March 05, 2012

Standing at Curtis Screw Company in Buffalo, Gillibrand Calls on President to Take Action on China’s Harmful Trade Practices Against WNY Auto Part Manufacturers, Announces New Legislation to Prevent Dumping by Foreign Companies

Recent Reports Detail China’s Policies To Gain Unfair Advantage In The Auto Parts Sector, Limit U.S. Exports, Subsidize Chinese Exports, & Jeopardize US Jobs in Auto Parts

Buffalo, NY – U.S. Senator Kirsten Gillibrand today took assertive action to address unfair foreign trade practices that threaten U.S. manufacturing and stifle job growth at home. Recent reports have highlighted China’s myriad strategies that unfairly benefit their auto parts producers and cripple American manufacturers, including limiting U.S. exports to the Chinese market and subsidizing their exports in order to strengthen their competitive position. Standing at Curtis Screw Company with Executive Vice President John Hoskins, Jr., Insyte Consulting President Ben Rand, and UAW Region 9 Representative Paul Schuh, Senator Gillibrand called on President Obama to take steps to stonewall China’s destructive trade policies and announced new legislation that would preserve the U.S. government’s ability to impose punitive tariffs on countries like China that unfairly subsidize their products to undermine the American market. 

“We must act now to protect American jobs from China’s predatory policies,” said Senator Gillibrand. “Three quarters of U.S. automotive manufacturing jobs involve the production of auto parts, and these jobs are threatened in every state in the nation, especially New York where auto parts manufacturing constitutes a critical part of our economy. To support our manufacturers and our workers, we must develop and implement a much more assertive and comprehensive strategy to combat China’s harmful policies, and empower the U.S. government to combat unfair subsidies on exports that stifle U.S. manufacturing. Our workers are some of the most industrious and productive citizens in the world, and American companies are fully capable of competing at the highest level when the playing field is level.” 

Auto part manufacturing comprises a key segment of New York’s employment base. According to a 2008 comptroller report, there were close to 200 auto parts manufacturers in the state, the majority concentrated in upstate New York. In the Buffalo-Cheektowaga-Tonawanda corridor, there were more than 16,000 people employed in the manufacture of auto components, amounting to almost a quarter of the region’s manufacturing jobs, and 30 percent of the total manufacturing payroll. 

However, there is increasing concern that China has begun to target the auto parts industry in a manner similar to other industries it has sought to corner. Chinese auto parts exports have increased almost 900 percent since 2000 and their policies have started to erode the traditional relationship between auto assemblers, parts producers, and aftermarket producers such that while U.S. auto producers show signs of recovery, the auto parts sector continues to struggle. 

China’s growth in the auto parts industry is in large part the result of a deliberate effort by the Chinese government to expand its presence in the marketplace. According to a study from the Economic Policy Institute, China has given its auto parts industry more than $27.5 billion in subsidies since 2001, and the auto industry is classified as a “pillar industry” for China’s growth and development.  These subsidies are provided in various ways, such as reduced electricity, coal or natural gas costs ($1.9 billion in subsidies), and subsidized inputs, such as steel and glass ($4.8 billion in subsidies), as well and other subsidies such as facilitating mergers and consolidations, direct subsidies to producers, and government financed research and development. 

Additionally, the Chinese government has sought to protect its auto parts manufacturers in indirect benefits such as domestic content requirements and other limitations on foreign parts, which shift regularly in order to comply with WTO standards.  For example, until 2011, China retained a high tariff on imported auto parts that it had agreed to drop during WTO accession talks, but then dropped this protective measure when WTO panels found against it.  However, reports suggest that Chinese government officials observe an unwritten 60 percent domestic content rule when approving applications for loans from state-owned banks, continuing to limit the American auto parts manufacturers access to Chinese markets.  

The U.S. has taken some steps to curb China’s behavior. In his State of the Union address, President Obama announced a new International Trade Enforcement Center (ITEC), which will be specifically tasked with coordinating the United States investigation and response to trade enforcement cases. 

Senator Gillibrand is urging President Obama to have the new entity investigate Chinese subsidies for auto parts manufacturing, and seek ways to remedy these unfair approvals. Senator Gillibrand asks that the administration determine the most appropriate response based on its investigation, including considering direct engagement with the Chinese government to resolve the issue, submitting the case to WTO arbitration, which would rule on the validity of the subsidies and suggest appropriate remedies, or using U.S. trade laws to enforce a remedy.  

Senator Gillibrand also announced new legislation to further these efforts to combat unfair international trade practices by ensuring that the Department of Commerce (DOC) can impose new Counter-Vailing Duty (CVD) orders – punitive tariffs that reverse subsidies provided by a foreign country to non-market economies – and continue to enforce existing cases of unfair subsidies on exports. 

Last year, a U.S. Circuit Court ruled that DOC was not explicitly authorized by Congress to apply the tariffs. Before then the U.S. had been issuing CVDs on products from non-market economies, principally China and Vietnam, since 2007.  If the legislation is not passed, the 24 countervailing duty orders currently in effect would be invalidated and the 80,000 jobs these measures have protected would be in jeopardy.  These measures a and are particularly relevant to trade relations with China given their history of unfairly subsidizing exports to the U.S, and 23 or 24 orders currently in effect have been issued against Chinese products.  

Below is the full text of Senator Gillibrand’s letter to President Obama: 

Dear Mr. President: 

We are writing to express serious concern about China’s unfair practices in the auto parts sector, and to encourage your Administration to use all existing authority under the law to preserve and protect U.S. production and jobs. 

Recently released reports have highlighted the vast array of policies China’s government uses to advantage its producers, such as limiting our exports to their market, subsidizing their exports to ours, and assisting their producers to the disadvantage of ours. The Chinese Government also imposes restraints on the export of key raw materials needed for the production of parts. In that regard, the United States recently won a major decision challenging some of those restraints at the World Trade Organization. We must build on this victory and begin addressing other restraints on materials, including those critical to the production of autos and auto parts. China also coerces U.S. companies in China to transfer their technologies to Chinese partners. 

These tactics are working. Chinese auto parts exports are rapidly growing and have increased almost 900 percent since 2000. An unfortunate result of China’s predatory and protectionist policies in the auto parts sector has been to begin to sever the traditional link between auto assemblers, parts producers, and aftermarket producers. Thus, while our nation’s auto producers are recovering, the auto parts sector faces serious challenges. 

We cannot wait until further damage is done. China has signaled its commitment to continue this approach in its recently released twelfth Five-Year Plan and other government directives. To level the playing field for U.S manufacturers and their workers, we must develop and implement a much more assertive and comprehensive strategy. Your announcement of the Interagency Trade Enforcement Center to promote a more coordinated, effective response to China’s unfair trade practices are a major step toward such strategy. Addressing Chinese predatory policies in auto parts should be one of the Enforcement Center’s first and highest priorities.

Seventy-five percent of the jobs in the automotive sector are in auto parts, and these jobs are at risk in every state in the nation. China has virtually closed its market to our auto parts exports and continues to take actions to further limit access. Given its importance, the Administration’s vigilance in addressing China’s harmful policies now, while we can still change this one-way street in trade, is essential. American companies and workers can compete anywhere when the playing field is level.