The Worst Kind of Unfair Trade-the Need to Address the Broad Consequences of Unfair Trade Practices

By: Tamara Browne and Nicholas Birch, Schagrin Associates, Washington D.C.[1]

Many U.S. manufacturers and workers—as well as the communities they are located in—are unfortunately too familiar with the consequences of unfair trade, as numerous industries in the United States and across the globe have been decimated by low-priced import competition that has eroded good paying jobs in manufacturing and other import sensitive sectors. Tools such as antidumping duty (AD), countervailing duty (CVD), and safeguard actions are used in attempts to protect domestic industries from the harm of unfairly traded imports. But those domestic producers and their workers have increasingly found that the promised relief has all too often rapidly evaporated as foreign producers and importers find channels to evade orders, from false claims made about the product and its tariff classification to relocating the last step of production to a third country to claim a new origin for an essentially unchanged product. Those evasion attempts have often been unintentionally aided by less-than-robust enforcement of fair-trade orders or by unintentional gaps in the coverage of those orders created by agencies entrusted with their enforcement. The weakening and evasion of fair-trade orders not only have deleterious effects on the domestic industries that rely on them, but are increasingly contributing to other unforeseen consequences, including harm appearing in surprising places.

In this article we comment on the impacts of unfair trade in solar products, cast aluminum, and tires. U.S. companies making these products have been hard hit by unfair import practices, but the negative impacts have not been limited to U.S. companies and workers.

Solar is a critical component in the renewable energy sector and has been the subject of increased attention over the past decade. As countries move to diversify their energy sector, solar has been an industry that has grown across the globe. One of the most notable trends as demand for solar power products such as solar panels has grown has been China’s rise to dominance in supplying this market. The Chinese solar industry exploded over the last decade, as China went from being a minor player in this market to becoming almost totally dominant. Today, China now produces over 70 percent of solar modules globally;[2] and an even greater portion of solar modules worldwide, up to 95 percent, are produced using materials produced in China’s Xinjiang region.[3]

China’s domination of the global solar industry is due to “vast amounts of money” and other directed support from the government in Beijing.[4] As China’s solar products capacity has been driven by an expansive government policy rather than market forces, China produces far more solar supply then it demands. As has been the case with many products where substantial production overcapacity has developed in China, the result has been a focus on exports at prices below market levels to offload unneeded production. China’s increasing domination of worldwide production has devastated other nations’ solar industries, notably in the United States and the European Union (E.U.), where many solar product manufacturers have been forced to close their doors.

As those decimated industries sought protections from the Chinese flood of imports, the governments of the United States and the European Union found that solar panels from China were being imported at dumped prices and were subsidized by the Chinese government, and so they applied duties to increase import prices to fair levels in 2012 and 2013. But Chinese producers quickly found and used loopholes in those orders, such as moving assembly offshore. The United States implemented a second round of orders that covered such additional Chinese-driven production as panels assembled in third countries in 2015.[5] Even with that protection, in 2017 the U.S. International Trade Commission found that increasing volumes of Chinese solar product imports continued to drive down prices and significantly injure the remaining U.S. industry. In 2018, the United States applied an additional Section 201 “safeguard” action, adding a 30 percent tariff on solar modules that would decline annually over four years plus a tariff-rate quota on solar cells.[6]

While the fair trade and safeguard actions had positive effects for the U.S. solar products industry, that industry continued to be dominated by Chinese imports. U.S. producers have pointed to an exclusion added to the safeguard action for bifacial solar panels[7] and an overly-high quota on cells as causes of the less-than-hoped-for outcome. While that exclusion was made because bifacial panels were at the time seen as a niche product, import volumes immediately shifted significantly into such panels, as using the exclusion was seen as a way to escape the U.S. tariffs.[8] The continued Chinese pressure on the U.S. market recently lead the U.S. International Trade Commission (ITC) to recommend that President Biden further extend the solar safeguard protections beyond the original four-year period as the U.S. industry and its workers still requires protection from low-priced imports.[9]

China’s continued ability to dominate the world market behind government support from Beijing has had farther reaching effects than even those on the struggling and collapsed domestic industries in the United States and European Union. The Chinese solar industry is centered in the western Xinjiang region in China. Xinjiang is also the center of the Chinese government’s ongoing campaign against ethic-minority Muslim populations. “Beijing has been carrying out a campaign to detain and ‘reeducate’ the Muslim-majority population of the Xinjiang region.”[10] Estimates place the number of people held in Chinese camps in Xinjiang at “a million or more.”[11] In Xinjiang, the Chinese government “use{s} threats of physical violence, forcible drug intake, physical and sexual abuse, and torture to force detainees to work in adjacent or off-site factories or worksites producing {inter alia}… materials for solar power equipment….”[12] While U.S., E.U., and other governments have begun to take steps to try to force China to end such practices,[13] the Chinese government continues attempts to shroud the situation in Xinjiang.[14] As solar producers in Xinjiang continue to find substantial access to U.S. and E.U. markets through loopholes and other weaknesses in fair trade and safeguard orders, they continue to find reason to keep this forced labor intact.

Other cases of labor abuse have also emerged where Chinese producers facing fair trade orders in western markets have looked for ways to circumvent those orders, cases not limited to alleged abuses inside China. In August 2021, investigators from U.S. Customs and Border Protection (CBP) performed a site visit to an aluminum casting company in the Dominican Republic as part of a third investigation into that company’s role in transshipping aluminum castings from China to disguise their true origin to evade U.S. antidumping and countervailing duty orders.[15] The Dominican company, Kingtom Aluminio, was found to be Chinese-owned, run by Chinese workers, and using Chinese suppliers, equipment, and raw materials. In both prior investigations, U.S. Customs had found significant contradictions in Kingtom Aluminio’s claims to be able to produce its aluminum exclusions in the Dominican Republic and had determined that it was instead reshipping castings made in China.[16]

In the August 2021 on-site examination, in addition to finding further inconsistencies in Kingtom Aluminio’s claims, the CBP investigators were handed notes and sent text messages in secret by multiple Dominicans employed in the factory, stating that the Dominican workers were being mistreated by Chinese management. By the end of the visit, the investigators had been contacted by over 50 workers[17] who alleged that they were kept at below-minimum wages by the factory through impositions of fines for infractions such as spending too long in the bathroom. Workers also stated they were prohibited from taking time off for any reason and were suffering injuries on the job. The investigators noted that management attempted to remain with members of the investigative team at all times to intimidate workers from speaking with them. The matters came to a head when investigators were approached by a group of Dominican workers who said they were not longer afraid to openly speak to the investigators because they had just been fired for trying to speak with them. That discussion was cut short by the appearance of a Chinese management official bringing a guard armed with a rifle. The CBP officials decided for their own safety to terminate the site visit.

These investigations by CBP resulted in an elevated interest and engagement by the U.S. Congress, as many members engaged and explored legislative solutions to end practices that harmed workers. In a Senate Committee on Finance confirmation hearing in November 2021 for U.S. Customs Commissioner Chris Magnus, Committee Chairman U.S. Sen. Ron Wyden (D-OR) reiterated that the committee remains concerned about forced labor and its impact on global trade. The Senator further stated that nominee Magnus “is also committed to enforcing the United States’ ban on products made with forced labor, to help ensure these products are stopped at the border and never enter our market.” The Senator further noted that “[t]his is a big challenge, but modern-day slavery is an affront to our values and the worst kind of unfair trade.”[18]

Another industry that has also been hammered by Chinese exports is the tire industry. The United States and the European Union, along with a number of other countries, have found it necessary to place multiple antidumping and countervailing duties on various types of tires from China, from tractor tires to sports car tires. In response, as has been the case in many other industries, many Chinese producers quickly moved production nominally to other countries to sustain their presence in these export markets. Following U.S. AD and CVD orders on passenger vehicle and light truck tires from China in 2015, another round of orders was found to be necessary in 2021 on imports from Korea, Taiwan, Thailand, and Vietnam, driven in large part by Chinese producers opening subsidiary plants in these countries. One Chinese producer, Shandong Linglong, first opened a tire manufacturing facility in Thailand and is now in the process of building a new plant in Serbia that represents a $994 million investment. Serbian NGOs accompanied by the media visited Linglong’s construction site in November 2021 and reported that workers recruited from Vietnam by the company were kept in inhumane conditions—without hot water or mattresses in freezing barracks—with their passports and wages withheld to prevent their flight.[19] Further reports document that the investigation has all elements of exploitation and human trafficking.[20] Linglong’s plant is also already facing environmental complaints.[21] Another tire producer in China impacted by the existing AD/CVD orders in the U.S. , the Singapore-headquartered Giti Tire, built a new tire plant in Richburg, South Carolina. That plant has recently faced allegations of worker mistreatment, including low wages, “oppressive” overtime requirements, and intimidation of workers.[22] After refusing to meet with local leaders seeking to present a letter with their concerns,[23] Giti’s U.S. management rejected the claims as false and only driven by a union-membership drive.[24]

With the advent of expanding global trade, the past three decades have increasingly forced global competitors to adhere to global trade requirements. In recent years, Congress has joined in providing its voice to encourage the U.S. to hold other global trade partners accountable for their predatory trade actions. U.S. trade agencies joined by U.S. Customs have collaborated to advance this agenda in efforts to enforce global trade. These U.S. government agencies continue to interact with their global trade counterparts, and more recently U.S. Customs has collaborated with members of the World Customs Organization (WCO) to address global customs enforcement issues. All of these efforts serve an important role in ensuring that global trade is conducted within the rule of law. Governments and their respective legislative bodies are also exploring other ways to forge a path forward. The U.S. Congress remains committed to ensuring that U.S. trade laws remain strong. Congress adopted legislation in 2015 and plans are underway in the 117th Congress to advance legislation that will build on what was passed six years ago.

These collective efforts are essential in ensuring robust economic development and growth in the United States and abroad. In the last half of the 20th Century, thousands of good wage manufacturing jobs were lost as a result of unfair trade, communities were decimated, and good wage jobs were lost. Embracing the goals of a level playing field, members of the Committee to Support U.S. Trade Laws (CSUSTL) remain steadfast in their work to influence and craft trade policies that provide equity for all. Since its formation over two decades ago, the CSUSTL has continued to work with Congress and the Administration to shape strong trade legislation and through its engagement with Congress and U.S. trade agencies.

[1] The views of the authors are their own, and do not necessarily reflect the views of Schagrin Associates or its clients. [2] Elisabeth Braw, “When Clean Energy Is Powered by Dirty Labor” Foreign Policy (April 12, 2021), https://foreignpolicy.com/2021/04/12/clean-energy-china-xinjiang-uyghur-labor/ (accessed Dec. 4, 2021). [3] Aitor Hernández-Morales, Karl Mathiesen, Stuart Lau and Giorgio Leali, “Fears over China’s Muslim forced labor loom over EU solar power,” Politico.EU, https://www.politico.eu/article/xinjiang-china-polysilicon-solar-energy-europe/ (accessed Dec. 4, 2021). [4] Ana Swanson and Brad Plumer, “China’s Solar Dominance Presents Biden With an Ugly Dilemma,” NYTimes.com, https://www.nytimes.com/2021/04/20/business/economy/china-biden-solar-panels.html (accessed Dec. 4, 2021). [5]See Crystalline Silicon Photovoltaic Cells, Whether or Not Partially or Fully Assembled Into Other Products: Monitoring Developments in the Domestic Industry, USITC Pub. 5021, Investigation No. TA-201-075 (Monitoring) (Feb. 2020) at I-5 – I-6, available at https://www.usitc.gov/publications/other/pub5021.pdf. [6]See id. at 1-2. [7] Panels that general power on both sides. [8] Ari Natter and Jim Efstathiou Jr., “Solar Has New Way to Duck Trump’s Tariffs: Two-sided Panels,” Bloomberg (June 13, 2019), available at https://finance.yahoo.com/news/solar-way-ducking-trump-apos-201237754.html (accessed Dec. 4, 2021). [9]See USITC Says Relief Continues to Be Necessary for U.S. Industry Producing Crystalline Silicon Photovoltaic Cells, Whether or Not Partially or Fully Assembled into Other Products (Nov. 24, 2021), https://www.usitc.gov/press_room/news_release/2021/er1124ll1852.htm (accessed Dec. 4, 2021). [10] Hernández-Morales et. al., “Fears over China’s Muslim forced labor loom over EU solar power.” [11] Swanson and Plumer, “China’s Solar Dominance Presents Biden With an Ugly Dilemma.” [12] U.S. Department of State, “Forced Labor in China’s Xinjiang Region” (July 1, 2021), https://www.state.gov/forced-labor-in-chinas-xinjiang-region/ (accessed Dec. 4, 2021). [13]See id., see also “FACT SHEET: New U.S. Government Actions on Forced Labor in Xinjiang” (June 24, 2021), https://www.whitehouse.gov/briefing-room/statements-releases/2021/06/24/fact-sheet-new-u-s-government-actions-on-forced-labor-in-xinjiang/ (accessed Dec. 4, 2021); “UK sanctions perpetrators of gross human rights violations in Xinjiang, alongside EU, Canada and US” (March 22, 2021), https://www.gov.uk/government/news/uk-sanctions-perpetrators-of-gross-human-rights-violations-in-xinjiang-alongside-eu-canada-and-us (accessed Dec. 4, 2021). [14] Braw, “When Clean Energy Is Powered by Dirty Labor” (“While Chinese authorities deny the existence of forced labor, they also don’t permit independent inspections of manufacturing facilities in Xinjiang. Western manufacturers have to take Chinese partners at their word that there’s no forced labor involved—an extraordinarily weak basis on which to buy goods.”). [15] U.S. Custom’s preliminary determination in this investigation can be found at https://www.cbp.gov/sites/default/files/assets/documents/2021-May/05-10-2021%20-%20TRLED-Notice%20of%20Initiation%20and%20Interim%20Measures%20%28508%20compliant%29%20%287550%29%20-%20PV_0.pdf (accessed Dec. 4, 2021). [16]See id. [17] The investigators noted that the Dominican workers would only approach members of the investigative team of certain ethnicity due to their fears of retribution by Chinese management. [18]See Statement by Sen. Wyden, available at https://www.finance.senate.gov/imo/media/doc/ 11.3.2021%20Magnus%20statement.pdf (accessed Dec. 6, 2021). [19] Kiera Fields, “Vietnamese Workers Plead for Help at a Chinese Factory in Serbia, Where They Are Subject to Harsh Working Conditions, Reports Say,” Insider (Nov. 21, 2021), https://www.businessinsider.com/vietnamese-workers-plead-help-chinese-factory-serbia-2021-11 (accessed Dec. 4, 2021). [20] “Serbia: Treatment of Vietnamese Workers at Chinese Factory Shandong Linglong Tire Co. Has All Elements of Exploitation & Human Trafficking, Expert Says,” Business & Human Rights Center (Nov. 17, 2021), https://www.business-humanrights.org/en/latest-news/serbia-mistreatment-of-vietnamese-workers-is-criminal-lawyer-claims/ (accessed Dec. 4, 2021). [21] “Linglong’s Serbian Plant Subject of EU Environmental Scrutiny,” Tire Business (Feb. 2, 2021) https://www.tirebusiness.com/news/linglongs-serbian-plant-subject-eu-environmental-scrutiny (accessed Dec. 4, 2021) (noting that 26 members of the European Parliament have begun to raise concerns with the impact the plant will have on the local community as “environmental situation at other projects in Serbia involving Chinese investment — including a steel mill, a copper mine/smeltery and a coal power plant — has ‘deteriorated drastically’ as they progressed, ‘impacting the surrounding communities' collective health and well-being.’”). [22] Tobie Nell Perkins, “Letter from Area Leaders Demands Giti Tire in Chester County, SC Discuss Work Conditions,” The Herald (Nov. 26, 2021), https://www.heraldonline.com/news/business/article256096222.html (accessed Dec. 4, 2021). [23]See id. [24] “Giti Tire Rejects Mistreatment Claims; Blames Union Drive,” Tire Business (Dec. 1, 2021), https://www.tirebusiness.com/news/giti-tire-rejects-mistreatment-claims-blames-union-membership-drive (accessed Dec. 4, 2021).