Anti-Dumping Pressure Mounts on Chinese Tyre Makers

While most of the rainbow nation was preparing to welcome people from far and wide to the first World Cup on African turf, the country’s legal eagles were deliberating over whether or not to kick certain Chinese tyres out of the country with an anti-dumping investigation. On 4 June 2010 the South African press reported that the High Court of Pretoria’s Judge Willie Hartzenberg set aside an earlier ruling made in 2007 by the Trade and Industry Ministry (Itac), to terminate anti-dumping probes against Chinese tyre exporters. He further ordered that (Itac) complete an anti-dumping investigation within four months. The judgement was duly lauded as bringing “fair competition” to the tyre manufacturing industry by those who brought the case, namely Bridgestone South Africa, Continental Tyre South Africa, Dunlop Tyres International and Goodyear Tyre & Rubber Holdings through their representative body South African Tyre Manufacturers Conference.

Whether or not the Chinese tyre imports in question can accurately be described as dumping – and it would be prudent to let the courts decide that – the ruling is another sign that products manufactured in the People’s Republic are not the quick and easy sell they once were. As far as tyres are concerned, the combination of increasing natural rubber, oil and steel input prices, combined with an unstable shipping cost context and added to the increasingly inhospitable international trade climate mean the latest decision in South Africa may force some Chinese factories to rethink either the delivery strategy or destinations of their tyres.

The South African decision represents another effort to halt the flow of Chinese tyre exports. Following President Obama’s decision to impose import tariffs on Chinese produced passenger car tyres at the end of 2009, the Chinese government opted to reduce subsidies available to Chinese tyre exporters two months. There was then speculation that Europe would become the destination of choice, with countries such as the UK (which is well known for its penchant for budget tyres) top of the list. However despite the fact that some sources are already reporting that there have been signs of increased activity in this part of the UK market, it remains to be seen whether or there has been any lasting difference. Either way it seems clear that the European legislation mandating tyre labelling that is due to be introduced in 2012 will lop off the bottom end of this market.

Around the same time the US tariffs were introduced, Tyres & Accessories visited China and spoke to some of the factories and exporters that are now directly affected by this piece of legislation. Anyone scratching their head about where, if not Europe, the tyres cheap Chinese tyres not en route to Europe were now going may be surprised to learn that Africa swiftly became the destination of choice for Chinese factories looking to move cheap economy tyres they couldn’t shift elsewhere. Which brings us back to the South African court ruling. Should the anti-dumping investigation Judge Hartzenberg mandated result in the imposition of further trade sanctions, this could force a the exporters in question to have to increase prices to meet the various markets demands, raise quality to meet ever-increasing legislative requirements and/or rethink their global distribution strategies. All of these will increase the production costs of Chinese tyremakers and therefore there is the possibility they (along with the other market conditions mentioned above) act as a catalyst for long foreseen market consolidation amongst Chinese tyre manufacturers.

Of course any new law legislation is only as strong as the enforcement regime that accompanies it. And you could be forgiven that the fractured nature of relations between the different African states may mean there are loopholes a plenty for those looking bring the same tyres in through the back door and avoid any future tariff. But this is another point that makes Judge Hartzenberg’s ruling so interesting.

In its final report, published in 2007, Itac said that six of the alleged tyre dumpers did not dump their products in South Africa, but that tyres were dumped by other exporters in the Southern African Customs Union (Sacu) region. While Itac found that therefore other factors, and not dumping, resulted in the Sacu manufacturers’ suffering. Judge Hartzenberg was not duped by this kind of tyre-laundering and said Itac “did not pay adequate attention to the investigation.”

In and of itself the South African announcement is not likely to have earth an shattering great effect on the global market. But coming, as it does, as the latest in a line of similar hindrances for Chinese tyremakers its begs the question: which future announcement will be the straw that breaks the camel’s back and precipitates round of Chinese manufacturing consolidation?