Monday, February 27, 2012

GPX Update: The Real Pain Imposed by the Administration's Current Policy

Last night, I detailed the holes in the Obama administration's breathless prediction that congressional failure to quickly pass a law expressly applying the US countervailing duty law to "non-market economies" would cause subsidized Chinese (and to a lesser extent Vietnamese) imports to flood into the United States and drown myriad US companies and workers .  In short, we saw that the vast majority of the immediate pain that the White House forecast would actually be neither immediate nor painful.

By contrast, the administration's current CVD/NME policy is currently inflicting real and immediate pain on US companies and workers.

I documented some of these harms when I published an unsolicited email from Robert Sherkin, a founder of the now-bankrupt GPX International Tire Corp (the named Plaintiff in the big US court case on the CVD/NME issue).  Mr. Sherkin described how the now-illegal AD/CVD orders on Chinese tires had bankrupted his company, imperiled the jobs of 200 US workers and cost him personally $20 million. And all the while the Obama administration remained steadfastly committed to its current (and painful/illegal) approach.

Mr. Sherkin, unfortunately, is not alone. Now, we discover that the tiny offshoot of now-bankrupt GPX - Maine Industrial Tire in Red Lion, PA - is also suffering the ravages of the administration's CVD/NME policy, even though they no longer make the tires at issue in the original case.  As a result, the business and about 40 new jobs have been put on hold indefinitely:

The shiny, rust-free glimmer slaps Troy Kline dead in the face as he paces the gritty floors of his 120,000-square-foot tire factory in Red Lion.  The CEO at Maine Industrial Tire shakes his head, watching the $100,000 tire mill sit idle - but not for the reason you might think.  It's not the decline in U.S. manufacturing, an epidemic that recently claimed nearby Yorktowne Cabinetry's decades-old site across Redco Avenue. It's not lagging demand for the company's inventory, either. In fact, Maine Industrial Tire's 50 employees can't keep up with contracts from big names like John Deere, Bobcat, and Caterpillar, clamoring for the company's solid rubber products used on forklifts and construction equipment.

For most manufacturers, it's the stuff of dreams. For Kline and the company's Chairman Bryan Ganz, it's just a long story - one colored by a 5-year-old court battle with the U.S. government over an international trade regulation designed to stop foreign firms from undercutting American manufacturers. They say it's left them waiting on $1.5 million - money granted by a 2010 court decision.  That's money to hire about 40 more employees in Red Lion - money to invest in company infrastructure.

"The issue is," Kline said, "how many more customers are we going to lose because we can't keep up with demand?"

The saga begins in 2007. At the time, Maine Industrial's forerunner GPX International Tires employed 2,600 people at manufacturing operations in Red Lion, Maine, Canada, Europe and - as fate would have it - China. That year, Titan Tire Corp., the United Steel Workers International and Bridgestone Americas Inc. filed suit against GPX, accusing the Massachusetts-based company of "dumping" and "countervailing" from their Chinese factory....

Ganz said the suit, filed with the international trade commission, wasn't taken seriously initially. "My head would snap off if I tried to sell something below cost," he said. "We did not need to take additional market share. We weren't a start-up company."

In late 2007, the U.S. Department of Commerce began charging GPX customs duties.... These fees amounted to 44 percent of the cost of each off-the-road tire. For example, if a tire cost $100, GPX paid the U.S. government $44 before the item could touch U.S. soil. Duties aside, that same tire would only garner about $25 in profits for the company, Ganz said.

GPX sued the Department of Commerce in 2008, accusing the imposition of both duties as "double-counting," he added. "At the time, there was tremendous anti-China sentiment - a tremendous push in Congress to restrict trade with China."...

GPX asked a judge to suspend the duties until the case could be heard in court. The request was denied, and GPX filed for bankruptcy in October 2009, citing the continued hefty customs costs for its demise. The blow was devastating for Ganz, whose grandfather started GPX in 1922. He teamed up with Kline and other investors to buy a small piece of the company out of bankruptcy - along with the rights to pursue a lawsuit against the Department of Commerce. The business - which no longer makes the products subject to the customs duties - became Maine Industrial Tire.

In August 2009, Chief Judge Jane Restani of the U.S. Court of International Trade ruled that the Department of Commerce erred in charging GPX the countervailing duties. She re-affirmed her decision a year later, following the department's appeal. On Dec. 19, 2011, the Federal Circuit once again upheld Restani's decision, entitling Maine Industrial Tire to $1.5 million in refunded customs duties.

But it didn't quite happen that way, Ganz said. The money is pending, tangled in the wheels of the justice system after the Department of Commerce appealed the decision to the U.S. Supreme Court. 

Meanwhile, Ganz and his colleagues are tired - no pun intended. They worry Congress might retroactively change the international trade law via an expedited process called "unanimous consent" - a move that might interfere with their settlement. "We're at the mercy of the government. At both ends," Kline said. "Whether it's the Supreme Court or the senators."

U.S. Sen. Bob Casey and U.S. Rep. Todd Platts could not be reached for comment.

In the meantime, Kline said his company doesn't have the money to dump into the company and new molds for updated product lines.  Molds range in price from $7,000 to $30,000 each, he said.  The factory produces about four tons per day of inventory.  Capacity permits three times that amount for the site, which has had to eliminate military contracts with Lockheed Martin, Kline said. And that machine - the one that sits idle - could employ six people alone.

For now, it's just a waiting game. "We have the technology to do so much more," Kline said. "We just don't have the funds to do it."
We so often hear about the exaggerated pains imposed by Chinese imports on American companies and workers.  The stories of GPX and Maine Industrial will hopefully cause a few people to realize that protectionist policies impose real pains too (and, of course, restrict individuals' freedom to buy from and sell to whomever they choose).  And let's not forget that there are 22 other CVD orders in place right now and seven more CVD investigations underway.  Each of those measures - or potential measures - can impose similar harms on the US companies and workers who import, consume or otherwise rely on the imported products at issue.

Yet, even with such documented pain and after multiple court and WTO losses, the White House adamantly refuses to change course - a change that undoubtedly would be for the better.  Instead, they just want Congress to swoop in, paper over their repeated losses, and provide them with the express authority to continue down this tortuous road.

Isn't it about time that Congress took a step back and reconsidered the administration's woefully-flawed master plan?

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