The World Trade Organization on September 5 released the ruling of its Appellate Body， upholding President Obama’s decision to impose three-year punitive tariffs on Chinese passenger and light truck tires.The Obama administration in September 2009 placed a 35 percent safeguard duty on tires for cars and light trucks that Chinese manufacturers exported to the US， after the United Steelworkers (USW) complained that surging imports hurt home producers.Chinese tire imports were shown to have surged to record levels in the five years prior to the filing of the petition， causing significant market disruption. According to the USW， Chinese tire imports by volume grew 215% from 2004 until 2008， reaching a volume of 46 million tires.The duty took effect on September 26， 2009， at a rate of 35 percent for the first year. It was set at 30 percent for the second year and 25 percent for the third year.The Obama administration imposed the tariff under Section 421， which was added by Congress as an amendment to the U.S. Trade Act of 1974， implementing a special safeguard mechanism for U.S. workers and industries. The statute allows the United States to impose duties or quotas to counter “market disruption” caused by rapidly increasing imports from China. Unlike other trade remedies under US law， the imports don’t have to be proven to result from dumping or other illegal actions.As a price of acceding to the WTO， China agreed to accept imposition of national protectionist measures – “Transitional Product-Specific Safeguard Mechanism” – if discussions failed to cope with a situation of increased Chinese imports that “cause[d] or threaten[ed] to cause market disruption to the domestic producers”.The tariffs have hit the Chinese tire imports hard. In 2010， U.S. imports of Chinese tires were 34 percent lower than 2008， the year before the USW filed its petition. And they were down another 12 percent in the first six months of 2011， compared with the same period in 2010. The WTO ruling will intensify the situation. Around 30 Chinese tire makers are estimated to have reduced or halted production， and the jobs of 100，000 workers are threatened.China lodged a complaint with the WTO over the US tariffs in 2009 but was rejected in December. The recent ruling by the WTO top court overruled China’s appeal.Responses from the U.S. sideUSW President Leo W. Gerard reacted to the WTO decision， saying， “This represents an important victory for America’s workers and for passenger and light truck tire producers operating here. The WTO reaffirmed that President Obama’s decision to stand up for American workers against the flood of passenger and light truck tire imports from China were legal and justified.”“Since relief was granted by the President， the law has had its intended effect，” Gerard said. “Investments in U.S. tire manufacturing are up， jobs have been created and our companies are shipping more tires to consumers.”He added further， “President Obama and the USTR need to be commended for using America’s trade laws as they were intended， and fighting China’s claims before the WTO. Enforcing our trade laws is a vital part of an economic program to revitalize the economy and strengthen manufacturing.”According to the USW and tire industry reports， the industry has experienced significant improvement in terms of production and sales of tires in the U.S. market， thanks to the improved environment for domestic tire manufacturing following import relief. In response to the improved market conditions， the industry has invested significantly in new capacity.And U.S. companies are hiring. In a public fact sheet， Michelin employs nearly 300 more workers in their U.S. plants producing passenger car and light truck tires in 2010， compared with 2008.U.S. government statistics also show that employment in the overall tire industry， which had declined by more than 25 percent between January 2005 and September 2009， has stabilized significantly since President Obama imposed the Section 421 tariffs nearly two years ago.In sum， the tariffs not only stemmed the hemorrhaging of jobs and investment that the flood of Chinese imports caused， but also helped the industry regain its footing， retool， and expand， providing a rare bright spot in the nation’s struggling economy.However， the tariffs failed to gain industry support within the US. The Tire Industry Association (TIA)， an international organization representing all segments of the tire industry in the US， criticized President Barack Obama after the decision to impose the tariffs， calling it a “job killer”rather than a “job saver.”The tariffs would price lower-cost tires out of reach of many consumers and will lead to a tightening in the remaining supply of such tires， the TIA said.A study by economics professor Thomas J. Prusa of Rutgers University found that American workers in the tire distribution and installation sectors “have every reason to be concerned about their future” as the tariffs “would lead to a loss of at least 25，000 US jobs.”Responses from the Chinese sideThe Xinhua news service said China regretted the WTO ruling， and called the added tariff a “protectionist measure unsupported by the U.S. tire industry” and was imposed “only to accommodate the country’s domestic political pressure.” It urged the US to discard promptly the special safeguard measure and to maintain a market of fair competition for Chinese enterprises.Statistics do not support the US claim that imports from China hurt its tire industry， said Mei Xinyu， an economist at the Chinese Academy of International Trade and Economic Cooperation under the Ministry of Commerce.“US tire manufacturers had been losing money before Chinese imports rapidly increased in 2005，” Mei wrote in an e-mailed reply to the Global Times. “Ironically， they stopped losing money in 2007， the same year that saw the fastest growth of tire imports.”“Chinese tires do not pose direct competition to US products. From 2004 to 2007， US tire manufacturers’ profits more than doubled，” he added.In a report by the China Daily， Yan Wei， chief economist of Orient Securities Co.， said， “The tariffs did little to create jobs for the U.S. but largely shifted the import source from China to countries such as Brazil and Mexico.”In 2010， the US China Business Council released a Issue Briefing that stated:Comparing the first half of 2010 with the same period in 2009， total US tire imports affected by the 421 tariff are up 21% by volume and 30% by value. China’s share of those imports has dropped from a peak of 45% in August 2009 to just 24% in June 2010. In other words， Americans are buying more tires from overseas. They are just getting the tires from places other than China.The supply sourcing shifted from the PRC to Taiwan， South Korea， Japan， and Indonesia， all happy to divvy up the low-end market， presumably at higher prices now that the PRC， the most significant low-cost producer， was out of the picture.During the same period that the Chinese tires were shut out of the US market， the price of tires jumped over 10%， according to the October 2010 report from Barry Schlachter of McClatchy.Restricting Chinese tire exports to the United States seems to be a “lose-lose” situation for the two sides.What’s to be done?Shen Jinrong， CEO of Zhongce Rubber Company Ltd， said he has begun to adjust his business strategy after two years of struggle. His company set up its first vehicle tires factory in Thailand this summer. With Thailand rubber used as the raw material， Shen hopes to reduce the production cost and more importantly， to avoid the trade tariffs.Some other tire producers are shaking off their heavy reliance on export and boosting domestic sales， so as to have the initiative and not to fall victim to trade frictions.Mei Xinyu， an economist at the Chinese Academy of International Trade and Economic Cooperation， noted that China’s WTO Accession Protocol， the official document China signed 10 years ago to become a member， contains unfair articles， such as Paragraph 15 about price comparability in determining subsidies and dumping， and Paragraph 17 that makes it possible for member states to deny China as a market economy for 15 years following its accession.“Losses in the WTO court have forced us to seek an amendment of these and other unfair clauses so that China can have all the rights a member state is entitled to，” he added.
