EU confirms import duties on Chinese truck tires
On October 18th, the European Commission confirmed what many operators had been hoping for: anti-dumping duties on Chinese made truck tires will remain in place. The Commission, after introducing the provisional duties last May and months of discussions with all the stakeholders involved, confirmed the tax measures through the Implementing Regulation 2018/1579, stating that "the EU industry as a whole has been under intense pressure.
On October 18th, the European Commission confirmed what many operators had been hoping for: anti-dumping duties on Chinese made truck tires will remain in place. The Commission, after introducing the provisional duties last May and months of discussions with all the stakeholders involved, confirmed the tax measures through the Implementing Regulation 2018/1579, stating that "the EU industry as a whole has been under intense pressure. During the period under consideration, despite a steady decrease in sales prices, the sector suffered a drop in production capacity, investments and employment, as well as a significant loss of market share. Chinese imports were in fact undercutting the prices charged by the Union’s industry. This meant a significant drop in profit margins for the industry as a whole, which occurred even more rapidly towards the end of the period examined. Furthermore, stocks kept on piling up, especially during the period investigations were being carried out, negatively affecting the financial situation of the industry. Many retreading SMEs stopped production and could not benefit from the economic recovery”. In short, "The Commission confirmed its provisional findings as described by art. 234 and 235 of the temporary Regulation, in which we read that the imposition of measures would be in the interest of the Union’s producers".
The duty, imposed as a fixed figure on each single imported tire, differs between companies or groups, as the anti-dumping investigation analysed individually the prices and industrial processes of each producers, and now, in its final version, the amount differs slightly from what was at first considered as a provisional measure. In the Commission’s Regulation (EU) 2018/683 dated May 4 2018, the value of the provisional duty was fixed in a range that went from 52,85 euro per tire (for the Hankook group) to a maximum of 82,17 euro for the Xingyuan group as well as all other companies that chose not to cooperate in the investigation. On the other hand, in the final version of the anti-dumping measures, the amounts, as shown in the table, range from a minimum of 42,73 euro to a maximum of 61,76 euro.
These changes are the result of a period of intense talks with Chinese companies on the one hand, and a coalition of producers, who requested the investigations in the first place, on the other: soon after the provisional measured were approved, the Commission received, as expected, objections from Chinese producers both on the subject matter as well as the methods used in the investigation, immediately followed by a counter-argument from European producers and retreaders and their associations, resulting in a number of proposals to change the amounts which resulted in the charges mentioned above.
Anti-subsidy investigations also completed
A final document, which did not lead to any change in amount of the charges imposed, is the Commission’s Implementing Regulation (EU) 2018/1690 dated November 9, 2018: the document concluded investigations into alleged Chinese truck tire subsidies (which got under way alongside the anti-dumping investigation), and introduced the final countermeasures. The Commission, in fact, found during the proceedings, several examples of State subsidies on behalf of the tire producers concerned and established that “during the investigation, the prices of the subsidised imports from the PRC were significantly below the prices of the Union’s industry, with undercutting margins of 21%, which led to a significant reduction in market share for the Union’s industry (from 72,4% to 67,1% and from 15,4% in 2014 to 13,7% respectively during the period considered). Indeed, sales volumes decreased slightly over the period considered, while the volume of imports from the PRC increased by 32%, thus capturing a large part of the Union’s consumption. Overall, the loss of market share for the European industry (- 5,3%) was absorbed by higher Chinese imports (+ 4,2%) during the period considered”. Among the subsidies we find: subsidised loans (loans, bonds, various insurances, etc.), supply of electricity below cost, supply of land below cost, refunds on natural rubber import taxes, direct and indirect tax reductions and exemptions, subsidies for energy saving, technological innovation and machinery replacement, as well as customized subsidies for individual companies.
In the light of these findings, the Commission reconsidered the duties, which are no longer merely anti-dumping measures but have, for a variable amount, become anti-subsidy countervailing duty rates. However, the overall final amount, confirmed in order to compensate for the trade injury generated, has not been amended compared to the Regulation issued on October 18; therefore, a lower-margin rule has been applied, according to which the level of duty should be set at the lower level of trade-injury whether dumping or subsidy.
The Commission will probably still have work to do on the issue of duties and subsidies if Chinese companies decide to bring the matter before the European Court of Justice or the World Trade Organisation; but in the meantime, all investigations have been completed, and the Commission's Directorate-General for Trade has highlighted and officially filed the undercutting of import prices, the existence of subsidies by the Chinese Government, the commercial damage caused to EU industry, and of course the EU's interest in raising countervailing measures to protect European companies.
Moreover, shifting the purpose of the measures from dumping alone to trade defence against subsidies could facilitate protecting the measures in any future arbitration.
The effects on the market are still largely unofficially, but a preliminary examination suggests that from March onwards, a significant drop in sales of new Chinese truck tires has taken place, to the advantage of, above all, Tier 3 tire producers and ETRMA members, while the retread market, in difficulty earlier in 2018 (in line with a negative trend now lasting several years) has finally reversed the trend following the provisional duties. Thus, while signs of recovery were already noticeable in late spring, such as a strong demand for retreadable casings, by autumn several retreaders witnessed an important surge in both demand and production. As the year draws to an end, a more complete picture of the repercussions of the measures on the market will be available, but sentiments, so far, are certainly positive at all levels.
The insiders’ view
The recent provisional taxes and their final confirmation, are undoubtedly the best news of 2018 for all tire specialists in the Union. Retreaders are directly involved as a category, as the ones who suffered the most in recent years from the consequences of Chinese dumping. Stefano Carloni, president of AIRP - Associazione Italiana Ricostruttori Pneumatici (Italian Tire Retreaders Association) -, after years of commitment at European level through Bipaver to support anti-dumping investigations, now that the retreading market seems to be enjoying new prospects and opportunities, underscores the role excise duties can play in a circular economy and said, "The confirmation of excise duties is a fundamental decision to help the transition towards a circular economy and to a more efficient and sustainable mobility". "We should point out that in recent years the strong competitive pressure of low-cost products, as demonstrated by the complex investigations carried out by the European Commission, has damaged the entire tire supply chain, triggering a domino effect where even premium producers saw their revenues shrink, putting investments at risk. But the future of mobility must be based on a different model: we need high quality products, designed and produced to last as long as possible, and then to be rebuilt and reused, thus reducing operating costs and their environmental impact," continues Carloni. "Tire retreading, especially in proximity mode, has always been a perfect example of a circular economy. Now our sector will have to work hard to make the most of this important opportunity, abandoning a business model based on disposable goods embracing a new mobility paradigm," concludes the president of AIRP.
A positive comment came also from Giancarlo Veronesi, president of Federpneus – the national association of tire specialists: "Given the illegal practices found by the European Commission's investigations, we welcome these measures aimed at regulating the market and restoring fair business conditions. In our opinion, these duties will also have positive effects on marketing communication: now we can go back to speak about the product itself, its performance, and not just the price. This might also be an opportunity for those who sell Chinese tires to change their business approach.
Alessandro Bruchi, Chief Procurement Officer European Fintyre Distribution, recalls that Fintyre was the first company in Italy to stop importing Chinese tires as early as February 2, 2018. "Fintyre immediately chose to suspend imports of Chinese products, sacrificing short-term margins and focusing on alternative products. What we can now expect is clearly an increase in sales volumes for European manufacturers, with the greatest impacts on Tier3 and Tier2 products, as the volume of Chinese tires that will be missing in the T3 segment will not be completely occupied by western budget products, it is easy to imagine that there will be movements towards the second brand lines. Chinese products will still be on the market anyway, also because some of the most important companies are organizing themselves to move production to other Asian countries: Vietnam, Thailand and Indonesia as the first choice. It will still take years, though. The retreading sector will also benefit from excellent opportunities, and enjoy, once again, great room for movement on the market. Future scenarios are quite difficult to predict, and manufacturers have already started to raise sell-in prices, but they will have to be careful and follow a balanced and fair pricing policy, otherwise Chinese products are bound to regain a competitive advantage. Only under these conditions will the import duties be able to give interesting opportunities to all", concludes Bruchi.
Marco Massarelli, sales director of Farnese Pneumatici, also confirmed Chinese re-location policies: "for many years we have been working with one of the largest Chinese producers", he says, "who has implemented a tariff containment operation by moving its production to Vietnam. The largest companies are shifting their production lines to Vietnam and Thailand. Being a large and well-structured company, these recent duties have improved its performance on the European market, since a multitude of low quality operators have been driven off the market, translating into a 21% reduction of Chinese sales in Europe this year. Excise duties are a positive opportunity for us, prodding us towards a quality process that has been lacking until now. In addition, Italian transport fleets will undergo a significant upgrade as purchasing was previously based almost exclusively on price while now we can talk about quality / price ratio, or cost per kilometre.