Cash Softens a Trade Blow

小股民

Payments to U.S. Rivals Let Chinese Furniture Makers Skirt Import-Duty Review

Some U.S. furniture makers and their lawyers have found a reliable way to extract cash from Chinese competitors deemed by U.S. officials to have "dumped" their products in the U.S., selling them at unfairly low prices.
Each year since 2006, they have asked the Commerce Department to review the U.S. duties paid by Chinese manufacturers on imports of wooden bedroom furniture. Many Chinese firms, fearing a steep rise in duties, agreed within months each time to pay cash to their U.S. competitors in return for being removed from the review list.
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                                                                                Gary I Rothstein for The Wall Street Journal               

Keith Koenig, left, shows Kathe Foley a set made in China at City Furniture in Boca Raton, Fla., on Monday.

            


"Everybody in the industry in the U.S. and China understands that these payments are clever shakedowns," said William Silverman, a lawyer representing U.S. furniture retailers, big importers of Chinese products, at an October hearing of the U.S. International Trade Commission.
Representatives of the furniture makers, including La-Z-Boy Inc.  LZB +2.91% and Vaughan-Bassett Furniture Co., say the payments are legal. Late last month, those two companies and about 15 other U.S. furniture makers sought the latest review, listing 110 Chinese firms.
About $13 million was paid to a group of 20 U.S. furniture makers from 2006 through 2009, according to a November ITC report. The U.S. firms told the ITC that a much larger, but unspecified, amount of money went to pay the U.S. firms' lawyers. The ITC report didn't include 2010 payments.
Two of six ITC commissioners expressed misgivings about the payments. Commissioner Charlotte Lane said at the October hearing that she was "very, very troubled" by the settlements, adding: "I cannot figure out for the life of me how they are actually legal."
In a note included in a December ITC report, Commissioner Daniel Pearson said the settlements create "additional costs and distortions" in furniture trade, "with little evidence that these distortions have yielded any benefits to the industry overall, the U.S. consumer, or the U.S. taxpayer."
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Since 2005, the Commerce Department has imposed antidumping duties on wooden bedroom furniture from China after determining those products were being dumped on the U.S. market at "less than fair value." The tariffs range from less than 1% to more than 200% of the import value.
U.S. trade law allows the companies hurt by dumping to submit to the department once a year a list of exporters for review. The department has up to 18 months to determine whether the listed companies should be subject to tougher duties.
A Commerce Department spokesman said it didn't approve of the private settlements but lacked "authority to investigate or police agreements between private parties." The normally secret settlements surfaced during that hearing, which was held to determine whether the U.S. should continue applying the duties. A November vote by the ITC kept the duties in force.
The duties have done little to stem imports. The ITC found that imports accounted for 78% of the $3.4 billion of wooden bedroom furniture sold in the U.S. in 2009, up from 44% in 2001. But the duties did prompt much of the production to shift from China to Vietnam, where the duties don't apply.
Leslie and Jim Thompson, owners of Up Country, a furniture company based in Dawsonville, Ga., complained about the practice at the October hearing. About seven years ago, they began making hand-carved bedroom furniture near Shanghai, but they recently ceased production there amid uncertainty over duties.
                            At the ITC hearing in October, Ms. Thompson recalled that in 2007 she called Joseph Dorn, a Washington lawyer representing La-Z-Boy and other furniture makers, and asked for help in averting a review of duty levels at her company. Mr. Dorn "asked me what I could give him that would entice his client…to drop me from the review," she told the ITC.
She added, "My husband and I were not, and are not, willing to pay what we believe were extortion payments."
Mr. Dorn told the ITC at the hearing that he didn't recall that telephone conversation, and that in any case he wouldn't have been in a position to help her get a lower duty.
La-Z-Boy and Vaughan-Bassett referred questions about the settlements to Mr. Dorn, who said in an email that "settling legal disputes is commonplace, legal and totally appropriate." He said cash settlements were possible only because the Chinese firms sought them.
Peter Koenig, a Washington lawyer representing some Chinesefurniture makers, said many feel compelled to settle because of uncertainty over the level of duties if they are subject to reviews. The duties are set retroactively, meaning an exporter could face a sudden jump in the amount owed a year or two after making a shipment.
Those duties are based partly on estimates of production costs. The department generally reviews only a few producers and uses estimated costs at those firms to apply to other firms deemed to be in a similar situation. That makes it hard for the Chinese firms to estimate what duties might apply after a review.
"You've got potential for abuse," said Frank Lavin, who served as Commerce undersecretary for international trade from 2005 to 2007. He said the private deals could allow U.S. furniture makers to favor certain Chinese firms over others and effectively set a price of entry into the market. He suggested the U.S. develop rules to prevent any such abuses.


By JAMES R. HAGERTY