antidumping

Earlier this week the United States Department of Commerce (DOC) made a preliminary ruling on hydroflurocarbon refrigerant components coming in from China. The components are brought into the United States and then mixed or blended domestically in an effort to get around the 2016 antidumping tariffs. The 2016 ruling installed tariffs on the blended HFC refrigerants themselves such as R404A, R407A, R407C, R410A, and R507A. Because this ruling did NOT pertain to the actual components of these blended refrigerants the United States saw an over four-hundred percent increase in imports of R-32, R-125, and R-143a in the years after the initial 2016 ruling. To top it off, there was also nearly an eighty percent decrease of finished HFC blends being imported into the United States. It was obvious to anyone watching that the tariffs from 2016 had no impact.

It was in early April of last year that a new antidumping circumvention case was launched with the Department of Commerce. This case focused instead on the actual components to create these refrigerant blends. After some months of debate the DOC announced an official inquiry investigation would began in June of 2019. Since then it had been relatively quiet up until this week where the DOC preliminarily found that the imports of these refrigerant components are indeed circumventing the previous antidumping order. As a result of this the DOC ordered that Customs and Borders Protection suspend liquidation on these imports and also require large cash deposits on imports of the impacted refrigerant components.

Now I’ll be the first to tell you that I am not an import/export expert. At the time of writing this article I wasn’t fully aware what liquidation was when it came to customs enforcement. But, like anything, it can be learned. From my understanding and research the act of liquidation with imports is an agreement between Customs and Border Protection and the importer on duties, fees, and tariffs of the shipment. The CBP normally has a 314 day period from the time of import to the date of automatic liquidation. During this time the importer and CBP may go back and forth determining the proper fees that are owed. After the liquidation has occurred though the importer can no longer be responsible for tariffs or other new fees that occurred after… unless:

The one-year statutory liquidation requirement may also be suspended by statute or due to court action. Actions that might suspend liquidation include countervailing or anti-dumping duty investigations. Because the entry remains open, the importer is liable for any duty orders resulting from resolution of these investigations.” – Source ShippingSolutions.com

This is exactly what the DOC ruled this week on these HFC component refrigerants. The DOC ordered CBP to suspend liquidations on R-32, R-125, and R-143a as of June 18th, 2019. (The initial date of the investigation.) What this means is that all of the products that were imported at or after June 18th, 2019 COULD be subject to tariffs if the Department of Commerce rules in favor of the antidumping duties. The DOC is also requiring cash deposits to be submitted in estimation of what the proposed tariffs will be (Ranging from 101.82 to 285.73%). Lastly, the DOC announced that their final decision on this has been pushed back to July 2nd, 2020.

As you can imagine there is still quite a bit that is unclear at this time. I cannot imagine the position business owners or importers are in if this gets passed. Having to pay duties on product that you brought in nearly a year ago… that has most likely already been sold. It is going to hurt. This holds especially true the way the economy is right now. This latest news this week has also caused the prices on HFC refrigerants to rise and rise. A major refrigerant manufacturer announced that they were suspending all of their published pricing until further notice. This just shows you how much of an impact this ruling had on the marketplace. Now normally when we see this huge price increase it starts to settle back down… and we may see that as the final ruling is still three months away.

Lastly, there is a glimmer of hope for some companies out there. The DOC has said that they may entertain exclusions to a positive antidumping ruling. These exclusions could apply to companies who import these components but claim that they are NOT blending the refrigerant and are using it for other means. There was also talk of exclusion if the company doing the importing is an HFC refrigerant manufacturer as well. This can get a little gray though as what constitutes a manufacturer? If I am blending in house does that make me a manufacturer? Personally, I feel like these exclusions could get us down a rabbit hole and eventually lead us to more loop holes for companies to get around tariffs.

But Wait Folks… There’s More!

Another angle of this story folks is that it is not just about China anymore. Yes, it really has always been about China but there has been yet another loophole found since the 2016 ruling on HFC blended refrigerants. This time we had companies importing the Chinese blended refrigerants into India and then American companies buying these products from India. Along with our previous topic there was a second preliminary ruling decided this week by the DOC:

Further, in response to a request from the American HFC Coalition (the petitioners), we initiated an anti-circumvention inquiry, pursuant to section 781(b) of the Tariff Act of 1930, as amended (the Act), and 19 CFR 351.225(h), to determine whether HFC blends, containing HFC components from India and China, that are blended in India prior to importation into the United States, are subject to the Order. Based on the information submitted by interested parties and the analysis below, we recommend that, pursuant to section 781(b) of the Act, Commerce preliminary find that imports of HFC blends R-404A, R-407A, R-407C, R-410A, and R-507A/R-507 produced in India using one or more HFC components of Chinese origin, that are blended in India prior to importation into the United States, are circumventing the Order.”

The full scope of this antidumping investigation covers HFC blends R-404A, R-407A, R-407C, R-410A, and R-507A/R-507 produced in India using one or more HFC components of Chinese origin. This investigation started on the same day of the previous one, June 18th, 2019. In some cases the companies were importing fully blended product from China to India and then to the United States.

In other cases though R-32 would be imported from China to India and then an India company would blend it with domestic R-125. They would then import the finished R-410A product from India into the United States. You see the first way of importing the fully blended product from China and into India didn’t work as well as they still had to state the country of origin on their commercial invoice… but by doing some of the blending process in India they could claim that the country of origin was India.

For the reasons discussed above, and in accordance with 19 CFR 351.225(d) and (k)(1), we recommend finding that R-410A from India is not within the plain scope language of the Order because the Order covers HFC blends from China. However, U.S. imports of HFC blends from India consist of components imported from China, which are further blended in India into subject HFC blends, prior to being exported to the United States. Therefore, we recommend that, pursuant to section 781(b) of the Act and 19 CFR 351.225(h), Commerce issue a preliminary affirmative circumvention determination that imports of HFC blends R-404A, R-407A, R-407C, R-410A, and R-507A/R-507 produced in India using one or more HFC component of Chinese origin, are circumventing the Order.”

At this time it is not known exactly what percentages will be installed on these imports from India but in the document was a referenced amount of 216.37 percent. If this does go into effect then the India manufacturer will have to prove to the CBP that they have not bought or imported any Chinese refrigerant components in the last twelve months. So, the proposed tariff isn’t necessarily on India… but China.

Conclusion

All of this folks just seems to be a game of whack-a-mole. It seems that when the Department of Commerce makes a ruling it only takes a few months for some businesses and companies to find a loophole to get around it. Everyone is looking for that competitive edge… even if it isn’t the most ethical way to do it. After this summer passes and these two anti-dumping cases have either been passed or rejected there will always be more. That I can assure you. Heck, just a few months ago there was another new antidumping filed on R-32. Who knows what the next one will be…

So, the only real question I have here is if retroactive duties are imposed can the companies who have been importing survive the hit? Can they survive those tariffs coming all at once? Or, will we begin to see a consolidation the marketplace by having some companies fold?

Thanks for reading,

Alec Johnson

RefrigerantHQ

 

Over the past few years there have been a number of anti-dumping cases within our industry. In fact, there are a few cases open right now that are expected to come to conclusion in the next few months. Most of these cases focus on Chinese product that is being subsidized by the Chinese government and brought into the United States at unfair market prices. This dumping practice prevents the companies who are manufacturing within the United States from competing with the cheaper mass imported Chinese refrigerant.

In most cases within our industry these anti-dumping suits are approved by the Trade Commission. When a ruling is made in favor the Trade Commission initiates a tariff on the goods in question. The tariff itself can have a number of conditions and amounts associated to it, but the idea is to artificially raise the price of the imported product so that US companies can compete. Over recent years we have seen anti-dumping tariffs installed on R-134a, R-410A, R-404A, R-407C, R-507A, and many other refrigerates. There is also a pending anti-dumping suit on the popular HFC R-32 refrigerant and another one on the actual blending components used to create popular HFC refrigerants.

The one that was filed most recently though was something I had not seen before. Yesterday, March 27th, Worthington Industries filed an anti-dumping and countervailing duties case with the International Trade Commission. Their target was not refrigerants but instead the cylinders that they come in. These are the cylinders that all of our refrigerants come in. (Harmonized codes 7311.00.0060, 7311.00.0090, and 7310.29.0025.) More information on what types of cylinders:

“The merchandise covered by these petitions is certain non-refillable steel cylinders meeting the requirements of, or produced to meet the requirements of, U.S. Department of Transportation (“USDOT”) Specifications 39, TransportCanada Specification 39M, or United Nations pressure receptacle standard ISO 11118 and otherwise meeting the description provided below (“non- refillable steel cylinders”). The subject non-refillable steel cylinders are portable and range from 300-cubic inch (4.9 liter) water capacity to 1,526-cubic inch (25 liter) water capacity. Subject non-refillable steel cylinders may be imported with or without a valve and/or pressure release device and may be filled or unfilled at the time of importation.”

Worthington Industries is the last remaining United States company manufacturing non-refillable steel cylinders. Yes, they are it folks. If they stop producing cylinders then ALL of it is imported in. They are asking for a sixty-one percent duty to be imposed on the Chinese imports. I am sure most of you within the industry have heard of Worthington Industries before. They are a Columbus, Ohio based metals manufacturing company that had revenues exceeding three billion dollars last year. While three billion dollars is a lot of money… this is a business and if a certain product line is no longer profitable they will no longer pursue it. If this anti-dumping duty is not passed then Worthington may have to give up their cylinder manufacturing.

In yesterday’s filing there is a list of ALL nineteen companies that are importing these Chinese cylinders as well as the fifteen Chinese companies that are supplying them. The country of China would be targeted on these anti-dumping duties but we could also see the specific companies listed treated more harshly. This is pure speculation my part as the Trade Commission still needs time to review and even determine if they will be accepting the case.

This initial review on rather or not the Commission will begin an investigation is expected to conclude on April 16th, 2020. If they agree to move forward during this review they will then make a preliminary determination if damages were incurred on Worthington by May 11th, 2020. If the investigation moves forward it is expected to take around a year with a final decision to be made around April 21st, 2021.

I am quite curious on how this case will move forward. With the other refrigerant anti-dumping filings I had a pretty good idea on where the Trade Commission would settle. There has been a track record over the years that indicates that they will be voting in favor of refrigerant anti-dumping tariffs. But, this is the first time I have seen such a filing on the actual cylinders. The good news here is that the cylinders themselves are relatively cheap when compared to the actual cost of refrigerant. So, if a tariff does get put on the Chinese cylinders I do not believe it will raise the overall cost of refrigerants by very much.

Thanks for reading,

Alec Johnson

RefrigerantHQ

Update

During the summer of last year I wrote an article on the most recent anti-dumping petitions to be filed on HFC refrigerants. Anti-dumping petitions are nothing new to the refrigerant world. In fact there have been a slew of petitions filed over the past ten years. These range from R-134a, R-410A, R-404A, and other common refrigerants. Last year’s petition focused on the actual blending process on tariffed refrigerants. Most recently, just last month, another petition was filed this time on the HFC R-32.

There are now three major anti-dumping petitions out there. The first is a potential duty being installed on the blending process of common HFC refrigerants such as R-410A and R-404A. The duty would apply if the required refrigerants were imported from China and then blended within the United States. This would prevent the circumvention of already established duties on completed HFC blended refrigerants. A final ruling is expected on this petition by April 7th, 2020. I would highly expect the Trade Commission to rule in favor of anti-dumping duties on this. It is the logical decision based on their previous rulings.

Unfinished Blends

The second petition is similar to the first only it targets ‘unfinished blends’ being imported in from China. The term unfinished blends is rather ambiguous, but it basically means HFC blended refrigerants that are either already fully blended or are partially blended. This can get rather shady. What classifies a blended refrigerant as unfinished or finished?

There was a refrigerant distribution company that was importing blended refrigerant from China but labeling it as ‘unfinished blends.’ (I will not state this company’s name within this article.) It was unclear exactly what this company was doing to the product once it had reached the United States. How did it go from an unfinished blend to a finished blend? Was there a process involved at all, or was this just a clever way of skirting around the previously ruled anti-dumping duties on blended refrigerants?

The other refrigerant distributors out there were importing R-32, R-125, R-134a, R-143a refrigerants into the United States. Once there they would blend the refrigerants themselves to come up with R-410A, R-404A, R-407A, R-407C, etc. While this was still using a loophole from the previous rulings it was not a flat out deceit such as importing unfinished blends was.

The company involved in this petition declined to comment on a questionnaire that was sent to them. Because there was no reply the International Trade Commission announced a preliminary ruling on the case last week. Their ruling stated that:

“The Department of Commerce (Commerce) preliminarily determines that imports of unfinished blends of hydrofluorocarbon (HFC) components R-32 and R-125 from the People’s Republic of China (China) are circumventing the antidumping duty (AD) order on HFC blends from China. As a result, imports of blends of HFC components R-32 and R-125 from China will be subject to suspension of liquidation effective June 18, 2019. We invite interested parties to comment on this preliminary determination.”

“For the reasons described below, we preliminarily determine, pursuant to section 781(a) of the Act, that imports of unfinished blends of HFC components R-32 and R-125 from China are circumventing the Order.”

The final ruling on this case is expected in April as well, but at this time it looks like the International Trade Commission will be ruling against these unfinished HFC blends. Hopefully this is the last of the ‘unfinished HFC blends’ being imported into the United States.

R-32 Petition

Finally, the last and third petition is the most recent one. I touched on this one earlier but this petition was announced just last month and it focuses on the HFC refrigerant R-32. R-32 is a critical component when it comes to some of the most popular HFC refrigerant blends. As an example, R-410A is fifty percent R-32. If this petition is ruled in favor of we can expect to see a significant impact to the cost of refrigerant throughout the US market.

Within the petition it was stated that in the year 2018 there was an estimated twenty-one and a half million dollars worth of R-32 imports brought into the United States. I would say that nearly all of that imported refrigerant is being blended into HFC refrigerants that have duties assigned to them. (There is little stand alone R-32 applications in our market at this time.) This R-32 petition does seem a tad redundant though considering there is already a petition out there on the actual blending process. Who knows though, this latest petition from Arkema could be an insurance policy in case their petitions from last year fall through.

I am not sure how this one will go. If the ITC rules in favor of the blending petition then why would they bother with this one as well?  We may see this one tossed out if the blended petition goes through. On the other hand, like I said earlier, if the blended petition falls through then Arkema has a fall black plan. I can only imagine what would happen to the price if both petitions were approved.

The International Trade Commission is expected to make a market injury determination on March 6th, 2020. If injury is found then the ITC can expect to make a preliminary determination on July 2nd, 2020. Lastly, if everything goes how it should a final ruling will be scheduled for October 5th of this year. If the ITC rules in favor of anti-dumping duties on R-32 then they could take effect on November 5th. The expected duty is 87.98 percent.

Conclusion

Ok, so I went through all of that and now my mind is spinning. There is a lot to these petitions and I have read through a number of documents that folks have sent my way. I believe I have a pretty firm grasp on the matters, but if I missed something or misstated something in this article please let me know! I intend for this to be accurate and do not like to  have errors within the article. Feel free to contact me via e-mail.

Thanks for reading,

Alec Johnson

RefrigerantHQ