Plywood Antidumping Ruling: Upside-Down System of Justice

By Carl Spencer | Posted: 10/01/2013 10:03PM

 

Spencer Cabinetry, my company, is just a small kitchen cabinet manufacturer in Washington State. Who would have thought we would be sucked up by the typhoon that is national politics. I have now seen it first hand and it is truly ugly.

Dottie and Carl SpencerDottie and Carl Spencer I have been trying for the past year to get my federal legislators to see through the contrived Chinese plywood “dumping” issue and stop this nonsense. My seemingly one-man campaign made me conspicuous enough to be invited to testify at the hearing on this subject at the International Trade Commission (ITC), completely at my own expense, of course.

My in-depth exposure has convinced me that a lot more American cabinetmakers need to get involved right away. This isn’t just someone else’s issue -- our own very existence may be at stake, and it’s ten seconds to midnight.

Here’s what I found out:

Upside-Down System of Justice
Spencer Cabinetry’s Autumn Leaf line uses domestic cherry hardwood plywood for all the primary exterior wood for the door panels, drawer front panels, flush-finished end panels, as well as wainscot panels of the island. Domestic plywood is also used for the exposed interiors (see open bookcase on the left). This attractive look is a result of the species selection enhanced by proper sanding and finishing techniques only made possible by the thicker domestic veneers. Imported thin veneer plywood is used for the cabinet parts you cannot see in this photo. The inferior cosmetics of this secondary wood are not as important behind closed doors for sides, backs, tops and bottoms, shelves, and nailers; but the multiple thin hardwood core veneers provide superior screw and staple holding power for a stouter overall structure, as well as more robust shelf pin holes (which are frequently used as attachment points for internal accessories). While I was in our nation’s capital, I spent time with an attorney from the Senate Committee on the Budget just before the DOC decision was announced imposing up to 73% duties on hardwood plywood imported from China. He took time to explain to me all the legal inner workings, and how the deck is truly stacked against any respondent (read “defendant”) of a trade complaint.

Those who lawyer up and complain first usually win. For the first time, I realized that when it comes to fairness, our country has a long, long way to go. The system is inherently short-sighted with a bias to “cutting off our noses to spite our faces.”

Based on (a) my 40 year experience in our industry, (b) having read the pre-hearing briefs of both sides (some 400 pages), (c) having been duly sworn to tell the truth (along with many others), and (d) personally watching and participating in the full ITC hearing, I now believe the truth doesn’t stand a chance.

Unlike that longstanding faith we citizens have in “innocent unless proven guilty,” U.S. trade practices operate 180 degrees the other way -- “guilty as charged (unless proven innocent).” I bet most of your readers don’t know this.

Deus Ex Machina
In Ancient Greek drama, the playwrights would occasionally get their main characters in so much trouble they couldn’t figure any logical way to get them out again. So they would suddenly introduce a new character -- some obscure god -- who would rise up from below the stage and miraculously save their favorite star at the last moment. This contrived dramatical device is called Deus Ex Machina, or “god from a machine.”

Such a thing happened September 17 when the Department of Commerce (DOC) abruptly decided to compare the Chinese hardwood plywood industry to the Bulgarian plywood industry in determining if any illegal dumping exists.

Establishing Fair Trade with a Communist Country
You see, China does not have a free market economy, so the only way our government can ascertain whether any shenanigans are going on is to compare a specific Chinese industry with the same industry in a country that has similar characteristics. Historically, the DOC has compared the Chinese industry to the hardwood plywood industry in the Philippines.

This comparison makes sense because (a) China and the Philippines are in similar parts of the world with similar natural resources, (b) they both make their products internally from stump to container, (c) they both export significant quantities to the United States, and (d) they are both rising Third World countries. Also, the Philippines has something like 7 public companies making their products from start to finish whose records are available for analysis.

We have all bought imported plywood from both China and the Philippines to use as secondary wood for years and years and years, either directly or indirectly.

Initially, when the DOC compared the cost structures between the Chinese and Philippine industries, they found no significant difference in their respective cost structures. In other words, no dumping, and no unfair government subsidies were found.

Do-Over: Playing the Bulgarian Gambit
Apparently this first DOC study did not please the people calling the shots in Washington, driven primarily by Senators Wyden (OR) and Schumer (NY) at the behest of a cartel of the big six U.S. hardwood plywood manufacturers (HPVA), who have plants in their respective states.

The DOC went back to find a comparable industry “better” than the Philippines, and after searching the entire world, that’s when they came up with Bulgaria. This is not a joke. This has really happened, and it’s deadly serious. Bulgaria is the DOC’s “Deus Ex Machina.”

The Bulgarian comparison appears to be based on the single hardwood plywood manufacturer with available public financial statements. This company must import their hardwood face veneers from a sister company located in another country, not on the open market, but using internal company transfer pricing.

Transfer pricing is an artificial price set up within a given parent company for the purpose of distributing costs and profits for the sole benefit of that company! Pricing is established by company management -- not the free market -- for internal purposes only; for example, to shift profits from one country where taxes are high to another country where taxes are lower, or for any other reason. Outside a given company, transfer prices are meaningless. This is the sand the latest DOC decision has been built on.

So this one Bulgarian plywood company is now the basis for renewed dumping charges and high, punitive tariffs against the Chinese, and is solely responsible for establishing our hardwood plywood prices here in the United States. And as a result, our prices are going to be higher -- a lot higher -- whether imported or domestic.

How many of your readers have bought any hardwood plywood from Bulgaria? Ever?

Only All of Us American Cabinet Companies Pay More
It’s a serious mistake for your readers to think this will not greatly affect them. Whether we buy any imported plywood or not, restricting the longstanding pipeline of hardwood plywood imported for use as secondary wood will trigger spot shortages and drive up prices of all domestic material for everyone. That is the whole reason the Cartel of Six filed their complaint in the first place.

As I stated in my ITC testimony, when there are shortages, whose orders get filled first? Not the smaller companies like us! And we’re 60% of the American cabinet industry!

Furthermore, even though our hardwood plywood prices will go up a lot, they will not go up for our direct cabinetmaking competitors in China, Canada, Mexico, or elsewhere. As an example, we are already competing every day with Canadian companies, whose primary market is the United States. Many Canadian cabinet manufacturers already have very active distribution networks set up across our whole country. Under NAFTA, there is no tariff on cabinets made from Chinese plywood imported from Canada.

Here is a more pertinent quotation from my testimony: “From our point of view, our own government’s actions amount to a de facto stimulus, not for Americans, but instead for the Chinese, Canadian, and Mexican cabinet industries -- all of whom can still buy plywood from China at the true world price. In the end, it is the American cabinet companies that will be punished, especially the small ones, and American jobs that will be lost.”

We’re All In This Together (Even the Domestic Plywood Manufacturers)
I was cutting imported plywood for secondary wood cabinet parts 40 years ago. For at least the last fifteen years, much of this was imported from China for that purpose. Across all the companies I have worked for, big and small, very little has changed in what material is being used for what parts even now.

To me, it is deeply suspicious that abruptly one year ago, six large hardwood plywood companies decided something was wrong with their profitability, and that it must be all those Chinese imports. What incredible timing! Earth to HPVA: you weren’t the only Housing-related industry to lose money in the recent recession.

As it stands now, over 9,300 of us cabinet companies must now pay them for it for it for as long as we survive, from big (KraftMaid/Masco, who just announced a huge price increase as a result of the DOC’s decision) to small (me). At least 9,000 of these companies are under $15MM in revenues, the heart and soul of your subscribers and readers.

The handwriting is on the wall. It might be well for the woodworking press to move their headquarters to Canada and have staff who speak Mandarin in order to better keep up with the new American cabinet industry.

The question remains, “To whom does the 6-member domestic hardwood plywood cartel intend to sell their goods in the long run?”

Last Chance for Cabinetmakers to Make a Difference
What can the 9,000 of us small cabinet companies do to keep our cabinet jobs in this country? There is hope. Even though the DOC played the unreasonable Bulgarian gambit, there is another government agency that controls the fate of our industry -- that is the International Trade Commission where I gave my testimony. And they don’t publish their final decision until October 24.

Based on what I witnessed at the ITC hearing, the commissioners seem to be serious, thoughtful people who sincerely want to do the right thing for the United States of America. But they only know what we, the people, tell them. And the hardwood plywood cartel has already filled their ears plenty!

First, you can write your Senators and Representatives and ask them to write the ITC at the below address on our behalf:

The Honorable Irving A. Williamson, Chairman

United States International Trade Commission

500 E Street, SW

Washington, DC 20436

Somehow, our letters must convince the ITC of what all of us already know -- that Chinese plywood is merely a substitute for other imported plywood and particle board, and that we don’t use it for the primary decorative wood like we do American-made hardwood plywood. We need both. We’ve always needed both.

Breaking Through the Bureaucratic Barrier
Try to use email or FAX for your request to your legislators. Mail sent through the Postal Service will likely be delayed way too long in the DC mail security check, and time is of the essence. You can always try to call your legislators’ offices to get real email addresses.

If you are forced to use the email application on most legislators’ websites, first draft a copy of your email text on your computer’s word processor or editor and save it. Next, copy and paste your letter into the text space provided, selecting the category for “Foreign Trade” or similar.

Very important: Now create a second legislative email to the same legislator and paste and resend your original text, this time using “Other” as the category (if there is one). Your goal is to get a thoughtful human reader, and most legislative email is self-categorized by your own topic selection for a standardized form letter response, and rarely ever gets read by the right people. It’s more like a “body count.” Don’t assume your legislators will ever read either email, but it’s definitely worth trying to get them to use their stature to help inform the ITC.

Our Last Hope
You can also write to the ITC yourself. Any correspondence with them should be respectful, and accurately and professionally reflect your true personal views to be the most effective. Be sure to include your name, company name, company address, telephone number, any website address, and the number of people who work for your company with your comments.

I noticed in the hearing that at least two commissioners have had some in-depth personal experience with our industry and well may decide to check out your company out of curiosity. The more they know about us, the better chance we stand.

But you should take action very, very soon. The decision process has already started and will likely be completed well before October 24. Remember, the ITC holds the fate of our entire industry in their hands.

Carl Spencer and his wife Dottie used their life savings to start Spencer Cabinetry in Monroe, WA, in 2005. Carl says their use of the Toyota Production System has enabled them to compete successfully in a regional marketplace consisting of large national manufacturers, big box stores, small local cabinet shops, and everything in between.  100% American-owned Spencer Cabinetry has grown steadily and consistently created jobs since its founding, even throughout the Recession years. spencercabinetry.com.


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Bill Weaver    
October, 03, 2013 at 05:34 PM

Carl, Great article let's keep working it. It truly was a battle and quite interesting. Bill

Scott    
October, 08, 2013 at 04:43 AM

When it comes right down to it who is more trustworthy or who would you believe. Definately NOT a lawyer!!

Bill    
October, 11, 2013 at 08:42 AM

Leave it to you Carl to dig down to the real/root truth. You are the man! Great article and eye opening. Thanks for enlightning all of us. Bill

 

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