Chinese Hardwood Plywood Antidumping ITC Case Heats Up

An opinion piece by Kip Howlett

Playing by the Rules

This is the third blog in a 3 part series that addresses the countervailing duty and antidumping case filed by 6 of the largest U.S hardwood and decorative plywood manufacturers against Chinese manufactured hardwood and decorative plywood imports into the U.S. market.

Fairness Matters – Doing the Right Thing

I had a CEO who once said of his company: “We are good people, doing the right thing, and doing no harm making products to meet people’s needs.” If you think about it for a moment, the words “good”, “right” and “harm” are full of moral judgments. We are in no position to make judgments about the goodness of people in an international fair trade case, but we can address doing the right thing and doing no harm. Let’s begin….

Harm to the environment begins with tree theft. A robber doesn’t go back and replant the forest or steward the land. And stealing the trees means the rightful owners (government or private) are now without the money to take care of those forests. As China’s domestic economy took off, Chinese buyers were sent scouring the globe for new wood supplies. Why? Because after massive floods blamed on deforestation of China’s forests, China sharply restricted logging at home. According to the Environmental Investigation Agency (EIA), in 2009 one-third of all the timber sold worldwide was bought by China, with little regard to its origin. After analyzing trade data for 36 supplier countries, the EIA has concluded that approximately 10% of the logs and sawed timber is illegal, representing "turnover" of $3.7 billion. (1)

China is not known for a strong environmental protection or safety record in products or the workplace. The August 10th, 2013 edition of The Economist’ cover calls China: “The world’s worst polluter – Can China clean up fast enough?” (2) Environment International reported: “Over the last 20 years, China’s formaldehyde industry has experienced unprecedented growth, and now produces one-third of the world’s formaldehyde. More than 65% of the Chinese formaldehyde output is used to produce resins mainly found in wood products – the major source of indoor pollution in China. Although the Chinese government has issued a series of standards to regulate formaldehyde exposure, concentrations in homes, office buildings, workshops, public places and food often exceed the national standards.. The wood processing industry has the highest average industrial formaldehyde concentration, caused in part by unventilated workshops and a lack of safety precautions.” (3)

A slew of other recent reports have found Chinese homes and work spaces basically swimming in formaldehyde. Berkely released a study in 2009 specifically examining exposure levels and health effects in China. Here's one disturbing excerpt from their conclusion:

Although the Chinese government has implemented a series of standards to regulate formaldehyde, the lack of enforcement has resulted in only limited success in controlling exposures. Consequently, a large number of Chinese individuals continually encounter multiple sources of formaldehyde exposure every day. These include: environmental, occupational, residential and contaminated food.

Given the magnitude of formaldehyde exposure in China, both in terms of the number of people exposed and the levels of formaldehyde exposure, the potential health consequences of formaldehyde are of serious concern. (4)

So does it all get down then to “May the cheapest win!”?

Will domestic cabinet industry be harmed if they do not have access to cheap Chinese hardwood plywood if duties are imposed to address the trade law violations?

The very point of dumping and subsidization is to capture a foreign market. Eventually, the unfair traders monopolize the foreign market (by driving competitors out through price undercutting). And, in any monopoly, without strict controls, prices increase dramatically. This is China's aim, even while it keeps its own domestic market protected. . They export $670 million of HWPW and we export to them $250,000 of HWPW and $17.6 million of hardwood veneer. Chinese hardwood plywood imports into the U.S. increased 37% from 2010 to 2012. Ready to assemble kitchen cabinets from China into the U.S. market increased 25% over that same 2 year period to $451 million. There is a pattern here I suspect.

There are no hardwood products which are currently imported from China that cannot be manufactured by domestic producers. If a cabinet or furniture company wants to source their requirements from domestic producers, they surely can. And, since the domestic producers are operating at about 50 percent of their production capacity, there is plenty of room to ratchet up production to meet increased demand.

By ratcheting up production to meet increased demand, domestic manufacturers can spread their fixed overhead costs over a larger production pool. This, by itself, would serve as a natural "brake" on any price increases. But, there is another fundamental point regarding pricing: fairly traded products tend to cost more than unfairly traded products.

Chinese imports squeezed out other countries who used to have a larger share of the U.S. market. These suppliers will also come back into the market as well. There will not be supply shortages. There will be a new market equilibrium which will be based on the fair trade of hardwood plywood from all producing countries.

The question here is simple: will we as a country and as a global economy decide that a race to the bottom works for everyone's benefit, or will we decide that fair trade on a level playing field works for everyone's benefit, even if that comes with a marginal increase in costs?

At a recent hearing in California on the regulations of formaldehyde emissions from wood panel products, a representative for the importers and off-shore manufacturers made a comment that rigorous regulations would move downstream users of wood to other substitute materials. Laminates which are plastics and other wood imitation materials would replace wood. We hear similar concerns from many of these same companies and their representatives about rigorous enforcement of the Lacey Act which makes it illegal to import illegally harvested wood and wood products into the U.S.

If the point is that only illegal, unsafe wood products can compete in the marketplace, because all those regulations and requirements drive up the costs, then I’m not in the industry I have known for the last 35 years. Our hallmarks have been sustainability, renewability, quality, performance, and safety. There is a market for real wood and wood products. The U.S. market will continue to demand legal and safe wood products. My members will continue to supply those products.

(1) Appetite for Destruction: China’s Trade in Illegal Timber’ highlights China’s lack of action against illegal logging http://www.timberdesignandtechnology.com/chinas-voracious-appetite-for-t...
(2) The Economist, August 10-16, 2013, www.ecomist.com
(3) Environment International 35 (2009), 1210-1224
(4) http://superfund.berkeley.edu/pdf/117.pdf

Hardwood Plywood and Veneer Association. © 2013.

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