It's time to end the free ride given to a number of PET-importing nations, according to a coalition of U.S. PET makers trying to stop the flow of lower-priced, duty-free PET resin into the U.S. market.
The U.S. PET Resin Producers Coalition - consisting of Eastman Chemical Co.'s Voridian division, Wellman Inc., M&G Polymers USA LLC, DAK Americas Inc. and Nan Ya Plastics Corp. USA - filed a petition in June with the U.S. Trade Representative to get PET removed from the Commerce Department's Generalized System of Preferences list.
The GSP list extends duty-free status for thousands of products to about 120 countries in need of economic development. Dozens of plastic products, including most commodity resins, are on the list, which originated in 1975.
The U.S. Trade Representative office in Washington is expected to decide by the end of the month if the PET petition will move on to a formal review process. That process will consist of hearings with the U.S. Trade Commission and the International Trade Commission before going back to an interagency committee for final approval. The entire process should be completed by the end of June, a government spokesman said.
In the 27-page petition, the coalition presented a number of reasons - including the increased amounts of imported PET in the United States - for removing PET's GSP status.
Between 2000 and 2002, the amount of imported PET from GSP nations more than tripled, going from less than 80 million pounds annually to almost 260 million pounds, according to the petition. PET imported from GSP nations accounted for more than 5 percent of total U.S. PET consumption in 2002. That amount was expected to increase more than 10 percent in 2003, industry contacts said.
India, Indonesia and Thailand are singled out in the petition for selling PET at prices below production costs. Those three nations account for about 80 percent of U.S. PET imports, according to Michael Dewsbury, national sales manager for Shrewsbury, N.J.-based Wellman.
``PET makers [in those countries] are operating brand-new lines,'' Dewsbury said in a recent telephone interview. ``They don't lack at all technically when compared to the U.S. Those countries aren't disadvantaged - they're using the same new equipment that we are.''
The petition cites India's Reliance Group and Indonesia's Indorama Group as ``members of powerful industrial conglomerates that no longer need the duty-free benefits provided by the GSP program.'' Such firms also receive subsidies from their governments that allow them to compete with U.S. businesses, according to the petition.
Mark Adlam, North American commercial manager for Apple Grove, W.Va.-based M&G, said countries taking advantage of the GSP situation ``are gaining market share at the cost of U.S. jobs.''
``What makes a market strong is when people invest in it for the right reasons,'' Adlam said. ``And GSP is not a good premise for investment.
``We have no problem with competition, but we're not going to stand by and look at unfair competition without doing something about it. We want to protect jobs in the U.S. and protect the industry in a way that's healthy.''
M&G's Adlam also said that PET-related anti-dumping action taken against India, Indonesia and Thailand in late 2000 by a number of European countries sets a precedent for the U.S. case. Imposing European-style sanctions in 2002 would have resulted in a 12 cent-per-pound duty on India, 10 cents on Indonesia and 7 cents on Thailand, according to the petition.
If PET is removed from the GSP list, a duty amounting to about 3 cents per pound would be collected on imported PET beginning in July, the government spokesman added.
The petition makes a link between the introduction of the European duties and the rapid growth of imported PET in the United States.
``With the European market effectively closed to certain PET resin, exports are being targeted to the U.S. market,'' it reads.
If hearings are held, committees would look at the value of GSP status to end users and producers, as well as at existing competition in the market, according to Scott Pietan, an international economist with the Commerce Department.
``The idea of GSP is to provide these countries with opportunities to be competitive in products that they normally wouldn't be competitive in,'' Pietan said. ``A lot of U.S. companies make use of it to get the raw materials they need to make their products.''
GSP status also can be tailored to include specific products for some countries but not for others. For example, the PET petition could have been written to exclude only India, Indonesia and Thailand from GSP status. Countries also can lose GSP status on a product if the value of their U.S. exports for that product exceed a set annual level. In 2004, that annual level was raised from $110 million to $115 million.
The PET coalition also claims that imported Indian PET prices dropped almost 14 cents per pound between 2000 and 2002.
``U.S. [PET] producers have experienced price suppression from the GSP imports and have been unable to increase prices to fully account for cost increases as they have occurred,'' the petition reads.
The issue is a complicated one, and one that might not create a windfall for U.S. PET makers, even if PET is excised from the GSP list, industry analyst Chase Willett said.
``There will probably be a slowing of [import] growth if the petition goes through, but it won't completely eliminate lower-priced imports,'' said Willett, who is with Chemical Market Associates Inc. consulting group in Houston.
``The challenge is going to be that there's no basic math that you can do here to make a decision,'' he added. ``There's no definition of what `competitive' means, and you could argue that GSP is almost a license to dump. It's really going to come down to the opinion of the U.S. Trade Representative.''
Edgar Acosta, an analyst with Dewitt & Co. consulting group in Houston, questioned the impact of the petition, saying that ``10 percent does not lead the market.''
``The growth in PET imports would have happened even without GSP because there's so much capacity for PET,'' Acosta said. ``This is really an attempt by U.S. PET makers to get back that 10 percent.''
The only major U.S. PET maker not involved with the coalition is Kosa Inc. of Houston, which ranks second in North American capacity. Kosa planning manager Todd Murray said his firm is ``basically neutral'' regarding the petition, but would provide market information if asked to by the government.
Although many other plastic resins - including commodities polyethylene, polypropylene, polystyrene and ABS as well as engineering resin polycarbonate - are on the GSP list, coalition lawyer Michael Hertzberg said he does not think that will hurt the chances of PET being removed.
``The U.S. Trade Representative looks at a specific situation,'' said Hertzberg, a partner in the Washington law firm of Howrey Simon Arnold & White. ``The purpose of the review is to look at a specific request and make a specific decision either way.''