Garlic duty decision delayed; imports continue to increase
Garlic duty decision delayed; imports continue to increase
The U.S. Department of Commerce announced March 23 that it was delaying the decision on import duties for Chinese garlic for the 2006-07 season for at least one month as it was not "practicable" to complete the analysis in the time initially allotted.
To be sure, the analysis process is complicated, as are many issues surrounding the importation of Chinese garlic. Interviews with various members of the industry, as well as with the U.S. Department of Commerce, revealed that although the domestic garlic industry appears to be a bit better than it was a few years ago, imports from China continue to increase and domestic garlic producers are very wary about their future.
The issue immediately at question with Commerce is the level of duty it will impose on 13 specific exporters of Chinese garlic.
Under international trade law provisions regarding an anti- dumping action in the early 1990s, the United States is allowed to place a duty on Chinese garlic.
The amount of that duty varies from shipper to shipper based on a complicated formula that includes a shipper's cost of production as well as what he sold the product for in the United States during the previous year. Because of the incomparable value of the Chinese yuan and the difficulty in getting information from China, Commerce typically uses figures from India when trying to calculate China's production costs.
This year, U.S. shippers have asked Commerce to also consider the cost of production in Mexico when determining the true cost of producing garlic, and thus setting the price at which it would be considered "dumped" on the U.S. market.
Numerous shippers have had their duty essentially set at zero. Others have had their individual duty set at 15 percent or higher. New shippers who have not had a duty rate imposed because they are new are required to buy a bond to ensure that whatever duty is eventually imposed can be paid.
That new-shipper provision apparently is the area that causes the most concern to California garlic producers as well as established Chinese exporters. While the bond is supposed to assure payment, virtually all members of the industry agree that the cost of the bond is so low that it allows new shippers the opportunity to sell large volumes of garlic in the U.S. marketplace at low prices. When and if a duty is assessed, the shipper can be long gone with his money, and the duty never collected.
Representatives of both the U.S. and the Chinese garlic industries say that this is still a problem, though not as significant as it was a couple of years ago. The bond companies are getting smarter, and so less Chinese garlic has apparently been "dumped" on the U.S. market.
Bill Christopher of Christopher Ranch LLC in Gilroy, CA, said that the situation has stabilized a bit as most of the Chinese garlic coming into the United States is now priced at higher levels, albeit still much lower than U.S.- produced garlic. He estimated that domestic suppliers are losing about 10 percent of their marketshare each year. While that is still a distressing number to California's producers, where virtually all of the domestic supply is grown, it is an improvement over a few years ago.
China exported tens of thousands of tons before the duty imposition in the early 1990s caused exports to virtually cease. Since 2000, China's garlic exports have started to rise again, growing from less than 4 million pounds to over 100 million pounds over the past five years. The silver lining, if it can be called that, is that Chinese exports to the United States might have grown only 10 percent in the past year.
John Layous of The Garlic Co. in Bakersfield, CA, said that his company's acreage has stabilized after going through a few years of reduction. But he said that his company is using the Chinese-produced garlic a bit differently than it was before. More of it is going into processed products, like diced garlic. California shippers have also staked out the premium end of the business, as they cannot compete merely on price.
The Garlic Co., like Christopher Ranch and other California garlic shippers, is also buying and selling Chinese garlic in an effort to retain customers who are price shoppers. Mr. Layous said that price-conscious customers typically buy in large quantities and has to commit to a purchase fairly far in advance. The price on the Chinese garlic is too low, he said, to allow him the added cost of carrying inventory and shipping it to and from his Bakersfield facilities.
For those customers, The Garlic Co. buys the product in China, ships it to the United States and then sends it directly to the buyer from the ports.
The price on the imported garlic is typically 50-80 percent below that of the U.S. product because of the pressure from the duty-free garlic that is constantly landing on U.S. shores from "new shippers."
It is not only U.S. shippers, however, that are hurt by these low-priced imports. One importer of Chinese garlic, who asked not to be named, said that getting a duty of even 15 percent makes it virtually impossible to compete against those that are duty free. In fact, he finds it cheaper to buy and sell Chinese garlic on the open U.S. market than to bring in garlic that has a duty imposed.
The new-shipper provision may become even more problematic after this year because of a change in the duty-imposition process for next year (2007-08 shipping year) by Commerce. Instead of doing the analysis on all firms, Commerce has announced that it will be establishing a company-specific duty only for the largest four garlic shippers. Other shippers will be given a duty that is an average of those four.
A Chinese shipper with a high duty will most likely find it difficult to compete against low-duty shippers or new shippers. The U.S. industry believes that many of these shippers simply close their doors under one name and open under a new name thus qualifying for "new-shipper" status. The new system might just encourage that process.
Mike Coursey, a Washington, DC-based trade attorney who works with the California garlic industry, said that there are numerous bills in Congress that address this "new shipper" category, which he says is a problem in many industries other than garlic.
Mr. Coursey said that other issues have pushed those bills off the front burner, but a legislative remedy appears to be the industry's best chance for a solution. Mr. Coursey said that the solution appears to be the establishment of a bond system that charges a new shipper a fee equal to the potential duty.
One other interesting sidebar to the garlic situation is that it is currently in a period when all garlic - from both China and the United States - is coming from storage. One industry insider predicted that garlic prices will soon rise to levels the industry hasn't seen in a number of years. He predicted that Chinese garlic -- often priced at 50-75 cents per pound -- will soon rise to around $1 per pound, and California garlic could be 30-50 percent higher. "Not too many people are talking about it, but supplies are getting very short. It is going to be very interesting for the next few months until the new supplies start again in the summer," he said.
To be sure, the analysis process is complicated, as are many issues surrounding the importation of Chinese garlic. Interviews with various members of the industry, as well as with the U.S. Department of Commerce, revealed that although the domestic garlic industry appears to be a bit better than it was a few years ago, imports from China continue to increase and domestic garlic producers are very wary about their future.
The issue immediately at question with Commerce is the level of duty it will impose on 13 specific exporters of Chinese garlic.
Under international trade law provisions regarding an anti- dumping action in the early 1990s, the United States is allowed to place a duty on Chinese garlic.
The amount of that duty varies from shipper to shipper based on a complicated formula that includes a shipper's cost of production as well as what he sold the product for in the United States during the previous year. Because of the incomparable value of the Chinese yuan and the difficulty in getting information from China, Commerce typically uses figures from India when trying to calculate China's production costs.
This year, U.S. shippers have asked Commerce to also consider the cost of production in Mexico when determining the true cost of producing garlic, and thus setting the price at which it would be considered "dumped" on the U.S. market.
Numerous shippers have had their duty essentially set at zero. Others have had their individual duty set at 15 percent or higher. New shippers who have not had a duty rate imposed because they are new are required to buy a bond to ensure that whatever duty is eventually imposed can be paid.
That new-shipper provision apparently is the area that causes the most concern to California garlic producers as well as established Chinese exporters. While the bond is supposed to assure payment, virtually all members of the industry agree that the cost of the bond is so low that it allows new shippers the opportunity to sell large volumes of garlic in the U.S. marketplace at low prices. When and if a duty is assessed, the shipper can be long gone with his money, and the duty never collected.
Representatives of both the U.S. and the Chinese garlic industries say that this is still a problem, though not as significant as it was a couple of years ago. The bond companies are getting smarter, and so less Chinese garlic has apparently been "dumped" on the U.S. market.
Bill Christopher of Christopher Ranch LLC in Gilroy, CA, said that the situation has stabilized a bit as most of the Chinese garlic coming into the United States is now priced at higher levels, albeit still much lower than U.S.- produced garlic. He estimated that domestic suppliers are losing about 10 percent of their marketshare each year. While that is still a distressing number to California's producers, where virtually all of the domestic supply is grown, it is an improvement over a few years ago.
China exported tens of thousands of tons before the duty imposition in the early 1990s caused exports to virtually cease. Since 2000, China's garlic exports have started to rise again, growing from less than 4 million pounds to over 100 million pounds over the past five years. The silver lining, if it can be called that, is that Chinese exports to the United States might have grown only 10 percent in the past year.
John Layous of The Garlic Co. in Bakersfield, CA, said that his company's acreage has stabilized after going through a few years of reduction. But he said that his company is using the Chinese-produced garlic a bit differently than it was before. More of it is going into processed products, like diced garlic. California shippers have also staked out the premium end of the business, as they cannot compete merely on price.
The Garlic Co., like Christopher Ranch and other California garlic shippers, is also buying and selling Chinese garlic in an effort to retain customers who are price shoppers. Mr. Layous said that price-conscious customers typically buy in large quantities and has to commit to a purchase fairly far in advance. The price on the Chinese garlic is too low, he said, to allow him the added cost of carrying inventory and shipping it to and from his Bakersfield facilities.
For those customers, The Garlic Co. buys the product in China, ships it to the United States and then sends it directly to the buyer from the ports.
The price on the imported garlic is typically 50-80 percent below that of the U.S. product because of the pressure from the duty-free garlic that is constantly landing on U.S. shores from "new shippers."
It is not only U.S. shippers, however, that are hurt by these low-priced imports. One importer of Chinese garlic, who asked not to be named, said that getting a duty of even 15 percent makes it virtually impossible to compete against those that are duty free. In fact, he finds it cheaper to buy and sell Chinese garlic on the open U.S. market than to bring in garlic that has a duty imposed.
The new-shipper provision may become even more problematic after this year because of a change in the duty-imposition process for next year (2007-08 shipping year) by Commerce. Instead of doing the analysis on all firms, Commerce has announced that it will be establishing a company-specific duty only for the largest four garlic shippers. Other shippers will be given a duty that is an average of those four.
A Chinese shipper with a high duty will most likely find it difficult to compete against low-duty shippers or new shippers. The U.S. industry believes that many of these shippers simply close their doors under one name and open under a new name thus qualifying for "new-shipper" status. The new system might just encourage that process.
Mike Coursey, a Washington, DC-based trade attorney who works with the California garlic industry, said that there are numerous bills in Congress that address this "new shipper" category, which he says is a problem in many industries other than garlic.
Mr. Coursey said that other issues have pushed those bills off the front burner, but a legislative remedy appears to be the industry's best chance for a solution. Mr. Coursey said that the solution appears to be the establishment of a bond system that charges a new shipper a fee equal to the potential duty.
One other interesting sidebar to the garlic situation is that it is currently in a period when all garlic - from both China and the United States - is coming from storage. One industry insider predicted that garlic prices will soon rise to levels the industry hasn't seen in a number of years. He predicted that Chinese garlic -- often priced at 50-75 cents per pound -- will soon rise to around $1 per pound, and California garlic could be 30-50 percent higher. "Not too many people are talking about it, but supplies are getting very short. It is going to be very interesting for the next few months until the new supplies start again in the summer," he said.
