DONALD MACKAY: Why the antidumping probe if not all tyres are made locally?

The antidumping investigation on tyres from China, brought by the SA Tyre Manufacturers Conference and initiated on January 31, is really quite astonishing.

Normally when you bring an antidumping case you make the following allegations, all of which have to be found true for antidumping duties to be imposed.

First, there is the primary allegation of dumping, which is unhelpfully defined as exporting below “normal value”. This is the product’s selling price in the manufacturer’s home market in normal (read profitable) conditions. Arbitrarily, the World Trade Organization and SA decided that if more than 20% of domestic sales are made below cost, then all of the unprofitable sales must first be removed, thus increasing the margin of dumping.

Second, there must be material injury to the domestic industry, which is measured in the way you would expect: price depression (prices falling), price suppression (costs increasing faster than you can increase your prices), margin squeeze, loss of market share and so on.

Third, the material injury must be caused by the dumped products and not by something else. This last one is tricky. It’s easy to allege that dumping is causing whatever injury you are suffering, but this could be different to what’s happening in reality.

These are the main criteria to be met, but if you think about it logically you need to compare apples with apples. You can’t, for instance, compare a huge 4x4 tyre to a much smaller tyre intended for a subcompact Hyundai. You would also expect the local industry to be capable of supplying the tyres that will be needed to replace those displaced if anti-dumping duties are imposed, and you would expect it to supply them out of domestic factories rather than their foreign operations.

Now, back to why this antidumping case on tyres is so strange. The case covers eight tariff codes (the way goods are grouped when they are cleared through customs). Five of these tariff codes cover car passenger tyres and three cover truck and bus tyres. There are four large local tyre companies (Bridgestone, Continental, Goodyear, and Sumitomo — the SA Tyre Manufacturers Conference members). But they don’t all manufacture locally. Continental and Goodyear import all of their truck and bus tyres, for example, either directly or through other companies.

No matter what happens to the antidumping duties on tyres from China, these two companies are not going to make their truck and bus tyres locally. They also don’t seem to buy their tyres from the other local producers. Think about this: you are applying for antidumping duties, but you don’t make the thing you are applying for duties on locally. This is not a secret. It’s stated in their application. It’s also odd because though they are applicants, they also contribute to the claimed injury to the other two manufacturers.

The odd doesn’t end there though. According to these companies’ own price lists, they collectively import almost 80% of the models they sell. Not the volume, but the variety. The antidumping application doesn’t recognise this distinction though. It sees all products as being interchangeable within a given tariff code and asks you to believe, for example, that all tyres with a rim size of more than 17 inches can be provided by them. But if this was true why would they import so many of the tyres they sell in SA?

It is an interesting question to which they have refused to provide an answer. Ponder for a moment: they import the bulk of the models of tyres they sell (sometimes out of China, which raises the question of how many of their own imports were the reason for the alleged dumping) and yet won’t disclose why they are importing or where from.

Now skip back a few paragraphs to the question of causality. If, for instance, the reason the local producers are suffering injury is because they import instead of manufacturing locally, the imports from others are less likely to be the problem. Why don’t they manufacture more locally? They certainly used to. Why did they stop? And if people can’t buy a given model locally, what are they to do besides import?

Here is what will happen if antidumping duties are imposed. Tyre prices will rise as importers switch to sources more expensive than China. No more than a nominal volume will move to local producers, because they won’t be able to sell the tyres required after Chinese supply is cut off.

Maybe trade, industry & competition minister Ebrahim Patel will put pressure on them to make reciprocal commitments before he imposes antidumping duties, but then will their boards of directors be prepared to sign up? And if they do, what happens when they can’t meet these commitments within the three years the reciprocal agreements are in place for?

If large duties are imposed — they are asking for 8%-69%, so don’t expect a modest increase — transport will become even more expensive and possibly more dangerous. Perhaps the taxi you take to work will delay replacing its tyres when they’re worn (I know this is shocking, but bear with me). Every truck tyre will become more expensive, so everything transported by road will become more expensive. Food. Clothes. Everything. On top of the eye-watering fuel price increases we have seen and will yet see.

Like anything else, if you tax it people will consume less of it. You make transport more expensive and people and stuff will move around less. Someone will skip a job interview because they can’t afford the bus fare. Others will skip meals because eating has got too expensive. Maybe you are OK with this. Perhaps you can afford it. But don’t assume the sacrifice is for the greater good, unless you mean the greater good of the folks who produce tyres in the new country they will be supplied from.

• MacKay is founder and director at XA International Trade Advisors, which represents the Tyre Importers Association of SA in the referenced anti-dumping investigation.