Alrighty ladies and gentlemen, by now I’m sure most of you are confused on exactly what is happening with the potential tariffs on R-134a refrigerant. Well, rest assured, I am confused as well. When there is confusion on a topic what better way to resolve it then by diving into it and doing some research? Thankfully, I’ll be doing this part for you.
The rest of this post will cover exactly when this all started, the current state of the tariffs, and what will happen if the tariffs are approved and are introduced into the marketplace.
Why Is This A Thing?
The law-suit that has been filed with the International Trade Commission is on anti-dumping. (An Anti-dumping duty is a protectionist tariff that a domestic government imposes on foreign imports that it believes are priced below fair market value. Dumping is a process where a company exports a product at a price lower than the price it normally charges on its own home market. Source) The complaint is that the imported refrigerant from China is being brought into the United States at an unfair price in comparison to the product manufactured within the states. The very low price comes from not only savings on Chinese labor but also on the Chinese goverment subsidizing the product with the unlimited coffers of the Chinese treasury.
So, we have this very low priced product, sometimes at $40-$50 for a thirty pound cylinder, being brought into the United States’ market. The companies producing in the country such as Honeywell, MexiChem, and DuPont/Chemours are forced to lower their price to compete. This shrinks their margins, causes layoffs, and overall hurts the United States’ economy. (So the argument for the law-suit says.)
While the low priced product made it hard to compete it wasn’t the only reason the lawsuit was filed. The other side of it was that the sheer amount of cylinders being brought into the country from China was staggering. The Chinese were flooding the market with their low priced product. This flood caused the countrywide price of R-134a to plummet. At some points it got down to high $50s for a pallet of 134a. Can you imagine that price today? Crazy.
The local manufacturers knew something had to be done. They couldn’t compete like this, or they wanted us to believe they couldn’t compete like this. I’m still a little skeptical. The companies that filed this lawsuit aren’t small by any means. They are names that all of you recognize such as DuPont/Chemours, HoneyWell, and MexiChem. These guys aren’t little. They are global companies that each have revenues in the billions. Something tells me that they could and were competing just fine against this Chinese product. But, hey that’s just my opinion. I can’t see their books. Who knows what they are truly up against. This could be a legitimate concern.
The goal of the lawsuit with the Trade Commission was for the United States’ goverment to issue a tariff on the imported Chinese refrigerant. If the Chinese weren’t going to play fair and have their goverment subsidize their product then why not have our goverment impose a tariff and force their product’s cost to raise up to the same as the rest of the manufacturers? Logically, it makes sense. The hard part is getting the goverment to approve it.
In The Beginning
Towards the end of 2013 MexiChem, a refrigerant manufacturer, filed the first suit with the Trade Commission. The suit was an anti-dumping suit and asked for tariffs just like we talked about above. The original case was filed on October 22nd, 2013. It usually takes the goverment about a year for them to decide on these and like clockwork just over a year later on November 12th, 2014 the International Trade Commission ruled against MexiChem stating that the imported Chinese product was NOT causing damage to the marketplace. A few weeks later on November 24th, 2014 they announced their decision to MexiChem and to the world. At the time of their announcement I wrote an article on the subject which can be found by clicking here.
An excerpt of the Commission’s official ruling can be found below or by clicking this link :
1,1,1,2-TETRAFLUORETHANE ("R-134a") FROM CHINA DOES NOT INJURE U.S. INDUSTRY, SAYS USITC
The United States International Trade Commission (USITC) today determined that a U.S. industry is not materially injured or threatened with material injury by reason of imports of 1,1,1,2-Tetrafluorethane (“R-134a”) from China that the U.S. Department of Commerce has determined are subsidized and sold in the United States at less than fair value.
Chairman Meredith M. Broadbent, Vice Chairman Dean A. Pinkert, and Commissioners David S. Johanson and F. Scott Kieff voted in the negative. Commissioners Irving A. Williamson and Rhonda K. Schmidtlein voted in the affirmative.
As a result of the USITC’s negative determinations, no antidumping or countervailing duty orders will be issued on imports of this product from China.
The Commission’s public report 1,1,1,2-Tetrafluorethane (“R-134a”) from China (Investigation Nos. 701-TA-509 and 731-TA-1244 (Final), USITC Publication 4503, November 2014) will contain the views of the Commissioners and information developed during the investigations.
The report will be available after December 15, 2014. After that date, it may be accessed on the USITC website at: http://pubapps.usitc.gov/applications/publogs/qry_publication_loglist.asp.
Office of Industries
Washington, DC 20436FACTUAL HIGHLIGHTS
1,1,1,2-Tetrafluoroethane from China
Investigation Nos. 701-TA-509 and 731-TA-1244 (Final)
Needless to say, Mexichem was not happy about this result. They didn’t give up though. Instead they came back twice as hard and appealed the decision only a few months later in January of 2015. I wrote an article about their appeal earlier. Here is where things get a little murky. Mexichem appealed the ruling in the beginning of 2015 and then five months later the HFC Coalition filed a new anti-dumping suit with the Trade Commission. The HFC Coalition is a grouping of companies who all have interests in seeing tariffs put on R-134a imports. Some of these companies include Honeywell, DuPont/Chemours, and… wait for it… wait for it… Mexichem.
I’ve tried search the archives during that period of time of January through June of 2015 on the status of Mexichem’s appeal but I couldn’t find anything. So here is my hypothesis, I theorize that their appeal was overturned yet again by the Trade Commission. Mexichem realized that this lawsuit wasn’t going to work with just one company pushing it. So, they put together this HFC Coalition and then filed practically the same lawsuit all over again but this time with the backing of billions and billions of dollars.
See below excerpt from the official Trade Commission’s website, or click here to view the document:
On June 25, 2015, American HFC Coalition, and its members: Amtrol, Inc., West Warwick, Rhode Island; Arkema, Inc., King of Prussia, Pennsylvania; The Chemours Company FC LLC, Wilmington, Delaware; Honeywell International Inc., Morristown, New Jersey; Hudson Technologies, Pearl River, New York; Mexichem Fluor Inc., St. Gabriel, Louisiana; Worthington Industries, Inc., Columbus, Ohio; and District Lodge 154 of the International Association of Machinists and Aerospace Workers filed a petition with the Commission and Commerce, alleging that an industry in the United States is materially injured by reason of LTFV imports of hydrofluorocarbon blends and components from China. Accordingly, effective July 2, 2015, the Commission, pursuant to section 733(a) of the Tariff Act of 1930 (19 U.S.C. § 1673b(a)), instituted antidumping duty investigation No. 731‐TA‐1279 (Preliminary).
On and Into 2016
I spent some time scrolling through all of the search results in the USITC.com’s website looking for any and all results mentioning the suit filed in 2015. For some reason I was only able to find the initial filing report in June of 2015. After that I couldn’t find anything else. I even went to Google and searched for any entries from June 2015 to December of 2015 but I couldn’t find anything that pertained to this suit. Again, I’m theorizing here but I am assuming that the suit was turned down or dropped at some point in 2015. There is no further mention of it and no tariffs were issued. It was either dropped or it was combined into a new one that was filed in 2016.
After only a few months into the new year of 2016 we had another suit filed by the HFC Coalition. You can read the below excerpt on the latest filing with the International Trade Commission, or you can click here to view the official document:
On March 3, 2016, the American HFC Coalition and its individual members (Amtrol, Inc., West Warwick, Rhode Island; Arkema, Inc., King of Prussia, Pennsylvania; The Chemours Company FC LLC, Wilmington, Delaware; Honeywell International Inc., Morristown, New Jersey; Hudson Technologies, Pearl River, New York; Mexichem Fluor Inc., St. Gabriel, Louisiana; and Worthington Industries, Inc., Columbus, Ohio) and District Lodge 154 of the International Association of Machinists and Aerospace Workers filed a petition with the Commission and Commerce, alleging that an industry in the United States is materially injured and threatened with material injury by reason of LTFV imports of 1,1,1,2 ‐ Tetrafluoroethane (R‐134a) from China. Accordingly, effective March 3, 2016, the Commission, pursuant to section 733(a) of the Tariff Act of 1930 (19 U.S.C. §§ 1673b(a)), instituted antidumping duty investigation No. 731‐TA‐1313 (Preliminary)
If you notice the wording is almost exactly the same as the suit in 2015. I believe they are going to keep filing this over and over again until they get what they want. They’ve got the money to keep funding lawyers and lobbying congress so why not? This latest filing started in March of 2016 and has so far followed the below schedule:
On September 29th, 2016, in a major step towards approving the tariffs, the USITC announced that the imports of 134a into the United States from China was in fact hurting the market place and that they were in favor of imposing tariffs on 134a. A fact sheet can be found by clicking here. (I apologize for all of links and tables involved in this post but there really isn’t a better way to show all of this information.) The agreed tariff percentage is 137.23 percent focusing on two Chinese companies. The rest of China faces a 188.94 percent. These are huge increases in cost. Think about that for a moment. What would you do it you had a 137 percent increase in cost on some of your fastest moving product? Nobody I know is making that kind of margin except the Chinese. Any small businesses that were importing this product will be forced to raise their cost exponentially. Let’s do some math real quick about what importers could be faced with. Say they were importing 134a at $50.00 per thirty pound cylinder. Now let’s take that $50.00 price and increase it by 137.23 percent.
$50.00 * (1+1.3723) = $118.62
So they go from a cost of $50.00 up to a cost of $118.62. That’s a hell of a increase if you ask me. Along with facing a higher cost on all imported 134a product from China business owners also face a retroactive charge. Yes, you heard right. Retroactive. Please see below text from the fact sheet that I linked above:
CBP will be instructed to impose retroactively provisional measures on entries of 1,1,1,2-tetrafluoroethane from China exported by the separate rate respondents and the China-wide entity effective 90 days prior to publication of the preliminary determination in the Federal Register.
There’s a lot of lawyer jargon in there but from what I can read from this is that the retroactive date goes back ninety days from the preliminary determination date. The preliminary determination period was on September 29th. If we go back ninety days you’re looking at June 29th. So, if you brought in 134a after June, 29th, 2016 you are subject to these tariffs as well. At least, if I am reading this correctly. I am by no means an expert on importing law so take this with a grain of salt and if you know better than I please contact me and I’ll update this post. (Contact form is at the bottom of that page.)
The difference in cost per cylinder using the same math problem we used above is $68.62. If we times this by the forty cylinders on a pallet we come up with $2,744.80 in tariffs owed. Now imagine if someone brought in a container of this product. Twenty pallets time the $2,744.80 per pallet equals out to $54,896 in tariffs owed. It’s easy to imagine how a small business could easily go into bankruptcy after being hit with these charges.
So, what happens in 2017? The Trade Commission’s final ruling on the tariff percentage will come on February 13th, 2017. Once the decision has bee made on the tariff the final decision on rather to impose the tariff will be made on March 30th, 2017. When this decision is announced everything is final. The tariffs. The retroactive ninety days. All of it. As of right now as I write this in December everything is preliminary. Nothing is final until that ruling in March. So for now all we can do is sit and wait.
With the September 2016 announcement of their preliminary ruling the 134a market already adjusted to that of what the predicted tariff price will be. The pallet price went from the $70s per cylinder all the way up to $90s and then up to $100s. If the ruling comes to pass in March I honestly don’t see pricing changing much at all as we’ve already seen the increase. However, if we see the ruling against the tariffs than the price will drop back down to around where it was at this summer at about $70 per cylinder for a forty cylinder pallet. For now everything is up in the air.
There is nothing business like less than uncertainty and right now ladies and gentlemen the future of R-134a’s price is just that, uncertain. As always if you see anything that is incorrect or incorrectly stated please let me know and I will correct as soon as I can.