U.S. – China Subsidized Aluminum

The U.S. Commerce Department is expected Tuesday to find that $550 million in imported Chinese aluminum was illegally subsidized by the Chinese government, people familiar with the situation said, potentially leading to higher import duties as early as next week.

The preliminary decision could boost costs for some U.S. manufacturers, pitting some U.S. aluminum companies against their American manufacturing customers. The decision, in the latest big U.S. trade case involving China, comes as the White House faces increasing concern
about the labor market and the fragile economy. It underscores the delicate balance between free trade and jobs. The Commerce Department on Friday reported that imports surged at a 32.4% annual rate in the second quarter, the
fastest pace since 1984.

Following the success of the U.S. steel industry in cases of dumping brought against foreign producers, several midsize and small domestic aluminum companies banded together alleging that Chinese-made aluminum extrusions hurt the U.S. industry between 2007 and 2009.
The $3.57 billion domestic annual market for aluminum extrusions—shapes squeezed out of aluminum—includes companies that assemble the extrusions for aluminum siding, door frames, bicycles and other products. The aerospace industry uses other types of aluminum and isn’t affected by the extrusions case.

A worker at an aluminum factory in Dalian, Liaoning province, in January. China is the world’s largest exporter of aluminum extrusions, with such exports increasing more than 10-tenfold since 2001. Canada and Australia have made claims similar to the Commerce Department’s. Canada last year levied dumping duties on Chinese aluminum extrusions, and a case is pending in Australia.

Once the preliminary duty is announced, the penalty can be assessed in about a week. Importers of Chinese aluminum extrusions would then have to post cash deposit or bonds for the assessed duties.

Typically, a government subsidy involves providing an industry with cheaper resources or favorable tax treatment. A full investigation and a final ruling—at which point the amount of the duty could well change—typically take several months to a year or so.

China’s share of the U.S. extrusion market rose to 20% last year from 8% in 2007. At the same time, U.S. manufacturers’ capacity-utilization rate, which measures how much of a factory is in use, fell to 50% from 68%. Overall, Chinese aluminum exports have been falling, because the country is using more of the metal to fuel its internal growth.

Chinese producers and importers say the weak U.S. economy, rather than imports, has hurt U.S. producers and that some of the companies complaining to the Commerce Department had purchased Chinese aluminum extrusions for product manufacturing.

Peter Koenig, an outside counsel for Zhaoqing New Zhongyua Aluminum Co. which makes aluminum extrusions in China and has a U.S.-based import division, said the company hasn’t received benefits, grants or loans from the Chinese government. “There is really not a foundation to have a subsidy finding,” he said.

The aluminum industry, which filed its last trade case in 2004, has been far less active in filing trade cases than the steel industry. Late last year, the U.S. steel industry won its biggest case against Chinese importers, which, according to the ruling, had dumped $2.8 billion of illegally subsidized steel. Steelmakers won another case in June that saw further duties against $200 million in illegally subsidized Chinese-made drill pipes. “I think the domestic aluminum extruders are pushing for this tariff after the success the steel industry has had in reducing Chinese imports,” said Bruce Schwartz, president of fence maker Jerith Manufacturing Co., near Philadelphia. He is concerned that the Chinese will be able to avoid penalties by sending complete fences instead of extruded fence parts. “If a product like my fence or an, aluminum ladder is shipped fully assembled into the U.S., it will completely avoid the tariff, giving a significant price advantage to the Chinese producers,” Mr. Schwartz said.

He said he laid off workers as a result of the weak economy and didn’t expect to rehire them at this point even if the ruling leads to fewer imports and higher prices for Chinese products. Duncan Crowdis, president of Bonnell Aluminum, which makes door frames for office towers and hotels and is one of the domestic petitioners, said Chinese imports have overwhelmed the market and depressed prices. His Newnan, Ga., company, a unit of Tredegar Corp., has cut its work force to about 850 from 1,300 in 2007. Prices, he said, have fallen between 30% and 50% over that time, mostly as a result of Chinese imports, but also because of the weak economy.

The U.S. International Trade Commission, which investigates whether foreign products are illegally dumped or cause injury to domestic producers, this year issued its ruling in this case and found that U.S.
aluminum extruders were injured. It is expected to announce an antidumping duty in October. That duty would be in addition to the duty levied for illegally subsidies.