Keep Chinese TV Importers From Circumventing Tariffs, Element Urges USTR

The arguments of Element, which placed among the top five TV brands in unit share the past two years through its huge retail presence at Costco, Target and Walmart, put the company in diametric opposition to CTA, which opposes the tariffs on finished Chinese TVs, among 193 "line items" targeted for the extra duties on the USTR’s proposed tariffs list (see 1805110063). Target also strongly opposes the tariffs because “tariffs are taxes, and taxes raise prices for consumers," said the retailer in comments also posted Friday.

Representatives of CTA and Element will testify during three days of public hearings on the proposed tariffs that begin Tuesday, according to a schedule released Monday by the USTR's office. Representatives of Best Buy, the Information Technology Industry Council, the National Retail Federation, Roku and TCL North America also will testify, said the agency. Except for Element, all those groups and companies are on record as opposing the tariffs. The hearings won't be live-streamed, nor will audio or video recordings of the proceedings be allowed, but a "full transcript" will be posted at USTR.gov and in docket USTR-2018-0005, said the agency. It didn't say when the transcript will be posted, but comments are due May 22 to rebut statements made at the hearings.

Though Element “supports free and fair trade, current trade policy is not fair and does not provide a level playing field” for the American workers who assemble LCD TVs at the company’s plant in Winnsboro, South Carolina, at an average wage of $16 an hour, plus benefits, said the company. One of Element’s main grievances is that the “normal duty rate” on imports of finished televisions is 3.9 percent -- and zero percent on sets from Mexico -- but the normal duty rate on imports of LCD panels “critical” to assembling sets in Winnsboro is 4.5 percent, “a classic tariff inversion,” it said. “Thus, the normal duty rates incentivize importing finished TVs into the US rather than producing TVs in the US.”

Element began assembling LCD TVs in Winnsboro four years ago "in cooperation with Walmart under its program to increase its sourcing of American made products," said the TV supplier. As far as we can tell, Walmart, which sources much of its TV supply from Hisense, TCL and other brands produced in China, as well as from Element in the U.S., has been silent in docket USTR-2018-0005 on the issue of the proposed tariffs. Walmart also didn't ask to participate at the public hearings and has no spot reserved among the 17 panels of 122 witnesses scheduled to give oral testimony over the next three days. Efforts to reach out to Walmart for comment were unsuccessful.

Element alleges Chinese TV suppliers “are using the time provided by this public comment period to ship products and components and to start-up makeshift ‘production operations’ in other countries in Southeast Asia and in particular in Mexico to avoid the potential duties,” the company told the USTR’s office. Chinese producers “will be able to easily evade any duties imposed” because of the “flexibility of the normal rules of origin that apply to televisions and likely many other products,” said Element. “Chinese producers have already devised plans to export all the individual components to other Southeast Asian countries or Mexico where they would undertake assembly operations,” it said without offering specific evidence or mentioning any names. Element representatives didn’t comment Monday.

If 25 percent duties are imposed on finished TVs imported from China, TVs imported from Asian ports other than those in China would qualify for the lower 3.9 percent tariffs and would be assessed no duty at all if imported from Mexico under the North American Free Trade Agreement, said Element. The USTR’s punitive 25 percent tariffs against finished TVs from China “would be a toothless tiger without protection against this circumvention,” it said.

Element urges the USTR’s office to impose changes in the rules of origin under the Harmonized Tariffs Schedule classification for finished TVs that would “prevent Chinese producers from shifting production and exports to other countries, including Mexico,” to avoid the 25 percent duties, it said. Element also urges the Trump administration “to use the ongoing NAFTA negotiations to apply this proposed rule of origin to the new NAFTA agreement to effectively close the back door access China and other foreign competitors have to the US through the NAFTA rules to the significant detriment of US companies,” it said.

One of two recent CTA-NRF studies was “fundamentally flawed” when it found that the 25 percent tariffs would force U.S. consumers to pay $711 million more than they otherwise would for the TVs they continue to buy, said Element. The study (see 1804170013) “erroneously reaches its conclusions despite conceding” that the tariffs “would have exactly the intended impact” of increasing U.S. production of finished TVs, it said. CTA and NRF based their conclusions “on the assumption that imports of TVs from China and Mexico do not compete with each other,” which is “patently wrong,” Element said.

The CTA-NRF study also “incorrectly concludes that because the average unit value of TVs imported from China is much lower than from other countries, the TVs from China are not suitable alternatives to the TVs from other countries,” said Element. “This is a manipulation of the data,” it said. TV imports from China “tend to have lower average unit values” because they “tend to be smaller screen sizes,” it said. “In contrast, imports from Mexico tend to have higher unit values because imports from Mexico tend to be larger screen sizes.”

Trade Partnership Worldwide, which conducted the study for CTA and NRF, said through CTA spokeswoman Izzy Santa Monday that its analysis “was based on input from U.S. buyers who said imports from China didn’t compete with imports from other countries, or at least couldn’t in the short-term.” Element “doesn’t say how long Mexico could ramp up to do small screens, or even if Mexico has the bandwidth to do both small screens and larger screens,” said the research firm. “We also heard about capacity constraints in alternative suppliers. Again, the assessment is the short term, and in the short term there’s a price hike.”

Trump administration officials “have stated the proposed tariffs should have little negative impact on American business and consumers,” said CTA in its Friday comments. But the two studies that CTA and NRF commissioned from Trade Partnership Worldwide “tell a more troubling story,” including the second-survey finding that the tariffs and retaliatory Chinese actions would “destroy” 134,000 American jobs (see 1805010024).

In its comments, CTA highlighted what it said were the plights of two member companies, one of which, the startup HiberSense, founded with “incubation funding” from the University of Pittsburgh, is about to begin shipping a “whole-home temperature control” system that relies on thermostats imported from China. “If shifting HiberSense’s thermostat supplier becomes required prior to going to market,” through the imposition of tariffs, “compatibility delays will further complicate the launch of its business,” said CTA.

As HiberSense prepares to begin its first shipments in less than a month, “the massive business uncertainty caused by potential tariffs and switching suppliers will have a dire impact on the company and its ability to deliver on time and on budget,” said CTA. “Such a delay will put their existing and potential investors at risk and hamper U.S. innovation, manufacturing and plans for expansion.”

In “formulating responses to China’s unfair and discriminatory trade practices,” the U.S. should avoid “punitive tariffs” that would harm the American economy “and disproportionately burden U.S. businesses and consumers,” said CTA. “The administration must also avoid ad-hoc retaliatory measures, which would severely and detrimentally affect the U.S. technology industry with its inherently global and interconnected supply chains,” it said. “Given the significant U.S. services trade surplus with China, the administration should adopt policies with China that push for greater transparency, competition and open markets, while resisting the imposition of taxes and trade barriers that would harm American interests.”

Dozens of individuals identifying themselves as working for CTA member companies inundated docket USTR-2018-0005 with comments opposing the tariffs submitted using a template that CTA set up as the Friday comments deadline approached. “Through May 11, we educated and mobilized 1,400 people -- members and the general public -- about the negative consequences tariffs have on the economy and disproportionate harm tariffs have on small businesses and consumers,” said CTA spokeswoman Santa. “Each advocate had the option to contact USTR as well as their elected official.” Among those who wrote in were Robert Heiblim, who chairs CTA’s Audio Division, Directed CEO Bob Struble and David Young, the often-quoted president of The Sound Room, the AV specialty retailer in Chesterfield, Missouri.