Chinese products, and has a lack of objective standards
and impartiality, moreover a lack of transparency in the procedures.
A long time ago, the Chinese Government had expressed high concern
on launching special safeguard measures invoking this term. To
invoke and implement this term not only hurts the legitimate rights
of China industries, but also causes a negative impact on Sino-US
economic and trade relations.

The financial crisis led to a drop in tire demand in the world’s
tire market, which is the main reason resulting in the poor operation
of the U.S. industry. Restriction of Chinese tire imports cannot
solve the problems faced by the U.S. industries. Further, there
are still some problems that exist in The Application for Special
Safeguard Measure on Chinese Made Tires, such as the evidence
is not accurate and adequate. However, the U.S. administration
is still starting the special safeguard investigations against
Chinese products, which is not only a discrimination against goods
from China, but also an abuse of the special protective measures.

It is hoped that the U.S. will strictly abide by WTO rules, based
on the objective facts, when making a final verdict on the case.
The U.S. should not regard the special safeguard investigations
against China as a tool for the implementation of trade protectionism.
The Chinese Government will continue to help the tire industry
to negotiate, and strive to create fair and stable business environment.

(1) The role of government is to seek a variety of communication

The attitude and consultation efforts of government play a decisive
role in this Special Safeguard Investigation. Government departments
should adopt various measures, in particular, and make solemn
representations to the United States through various channels
during closed-door negotiations, and express our government’s
position. The industry sector also suggested that our government
should prepare strong counter-measures in many fields, and form
an effective pressure to the U.S. Government, so as to force the
U.S. government to veto the ITC ruling and relief measures.

The value of this Special Safeguard Investigation is large, and
it has a great influence on the bilateral trade between China
and the U.S, and especially the domestic tire industry. If the
President of the United States approves this Special Safeguard
Investigation, the interests of the Chinese tire enterprises will
be seriously affected. The Chinese government will be forced to
resort to the WTO to seek the treatment of this issue by the WTO.

In April 30, Ministry of Commerce Bureau of Fair Trade held a
case analysis meeting for making response measures. 20 tire manufacturers
and China Rubber Industry Association, CCCMC attended this meeting.
Through analyzing this case, they made the conclusion that we
should see the three harm points of (1) discrimination, (2) short
procedures and (3) low threshold of these special safeguard measures,
if viewed impartially. Once implemented, the measure will have
a knock-on effect; then WTO member countries will implement trade
remedy protection, without investigation procedures. In the meeting,
the participants called the enterprises involved to actively cooperate,
fill out a questionnaire, and help do a good job in data collection
and participation in response work. It was also decided to set
up a Committee for the contacting and coordinating for the tire
special safeguard case, to collect the information and materials
and make for better communication coordination.

(2) Take a variety of ways to strengthen public relations,
and send a clear voice of the Chinese industry

The China tire industry delegation, organized by the Ministry
Of Commerce of the People’s Republic of China, attended the first
hearing in this case in early June in Washington D.C. According
to the voting results of 4-2 by six members of the ITC, the U.S.
came to the conclusion that Chinese tire imports created market
disruption. This result aroused strong dissatisfaction from Chinese
tire industry.

The responsible officer in the Department of Commerce Fair Trade
Bureau pointed out, in his statement on the U.S. ITC ‘… tire
relief special protection measures, the Chinese government is
highly concerned about this measure and is strongly opposed to
the proposed U.S. restriction of Chinese tire imports. China has
repeatedly expressed the consistent position: strong opposition
to foreign governments to invoke the terms of special safeguard
investigations against Chinese products. The Chinese tire industry
have filed much evidence demonstrating that Chinese tire imports
do not injure the U.S. tire industry. The restriction of Chinese
tires cannot solve any problem faced by the U.S. tire industry,
and further would hurt U.S. tire distributors and consumers. The
Chinese Government has also expressed the above-mentioned point
of view to the U.S. relevant departments several times. High-tariff
measures, proposed by U.S. ITC, have a lack of reasonable and
objective basis, which not only seriously impede the normal development
of the tire trade between China and the United States, but also
would undermine the interests of the U.S. tire consumers.

In the following stage of consultations with the United States,
China will urge the United States to give full consideration to
the actual situation of the case, and consider the overall interests
of the industry of China and the U.S and also to not take the
special protective measures and avoid making the wrong signal
of trade protectionism. The Ministry Of Commerce of the People’s
Republic of China will continue to help the tire industry to actively
negotiate in their defense, and strive to create fair and stable
business environment.

On July 6, China Rubber Industry Association held an emergency
consultative meeting. The Ministry of Commerce Bureau of Fair
Trade, the Ministry of Industry and Information Technology of
the People’s Republic of China, the CCCMC and the tire enterprises
involved attended the meeting, and they all were firmly opposed
to the ITC proposed relief measures. At the same time, they sent
an open letter to the President of the United States and other
relevant organizations to explain the Chinese position. An emergency
report developed jointly by the companies was submitted immediately
to the State Council in an effort to seek the attention of national
leaders. On July 24, Premier Wen Jiabao and Vice Premier Wang
Qishan made important instructions, endorsed by the leaders of
the Ministry of Finance, National Development and Reform Commission
and the Ministry of Commerce. This greatly encouraged the Chinese
tire industry to fight against the special safeguard measure on
Chinese tires to the end. In accordance with the recommendations
of the Ministry Of Commerce of the People’s Republic of China,
the China Rubber Industry Association composed a delegation to
the United States on August 3 with the lobbying efforts aimed
at further promoting the Chinese position, and to put pressure
on the U.S. government.

(3) Conscientiously do a good job for the lobbying of
the Trade Representative during consultation stage

The enterprises involved are mobilized to communicate with the
U.S tire distributors actively. Through their lobbying of the
U.S. Government, Congress, and media celebrities to illustrate
the adverse consequences and potential losses brought by the implementation
of special safeguard measures, so as to obtain support, and increase
pressure on the government decision-making process. In addition,
the China Rubber Industry Association and CCCMC have sent a letter
to President of the United States, the United States Trade Representative
Office and American Rubber Manufacturers Association to show the
Chinese position. At the same time, the China Rubber Industry
Association and the related tire companies retained a large public
relations firm to carry out lobbying work. Through this effort,
China can publicize the Chinese position to the US Congressional
Leaders, community groups, and media celebrities, as well as television,
newspapers and other news media, and enhance the voice against
the implementation of special protection. In addition, domestic
enterprises will directly, or through their U.S. importers and
distributors, express their opposition to the special safeguard
measures to the relevant U.S. government departments, trade organizations,
and individuals. Because none of the U.S. tire manufacturer openly
support the applicant of this case or support restrictions on
Chinese products at present, we also have not found a U.S. tire
manufacturer to support the Chinese position clearly, The attitude
of the U.S. tire manufacturer enterprises has a considerable influence.
Therefore, we should mobilize or consult with the US-owned tire
enterprises in China, and persuade their U.S. parent company to
express their support of the Chinese side clearly.

The tire special safeguard case has reached a critical moment.
The China Rubber Industry Association and all enterprises involved
will spare no effort of resistance to the end, and strive for
the fair treatment that the Chinese tire industry should enjoy.

Mr. Fan Rende - Chairman of China Rubber Industry Association

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