State of the Industry Archives

June 2005

Duties Curb China's Wood Bedroom Exports

China shows ill effects from the antidumping duties while its competitors boost their shipments.

By J.D. Piland
U.S. Wood Furniture Imports
Since the U.S. Department of Commerce's preliminary antidumping ruling in June of 2004, U.S. imports of Chinese wood bedroom furniture have declined for three consecutive quarters. At the same time, overall wood furniture imports continued to increase.

The antidumping duties have cut into the competitiveness of Chinese wood bedroom furniture manufacturers.

Since the U.S. Department of Commerce issued its preliminary determination to enact duties in June 2004, Chinese wood bedroom imports have decreased for three straight quarters, when compared to the same period for the year prior. Chinese shipments dropped 8.3% in the first quarter of 2005. This followed declines of 30% and 7.9% in the fourth and third quarters of 2004, respectively. During the nine months of July 2004 through March 2005, Chinese wood bedroom furniture shipments to the United States declined 15% from $1.15 billion to $978 million.

At the same time wood bedroom furniture decreased, overall U.S. imports of Chinese wood and upholstered furniture continued to thrive. Between January and March of this year, the Department of Commerce reported total Chinese wood furniture imports of $1.716 billion, up 16% from the first quarter of 2004. Wood bedroom furniture comprised one-fifth of China's total first quarter furniture shipments to the United States.

The Commerce Department issued its final determination of dumping against Chinese manufacturers in December. It ultimately set a blended duty rate of 6.65% for most Chinese companies. The Commerce Department's ruling was hailed as a victory by the American Furniture Manufacturers for Legal Trade. The Committee for Legal Trade, comprised of more than two dozen U.S. furniture manufacturers, filed its antidumping petition on Oct. 31, 2003. John Bassett III, president of Vaughan-Bassett Furniture of Galax, VA, spearheaded the group.

Bassett's son, Doug Bassett, vice president of sales for Vaughan-Basset, which specializes in bedroom furniture, said his company has seen "excellent" business as of late. "Six months after China was found guilty of dumping, we have experienced our best six months of business we've had in at least five years," said Bassett, who is a spokesman for the Committee for Legal Trade. "We don't think that is a coincidence."

Picking Up the Slack

Vaughan-Bassett is not the only one benefitting from China's losses. With the exception of Canada and Italy, U.S. imports of wood bedroom furniture from the other nine leading U.S. source countries of wood furniture reaped double-digit gains in the first quarter of 2005. (See chart, p. 140.) Most notably, Vietnam, which zipped into seventh place among U.S. furniture import sources, realized a staggering increase of 431.5% for its shipments of wood bedroom furniture to the United States, from $17.8 million in the first quarter of 2004 to $91.3 million in the first quarter of 2005.

Based on 2005 first-quarter numbers, Vietnam only trailed China and Canada, respectively, as the top wood bedroom furniture import source. For the first quarter, Vietnam only trailed Canada by roughly $300,000 in wood bedroom imports.

Just behind Vietnam was Malaysia. This mainstay bounced to the top of the list with a 70 % boom since the first quarter of 2004. In fact, of the Top 10 furniture exporters to the United States, the five Southeast Asian countries on the list have recorded increases of at least 35% since the first quarter of 2004.

Chinese furniture manufacturers have taken notice of this shift in wood bedroom furniture market share. According to sources from two different Chinese manufacturing companies, identified in e-mail interviews as a "big manufacturer slapped with the 198 percent tariff" and a "manufacturer with a less-than-5-percent tariff," companies that set up shop in China, are looking to invest in neighboring countries to escape the dumping duties and boost their business prospects.

Vietnam is at the head of the pack, with many Chinese and Taiwanese manufacturers looking to establish production facilities in that low-wage country or to expand existing capabilities.

"The interesting thing is, because of the antidumping petition, a country like Vietnam - and it's abilities to produce the goods - has skyrocketed," said Mike Veitenheimer, general counsel for The Bombay Company and spokesman for Furniture Retailers of America. The FRA served as a voice of opposition for stateside retailers in the antidumping case. "It's just going to be one more source of goods for American importers and retailers to go to negotiate even better prices than what was available there before."

Spokesmen for each of the two Chinese furniture companies that were e-mailed questions recognize Vietnam's growth in wood furniture as unavoidable. Labor wages in Vietnam are less than half of that in China. As a result, these two companies plan to either "invest in Vietnam and manufacture low-end products" or start manufacturing from within "high-priced and high-end products" in China.

The spokesman for the company subject to less than 5% duties said investments are not panning out as well as planned. He said the Vietnam furniture industry is "not as good as expected" and that the investment environment there is "not as promising."

The source at the Chinese manufacturer subject to 198% duties said his company has no choice other than to invest in Vietnam to continue selling wood bedroom furniture to the United States. He said the duties have affected his company "drastically. We even have to shut down our old plants," the source added.

A Slippery Slope?

Bassett said the Committee for Legal Trade will pay close attention to Vietnam and the other countries to make sure they do not dump products in the United States. Like China, Vietnam is a Communist nation and pegs its currency to the U.S. dollar. Still, Bassett said the Committee for Legal Trade has no plans at this time to petition for another antidumping investigation. "But anything is possible," Bassett added. "The same problems that created the dumping in China are largely present in Vietnam, as well. We'll have to wait and see."

The FRA, which vehemently disagrees with the DOC's final antidumping rule, does not think the petitioners would try to attack another category of furniture, nor another country. "There was a lot of concern that [the petitioners] would go beyond bedroom furniture and go beyond China," Veitenheimer said. "I think the China case resulted in duties that were so low, that I really don't see the domestic industry gearing up for another fight on another category. Bedroom furniture was their strongest category for this kind of action."

Industry analyst W.W. "Jerry" Epperson, of the investment firm of Mann, Armistead & Epperson Ltd., offered this opinion: "If you look at other furniture sectors, it is probably going to be hard to prove the case like the petitioners proved in the bedroom furniture case because there isn't that much dining room furniture made in the U.S. anymore. Occasional tables are, for the most part, gone. And with upholstery, it is going to be difficult to prove at this point because the percentage [produced here] is so small. Leather upholstery may prove a case of dumping, but there aren't enough leather upholsterers here to bring the case. I think they are going to look at the bigger picture resolution as the United States negotiates with China," he added.

Dollars and Cents

The bigger picture resolution Epperson eluded to is the value of China's currency, the yuan, versus the U.S. dollar.

The antidumping petition, which was filed in October 2003, could not use alleged currency manipulation as an argumentative point. In fact, it was not considered at all by the DOC in making its final determination. However, Epperson said it now should be the main focus for domestic manufacturers.

The currency issue has long been a point of contention between the U.S. government and China. Recently, the federal government unofficially urged China to float its currency rather than maintain its fixed rate of 8.28 yuan to the dollar. According to a recent article in the Washington Post, many members of Congress contend that China intentionally undervalues its currency. Epperson said some people speculate that China's currency is 40% or more undervalued. This makes Chinese products less expensive to import here and U.S. goods more expensive to export there. According to the Post's report, the federal government remains reluctant to officially accuse China of currency manipulation, as talks on the issue between the countries have been relatively successful.

The Bush Administration claimed it has made some headway on this issue, and said, "the Chinese have agreed that making this transition to a market-based exchange rate is one of their top priorities." Rob Nichols, assistant secretary for public affairs at the U.S .Treasury, said China is "moving in the right direction."

Bassett remained skeptical, however. "The Chinese government is very reluctant to change the way they are doing business," he said. "They are doing pretty well with the existing cases. There are still dumping cases on the books from the late G�ÿ70s and early G�ÿ80s, and they are still in effect because the behavior hasn't changed."

Epperson added, "This discussion on the currency could be a huge factor in leveling the playing field. Now, are there enough domestic manufacturers to take advantage of that? That's another question."

The Antidumping Ruling: Six Months Later

Time heals all wounds - or so the U.S. wood furniture industry hopes.

"A lot of people were deeply disturbed by the case," Epperson said. "It caused some friction among people who have been friends for decades. Those emotions are still raw. They would just as soon see those heal a little bit."

Though the ruling appeared to be a victory for the petitioners, the FRA does not feel like it came out on the losing end.

Anti-Dumping Case Recap

The U.S. Department of Commerce and the U.S. International Trade Commission set the final dumping duties against Chinese wood bedroom exports to the United States in December of 2004.

According to the ITC's final determination, "an industry in the United States is materially injured by reason of imports from China of wooden bedroom furniture ... that have been found by the Department of Commerce to be sold in the United States at less than fair value."

The dumping margins set for the investigation's seven mandatory respondents range from 0.83%, which is the lowest duty established among all affected companies, to 198.08% - which was imposed upon Tech Lane, one of the seven respondents, and is also the rate for companies owned by the People's Republic of China.

A separate rate for 115 non-mandatory respondents also was established; it is set at the blended rate of 6.65%.

"The 6% duties that were put into place by the DOC, I think, were far lower than anybody anticipated," Veitenheimer said. "With duties that low, they just become another cost of doing business."

Adding to already bruised business relationships, the residential furniture industry, let alone wood bedroom furniture, has been "weak" so far this year, according to Epperson.

Epperson reported that regions of the country are very mixed in their performances for retail furniture sales, despite of an "uptick" in consumer confidence.

"But that is generally a lagging effect, and we don't see where it's going to mean a tremendous resurgence in business near-term," he said. "We're kind of nervous about the business right now and hope it does pick up soon."

Despite Epperson's assessment, Bassett said Vaughan-Bassett has experienced its best business in "at least five years. We are experiencing double-digit growth in all our plants, thus far, this year," he added. "We're not as profitable as we would like to be, but we're more profitable than we were last year. So the trend, at least, is in the right direction."

While Bassett cannot speak for all of his fellow petitioners or the U.S. wood furniture industry as a whole, he said he is aware that many companies have experienced increased business.

Veitenheimer, however, said he believes things are returning to normal and that the expansion of import possibilities from Vietnam and elsewhere is helping his company's business. "A lot of the interim movement of wood bedroom furniture out of China and other places is starting to migrate back to China," he added.

Epperson said he thinks U.S. furniture importers and retailers are seeking what he called the "first price." This essentially cuts out the middle man in the importing process and allows the foreign manufacturer to deal directly with the U.S. retailers. He noted that some Chinese manufacturers even are attempting to establish warehouses, complete with their own sales force, in the United States.

"Without that intermediary, you have concerns with quality, financing, timeliness, but [some retailers and importers] believe the pricing is worth the risk," Epperson said. "We're seeing more and more people trying to find that first-source supplier."

The petitioners will surely watch the results of these plans by Chinese importers," Epperson added, "because it does add another competitive element." But, he continued, "In some cases, [domestic manufacturers] are watching with a bit of a grin because they know what these people are going to run into" when trying to maintain a warehouse on a small staff.

Still to Come

Despite the apparent impact the antidumping ruling has had, the future state of the residential furniture industry in the United States is still largely undetermined at this time.

FBI to Lay Off 1,200 Workers

The ax will fall on approximately 1,200 jobs at several North Carolina furniture plants operated by Broyhill Furniture Industries Inc. and Thomasville Furniture Industries. Both companies are divisions of Furniture Brands International, which strongly opposed the furniture antidumping petition filed Oct. 31, 2003, against Chinese wood bedroom furniture manufacturers.

Broyhill announced June 7 plans to consolidate its manufacturing facilities "in an effort to reverse the erosion of domestic manufacturing efficiencies and compete in a global environment due to the rapid increase of imported products." Broyhill's plans include:

  • Closing the 390,000-square-foot Harper Plant in Lenoir, which was built in 1939 and currently employs 379 people.
  • Closing the 419,000-square-foot Occasional #1 Plant in Lenoir, which was built in 1958 and currently employs 390 people.
  • Converting the 434,000-square-foot Upholstery Plant #68 in Rutherfordton, NC, into a distribution facility. The plant, built in 2000, employs about 240 people.
  • Creating about 365 positions at other Broyhill plants where production will be shifted when operations are shut down at the two Lenoir plants around Nov. 12 and at the Rutherfordton, around Aug. 13.

Tom Lentz, a Broyhill spokesman, said, "The plant closings are a result of the changing dynamics of the furniture industry today that include dealer bankruptcies, overall softness in home furnishings demand and the impact of imports."

Thomasville will also lay off about 600 workers at its plants in Thomasville and other nearby facilities.

After the announced job cuts are finalized, Furniture Brands will still employ about 14,500 workers at plants in North Carolina, Mississippi and Virginia. FBI reports 64% of its products are made in the United States; the remainder comes from China and its two factories in the Philippines and Indonesia.

Epperson said he thinks the trading will not be as significant as more domestic issues on furniture sales. He cited bankruptcy regulations and the government clamping down on home mortgage opportunities. "That's going to slow housing activity," he said.

Also, Epperson noted the government might begin to shut down extreme credit card bills, which could result in high credit card charges. All of it accounting for "money out of the consumers pockets," Epperson said.

On international issues, Epperson questioned whether the United States and China will resolve the ongoing currency dispute. He noted the European Union has a similar concern with Chinese currency. If the yuan remains fixed, Epperson said significant World Trade Organization proposals may be considered to punish China.

As for China, the U.S. antidumping committee demands the affected companies report by June 24 the amount of raw materials used in production; the committee requires that Chinese wood bedroom manufacturers use 10 to 30% of imported raw materials in their production cycles.

Despite this requirement, each of the Chinese manufacturers responding to W&WP's email interview think there has not been much of an effect in the first six months after the margins were set. In the next year, though, the "big" manufacturer concedes that "our situation is not optimistic." Both Chinese manufacturer sources added that their future lies with their respective investments in Vietnam, and are looking to speed up and monitor the progress in that country.

The antidumping decision will be up for a "sunset review" every five years, Bassett said. The dumping duties will stay in place a minimum of five years. The only way Chinese manufacturers, and the industry as a whole, can come off the dumping list is for them to have changed their behavior on the things for which they were found "guilty" of dumping, Basset said.

Starting in December of this year, all related parties may ask for individual investigations of certain companies in order to revise the dumping margin set upon that company. The International Trade Court only hears about five or six of those a year, however, Bassett said. He added that the Committee for Legal Trade plans to ask for an individual investigation of Dalian Huafeng.

"We think they are one of the most, or perhaps the most, egregious dumpers in China," Bassett said. "We feel confident they will end up with their own investigation, and they will end up at a rate much higher than the blended rate they are enjoying at the moment."

But at this point in the antidumping action, Bassett said, "What you see right now is what you're likely to get."

Editorial Director Rich Christianson contributed to this report.

                                                                                                                                                                                           

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