South African tyre-makers, which recently lost an anti-dumping case regarding the flood of cheap Chinese imports, have warned of a blowout in the industry.
Although the Supreme Court of Appeal ruling allowing the continuation of Chinese imports is good for consumers, the local tyre industry is considering mass retrenchments or even possible disinvestment and closure.
“The appeal court judgment is a bad day for industry in South Africa and is bound to cost us thousands of jobs. We’re reconsidering our position and investments,” says Etienne Human, chief executive of the South African Tyre Manufacturers’ Conference (SATMC).
The local tyre industry employs about 6 700 workers between four manufacturers, all foreign-owned multinationals: Apollo (formally Dunlop), Bridgestone, Continental Tyre and Goodyear. Following the judgment two weeks ago, Apollo in Durban is in the process of retrenching 200 workers. The manufacturers argue that they cannot compete with low Chinese prices and the markups South African importers attach to the cost of tyres.
According to South African Revenue Service (Sars) figures, in 2003, total passenger vehicle tyre imports were 1.64-million, of which only 35 000 came from China. But the SATMC, noting a strong increase in low-priced Chinese tyres, applied to the International Trade Administration Commission (Itac) in 2005 for an antidumping investigation and it went to court two years later.
During the manufacturers’ protracted six-year battle, which cost the industry R3.5-million, imported tyres in South Africa exceeded locally made tyres. According to Sars, in 2010, the number of imports soared to 3.87-million, of which 1.69-million came from China.
To date this year, passenger tyre imports from China to South Africa have increased to an average cost, insurance and freight price of R214 each, compared with the reduced volumes coming from other Asian countries at R456 a tyre and from Europe at R588 a tyre. South African-made tyres are usually priced at about the level as the European tyres. Imported Chinese tyres vary in quality from “poor” to “reasonable”. In some cases, they are slightly smaller for the same application to help manufacturers save materials and costs.
Dealing a Chinese blow
Tyre-related industries have also been knocked. Rising competition from China has dealt a blow to the local retread market over the past decade. Car-tyre retreading hardly exists today as new Chinese tyres can be bought for the same price.
Human says Chinese efforts to export tyres to South Africa are likely to be extended to commercial and heavy vehicle tyres, and then to specialised mining and other tyres.
Local manufacturers argue that the recent ruling sets a bad precedent for future antidumping applications on any Chinese imports.
The judgment basically says that, in an antidumping application, it is now not necessary for Itac to investigate whether a Chinese industry is operating under non-free market conditions and is being subsidised by the Chinese government.
Manufacturers complain that the government does not appear to be interested in protecting South African industries against Chinese imports because of President Jacob Zuma’s cosy relationship with the Chinese, especially since South Africa was accepted into the Brics (Brazil, Russia, India, China, South Africa) grouping.
But Itac has rejected the suggestion that antidumping applications now have a reduced chance of success. “Should the domestic industry provide information to indicate that government intervention exists, which results in prices not being determined according to free-market principles, Itac will investigate, as it is required to do in terms of the International Trade Administration Act,” it states.
Itac says the unanimous appeal court judgment rejected the lower court’s conclusion that Itac had failed to conduct a proper investigation. More specifically, the appeal court reversed the finding that “Itac had failed or refused to properly consider on what basis to determine the normal value of the tyres of the Chinese exporters, which had co-operated with its investigation — The SATMC had argued that this determination should have been based on the prices in a third country and not, as Itac had done, on domestic [Chinese] prices”.
In an antidumping application, it has been important in the past to establish non-free-market conditions because it allows Itac to refer to the prices of goods made in a third country to determine what the “normal” (non-dumping) prices are. For instance, Itac could refer to Taiwan to ascertain what the non-dumping prices for Chinese goods should be.
The appeal court judgment comes despite known intervention by the Chinese government to assist its manufacturers in ways industries in other countries are not assisted.
The SATMC argues that China is not a free-market country because, among other reasons, its manufacturers are subsided and assisted in many ways.
Human also claims that under-invoicing is prevalent and highly profitable for importers. The Chinese manufacturer invoices for perhaps 50% of the cost, on which South African import duties are paid, and the balance is transferred later, possibly through syndicates.
In its original application to Itac in 2005, the SATMC claimed that:
- Some Chinese tyre exporters were government-owned and there was no organised labour, therefore there was little influence over wage rates and working conditions;
- State banks provided capital at artificially low rates to exporting companies;
- Government policy was that the manufacturing industry was quota-driven, which led to overcapacity and deflation of prices;
- In spite of the increased cost of raw materials, Chinese tyre prices had not risen in the past 18 months;
- The state-controlled energy sector kept carbon black prices at below market levels;
- The Chinese government did research in the industry (whereas in free-market countries companies have to do their own research);
- The Chinese government provided soft loans and bought machinery for companies; and
- The exchange rate was manipulated by the Chinese government to curb imports and increase exports.
At the end of June this year, there were about 33 historically imposed antidumping duties in force in South Africa, about 13 of them on goods from China. They included blankets, garlic, garden picks, wire ropes and mirrors.
But Human says Itac is now held in such low regard by industry that there are now virtually no antidumping investigations being filed with it. Only 16 investigations have been initiated in the five years since January 2006, he claims, compared with 23 in 2005 and 41 in 1998.
Itac lists a number of antidumping cases it is investigating. These include frit (used as a colouring matter in ceramic tiles) by Brazil; float glass and unframed mirrors by Indonesia; chicken meat by Brazil and the United States; and threaded rods by China.
Itac says investigations completed during its financial year to end-March 2011 were: acetamidophenol (duties were maintained against China and the US); acrylic blankets (duties were maintained against China and Turkey); glass mirrors (duties were maintained against India); polyethylene terephthalate (duties were maintained against Taiwan, Korea and India); steel bolts and nuts (duties were maintained against China); paper-insulated, lead-covered electric cables (duties were maintained against India); picks (investigation terminated); staple polyester fibre (antidumping duty was introduced on China).
The face-off: manufacturers versus Itac
The SATMC has levelled stinging criticism at the International Trade Administration Commission (Itac) following its antidumping struggle, which Itac has rebutted.
- The SATMC says Itac’s investigations take much longer than those of agencies in other countries, and the United States, India and Turkey placed tyre antidumping duties on China after relatively quick investigations. It says the tyre industry investigation took 17 months. Itac acknowledges this, but says it took longer because of the complexity of the case. It says it currently completes investigations in an average of 10 months, which compares well with other authorities.
- The SATMC says that, when it brought a judicial review, it had to apply to court, or threaten to do so repeatedly, to obtain the records from Itac. It claims Itac also lost several thousand pages of the records. Itac replies that this criticism relates to confidential and non-confidential records and it can provide access only to confidential records in certain cases.
- The SATMC says Itac did not consider vital facts and submissions were not read. But Itac says the court found that it considered all the information submitted. The SATMC says Itac granted liberal extensions to Chinese manufacturers but Itac says extensions to deadlines met antidumping regulations.
- The SATMC says the confidential information it submitted, which could be used by others to exploit the local market, was twice released by Itac. It also claims that Itac refused to force Chinese exporters to make proper non-confidential submissions. Itac says, if it was true that its reports contained confidential information that could be used by others, it would have been challenged on this long ago.
- The SATMC says legislation requires only that a prima-facie case be made initially but Itac actually required all the information initially. Itac says the test for a prima-facie case is high.
- The SATMC says investigation officers are inexperienced and lack training and that the “success rate” of antidumping investigations has fallen. Itac says all cases are dealt with by at least two investigators and that this case was handled by one of its most experienced.
For the full criticism and rebuttal, go to mg.co.za/tyredumping