A look back at industry's 5-year war
Thomas Russell -- Furniture Today, October 4, 2010
HIGH POINT - What began in 2003 as a legal skirmish between domestic bedroom producers and Chinese bedroom manufacturers quickly escalated into a full blown battle that still impacts the industry today.
For the past six years, the U.S. government has imposed antidumping duties on Chinese made bedrooms to help level the playing field for domestic producers it has determined have been injured by unfairly priced imports. They are meant to correct pricing discrepancies on goods the government says are produced below the cost of raw materials, a violation of international trade laws.
Labeled as one of the most divisive issues in the industry's history, antidumping remains a sore point between U.S. manufacturers and retailers and importers. While the acrimony has quieted down, the duties remain contentious mostly because they raise the price of goods for retailers and consumers. Some domestic manufacturers support the duties because they believe the industry would face further injury - namely additional plant closings and job losses - without them.
The issue has resurfaced because later this fall, the International Trade Commission will decide whether to keep the duties in place another five years. As part of its five-year "Sunset Review," the ITC will consider information from U.S. producers, importers, retailers and even Chinese wood bedroom makers.
Duty supporters and opponents will present their cases at an ITC hearing in Washington on Oct. 5. In preparation for that event, Furniture/Today has spoken with industry leaders to learn how they believe the antidumping issue has affected the industry and their business and what they think should happen moving forward.
"Obviously we don't think duties are warranted at all," said Kevin O'Connor, president of Samson Marketing, the parent of Chinese case goods manufacturer Lacquer Craft's U.S. brands, Universal Furniture and Legacy Classic.
"The insinuation in antidumping is that you are trying to destroy an industry by underpricing something in order to gain an advantage so that you can then go in and raise prices to their normal levels. I don't think that has happened," said O'Connor. "Certainly people have made money overseas. We are a public company - you can see the money we make. Not all companies are public, but there are some very reputable companies doing business with legitimate manufacturers overseas."
Initial duties, or cash deposit rates, assigned by the U.S. Department of Commerce for each Chinese producer, range from 0% to 216% with many producers falling in the 7% range. Importers of record pay the duties.
One provision of the law is that the government can adjust the rates after they're initially set, and a new rate can be retroactively applied to past shipments. If a rate is increased, the importers would have to pay an additional amount. Early on, Lacquer Craft proved to the U.S. government that it wasn't guilty of dumping and received what effectively amounted to a zero percent duty. That rate remains in effect indefinitely.
Industry observers say other manufacturers weren't so fortunate because they either didn't have legal resources to fight the duties, or because their accounting systems were not sophisticated enough to prove they weren't dumping.
Since 2004, the U.S. government has collected hundreds of millions of dollars in duties, much of which has gone back to 24 U.S. manufacturers or petitioners that supported the original antidumping investigation in 2003 and 2004. From 2005 through 2009, these petitioners collectively received $120.5 million in duties. A percentage of the money has been allocated to the domestic petitioners each year.
The government has collected but not paid out another $137 million in duties because of pending litigation from non-petitioning manufacturers - including Furniture Brands International, Ashley Furniture, Ethan Allen and Standard Furniture - who claim they are entitled to a portion of the funds as domestic producers.
The money is distributed each year through the Continued Dumping and Subsidy Offset Act, another name for the Byrd Amendment passed by Congress. The act, which aims to help compensate producers for unfair pricing practices, requires that the money be used for various qualifying business expenditures ranging from equipment purchases and worker training to raw materials purchases and health care costs.
In 2005, the Byrd Amendment was repealed after the World Trade Organization raised concerns about duties going to competitors of foreign manufacturers. Duties collected on shipments made after Oct. 1, 2007 now go to the U.S. government. The petitioners have only received payments based on shipments made before October 2007.
While it's difficult to judge the effects of the duties, largely because the global recession has weakened the furniture business, some domestic manufacturers said the duties have indeed helped save U.S. jobs.
That includes petitioners Harden Furniture and Gat Creek, both of which say they have reinvested in their manufacturing operations in recent years.
Harden CEO Greg Harden said he believed the U.S. Department of Commerce investigation that led to the antidumping duties was fair given that officials considered an "exhaustive" amount of data.
"Product was being sold at artificially low prices," Harden said. "As long as the Commerce Department finds there are companies pricing product illegally, (the duties) should continue."
Harden said it is difficult to judge the effects of the antidumping order on the industry, because year-over-year comparisons of business are difficult amid a multi-year recession that has affected labor and pricing. But he said his company has remained dedicated to domestic production, increasing its percentage of U.S.-made goods from 85% to 95% since the start of the recession.
Gat Creek also remains committed to domestic production, said Gat Caperton, company president and CEO.
"We're a pretty clean case for a domestic manufacturer," he said. "I don't import anything. We're an old school manufacturer. We invest in our own business aggressively. We work hard to be as competitive as we can on a worldwide basis."
"Clearly I think that the antidumping tariffs should stay in place another five years," Caperton added. "For me the side to pick is very easy. I'm a domestic manufacturer so I'm pro-USA."
These and other arguments will continue at the Oct. 5 ITC hearing. While the domestic industry will push to continue duties, some retailers and importers will argue that they haven't helped save jobs. Some claim the duties against China have merely shifted bedroom production to other countries, like Vietnam and Indonesia.
Keith Koenig, president of Fort Lauderdale, Fla.-based Top 100 store City Furniture, said his company purchases everything it can domestically. The retailer even has its own U.S. upholstery factory, Kevin Charles Furniture.
But he said imports remain an important part of the business and that antidumping hasn't accomplished what it set out to do.
"All this duty situation did was to force Chinese factories to other logistically appropriate countries, mostly Vietnam, but also Malaysia and Indonesia," said Koenig, who also is a leader of Furniture Retailers of America, a group of retailers and importers opposed to the continuation of duties.
"So I don't see where it has served to do anything but to extract a tax and give it to a select number of factories. I don't think it makes a whole lot of sense to a whole lot of people except to those who are getting money. I don't see where it has helped the consumer or retailer."