"We gonna roll
'til the wheels fall off, y'all muh'f--kers check the tires"
-Jay Z
Its not unusual for unions and business groups to be lobbying on opposite sides of an international trade issue. But the industry cross cutting nuances of a current trade dispute involving Chinese tires are about to make things awkward for the Obama administration, who will ultimately make a decision with potentially broad implications for Sino-American business ties. Anyone who makes money off or competes with those that move goods across borders had best pay attention.
Section 421 is referred to as a China-specific safeguard. In a nutshell, it allows U.S. domestic industry to get relief from a sudden flood of Chinese imports that materially damage their interests. The U.S. International Trade Commission(ITC), a quasi judicial federal agency, is responsible for determining if this has occurred, after formal testimony from both sides. Unlike with Anti-Dumping, there is no need to prove goods were sold below cost. Unlike with Countervailing Duties, there is no need to prove that the foreign operation was government subsidized.
When the ITC rules affirmative on a section 421 case, they recommend a remedy, usually large tariff steadily decreasing over a few years, so that the American industry is able to adjust to a sudden flood of Chinese imports. However, unlike Anti-Dumping and Countervailing Duties, where the President is officially powerless to intervene, Section 421 cases have an important executive component. The president can choose to implement the ITC recommendation, implement an alternative, or if he believes interference isn't in the national interest, he can take no action. In this case, the president must choose by September 17 if he wants to follow the ITC recommendation for a 50% tariff on the Chinese tires. He will receive a confidential recommendation from the U.S. Trade Representative(USTR) Industry groups will have an opportunity to openly express their viewpoints before the USTR this Friday, August 7.
Typically the cases involve industrial, rather than consumer goods, so you have different American businesses arguing on different sides of the case. One uses the goods as an input and wants to buy them cheaply; one wants to sell them in the U.S. but can't compete with Chinese imports. This case also has its own special characteristics.
The motley groups of representatives seeking to influence the executive decision on this case fall into two camps. On one side is the Union group which actually filed the case. Opposing the case are tire users, and various other groups. What is also remarkable is that an industry group that produces tires also opposes the action, because of fear of disruption (and probable connections with China. The unions argue jobs are at stake. The opposition argues that the Chinese products mainly serve the low quality end of the market, which isn’t generally served by U.S. producers, and is a very small portion of the applicable market. Chinese imports would be quickly replaced by imports from other countries, either because of genuinely new market entrants, altered production chains, or clever rules of origin marking. This has happened before with import restrictions, notably in the case of fish. Perhaps the Unions know this won't make a huge impact on U.S. Tires, and merely are giving a shot across the bow, in hopes of scaring off some Chinese producers hoping to enter union heavy industries.
The Hook
President Bush chose to take no action in each of the Section 421 cases that came to his desk. That pleased China, but also irritated a key constituency in the U.S.
Obama campaigned promising to please that key constituency.
Labor unions and domestic manufacturers with limited foreign sourcing have been big democratic backers. Yet on the other hand, Obama doesn't want to derail hopes of making a mark on the Sino-American economic relationship by upsetting his counterparts over such a small part of the economy. Chinese officials have already expressed concern about the case. If he implements the ITC decision(technically he could implement an even more severe option too), a lot of importers with Chinese connections will be on the lookout, wondering if their products will be the next target. If he chooses to take no action, or implement a lighter solution, many of his key constituents will question his promise to enforce trade laws, in the face of diplomatic difficulty and business oposition.
Importers: Front load your inventories to get in ahead of any possible duty spike.
Unions: Real life is more complex than a campaign promise. Be careful what you wish for.
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