29 Jan 2019
Chinese Tyre Producers Sue EU Over Anti-dumping Duties
On 15 January 2019, two Chinese industry associations lodged a court action in the EU’s first tier General Court over the European Commission’s recent decision to impose anti-dumping and countervailing duties on tyres for buses and lorries imported from mainland China. The main complaints are that the EU was wrong to treat original tyre producers and makers of retreaded tyres in the same fashion, and that the EU used a new methodology to weigh the data received from EU SMEs since these companies supplied less information than large producers. Given the size of the EU market, with bus and lorry brands such as Mercedes, Scania and Volvo, the outcome of the case could have a major impact for Hong Kong traders involved in tyre production and exporting from mainland China.
The court action was lodged by the mainland China Chamber of Commerce Metals, Minerals and Chemicals (CCCMC) and the Chinese Rubber Industry Association (CRIA). It is not yet clear which individual companies are supporting the court action. Major producers affected by the anti-dumping measures include Zhongce Rubber group, Aelus Tyre Co., Giti Tyre group and Henan Tyre Co.
The European Commission, which is charged with conducting and implementing trade defence investigations, divided the tyre market into three segments. Tier 1, which covers premium new tyres with the flagship brand of main manufacturers (Pirelli, Michelin etc.), can be retreaded multiple times and are perceived as a high-quality tier by customers. Tier 2 tyres cover most non-premium tyres, both new and retreaded tyres, with prices ranging between approximately 65% and 80% of the price of tier 1 tyres (with brands such as Formula, Hankook etc.). Tier 3 tyres cover both new and retreaded tyres with lower mileage performances and very limited retreadability, if any. Most imports from mainland China were included in this category together with retreaded tyres produced by SMEs in Europe.
Injury to the EU industry came mostly from Tier 3 tyres, although there were also some imports of Tier 1 and Tier 2 tyres from Chinese producers. The Commission therefore wanted to target Tier 3 tyres with anti-dumping and countervailing duties, while avoiding, to the extent possible, disrupting trade in Tier 1 and Tier 2 tyres. The Commission reasoned that an equal ad valorem duty, applied to all three product segments, might cause Chinese producers to focus their exports on Tier 3 tyres since the actual duty on these producers would be the lowest. This might increase rather than decrease injury to the Tier 3 segment of the market.
However, since the segmentation of the market is mainly driven by brand recognition, customs officials would not have been able to distinguish tyres from different tiers or judge their overall quality based on the tyres’ physical characteristics upon import. The difference between a Tier 1 tyre and Tier 3 tyre would not be obvious. As a consequence, it was not possible to impose different duty levels on Tier 1, Tier 2 and Tier 3 tyres. In order to nevertheless target the lower-priced tyres, a fixed duty per item was imposed. This resulted in lower priced tyres facing a higher percentage duty than premium class tyres.
In the action before the General Court, Chinese producers argue that the Commission was wrong to treat their exported tyres of lower quality in the same way as retreaded tyres made in the EU. The Chinese producers argue that there are significant differences between their business model, cost and profit structures compared to those of retreaders. Retreaders offer a recycled good rather than a newly manufactured product. In the final regulation imposing the measures, the Commission rejected calls from Chinese producers to establish a fourth tier comprising only retreaded tyres. The Commission stressed that “new and retreaded tyres share the same basic characteristics and are largely interchangeable.”
Moreover, during the investigation the Chinese companies argued that the warranties and after-sales services offered by EU retreaders should be excluded from the price comparison since such services were not offered by Chinese exporters. The Commission accepted these arguments and made certain adjustments in this regard.
The industry associations also argue in their court application that the Commission was wrong to give greater weight to industry performance data submitted by European SMEs. According to the Commission, the weighting had been necessary since simplified questionnaires had been sent to SMEs and in order to ensure that these companies were properly represented. In the final regulation imposing the measures, the Commission stated that it was standard practice to use a simplified questionnaire for SME producers in the EU, but that this fact “had no impact on the correctness of the data provided or the thoroughness the investigation.”
A date for the hearing has not yet been fixed.