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Letter asks U.S. Trade Representative Michael Froman to bring case to World Trade Organization

Eight U.S. senators have asked the Obama administration to take action against China over what they say are unfair subsidies to the Chinese aluminum industry.

(WSJ article is behind a paywall, you must have a subscription.)

The Obama administration announced Thursday it filed a historic World Trade Organization (WTO) case against China’s illegal subsidies for its domestic aluminum industry. This, however, is only the first step in this process.

With President-elect Trump’s inauguration in a few days, thousands of American aluminum workers will soon look to the Trump administration to stand up to China by litigating this landmark trade case.

For years, the Chinese government has used its state-directed financial system and other channels to expand and maintain millions of tons of unnecessary primary aluminum smelting capacity.

In the last year alone, more than 3,000 American aluminum workers lost their jobs because China illegally subsidized its domestic aluminum industry. It has done this by granting low-interest loans, debt forgiveness and energy subsidies to its aluminum producers.

Due to China’s illegal trade practices, our company, Century Aluminum, was forced to dismantle a smelter in West Virginia, which supported 650 direct jobs, and partially shutter another in Kentucky at the cost of 400 additional jobs.

All across the United States, thousands of workers have lost their jobs due to China pumping state support into an already bloated industry. The impact on these families and their communities has been devastating.

In 2001, when China joined the WTO, there were 18 aluminum smelters in the United States. Today, there are only five, following a series of closures under the pressure of depressed global aluminum prices.

Over the same period, China has gone from a minor player in the global industry to producing more than 50 percent of total global supply.

It is notable that China’s industry consists largely of high-cost smelters at the top end of the global cost curve. These plants would not exist without the illegal state support.

Consider Aluminum Corp. of China, Ltd. (Chalco), one of the largest aluminum producers in China and a Chinese state-owned entity.

Chalco’s production alone is far greater than the entire U.S. aluminum industry. Documents available to the public show that, since 2008, Chalco’s net losses total nearly $4 billion.

Its debt has climbed to over $20 billion and its debt-to-equity ratio is 2.8, exceptionally high by industry standards.

Market-based financial institutions would not fund such a risky venture, but Chinese state-run banks do. The WTO explicitly prohibits these types of illegal subsidies that China appears to be employing.

U.S. aluminum manufacturers simply cannot compete in a market that no longer functions under sound principles due to government interference.

We are thankful for the Obama administration’s efforts on behalf of our industry and look forward to working with the Trump administration.

Together, we can defend our industry from unfair trade practices and protect thousands of American aluminum jobs.

Earlier this month, President-elect Trump tapped Robert Lighthizer to be United States Trade Representative (USTR). As deputy USTR under President Reagan, Mr. Lighthizer negotiated over two dozen bilateral trade agreements; he has a strong record of standing up for American industry.

Once Mr. Lighthizer is confirmed by the United States Senate, we look forward to working with him to move this WTO case forward, as there is little reason to believe that China will scale back its brazen subsidy program for state-directed industries.

China is only stepping up its manipulative tactics. On Dec. 11, the fifteenth anniversary of China’s membership at the WTO, China launched dispute resolution procedures against the U.S. and EU.

The Chinese claimed automatic market economy status and argued the U.S. and EU must treat them as such when calculating antidumping duties on Chinese goods.

China is not a market economy; the state continues to direct enormous amounts of capital to favored industries to increase production and employment.

These actions are completely devoid of basic economic principles. This behavior is remarkably apparent in the global aluminum industry.

We hope aluminum producers in Canada and Europe will ask their governments to join the United States and oppose China’s unfair trade practices that negatively impact the global aluminum industry.

This is a global problem that requires a global solution. Only by addressing China’s unfair trade can we hope to retain and increase employment for the thousands of men and women who manufacture safe, reliable American aluminum.

I am fortunate to spend a great deal of time at our facilities, meeting with our hardworking staff who make our company, the aluminum industry and our country great.

They work to support their families and build our communities. China should not be allowed to decimate an iconic American industry and put the livelihoods of thousands of hard-working Americans at risk.

We are confident the Trump administration will take strong and decisive action against China’s illegal aluminum subsidies — a move backed by thousands of American workers and those wary of an unfettered China.

We look forward to working with the incoming Trump administration to move this WTO case forward with the vigor American workers, their families and manufacturers deserve.

Mike Bless is president and CEO of Century Aluminum, the largest producer of primary aluminum in the United States. 

The Obama administration launched a formal complaint Thursday against the Chinese government with the World Trade Organization over subsidies it says Beijing provides to the country’s vast aluminum industry.

The complaint represents an escalation of trade disputes between countries with the world’s two largest economies almost a week before Donald Trump assumes the U.S. presidency. Mr. Trump suggested again Wednesday in a news conference that trade relations with Beijing would be a priority, saying the U.S. trade imbalance with China was too large.

The complaint accuses China of funneling artificially cheap loans from state-run banks to Chinese aluminum producers, helping the companies upgrade their facilities and expand production. China also subsidizes aluminum production by providing producers with cut-rate coal and electricity, the complaint says.

“Our record of tough enforcement with China speaks for itself: When China cheats, we’ve been right there,” said U.S. Trade Representative Mike Froman, who filed the case with the WTO.

A spokesman for the Chinese embassy in Washington didn’t respond to a request for comment.

“When China drives down aluminum costs by cheating, Ohio workers and manufacturers pay the price,” said Sen. Sherrod Brown (D., Ohio). “Thousands have lost jobs because of unfairly subsidized aluminum from China that has flooded the market and led to overcapacity, and it’s past time we get tough on these violations before more American workers suffer.”

The Wall Street Journal reported in October that the Department of Homeland Security has launched a probe into whether U.S. companies linked to China Zhongwang Holdings Ltd.’s founder and chairman, Liu Zhongtian, illegally avoided punitive import tariffs on aluminum. The Journal’s articles traced Mr. Liu’s connections to a large stockpile of aluminum in Mexico that represented 6% of global inventories and has since been shipped to Vietnam.

Chinese aluminum imports have come under the spotlight in the past year as U.S. authorities probed allegations that China Zhongwang, a big Chinese aluminum producer, evaded trade sanctions imposed on the company in 2010. The Commerce Department late last year determined certain China Zhongwang exports to the U.S. had been designed to skirt the sanctions. China Zhongwang says it no longer sells the products in the U.S.

China Zhongwang has denied wrongdoing.

U.S. producers say a boom in Chinese production has depressed prices world-wide and harmed their ability to compete. By the end of 2016, only five aluminum smelters were operating in the U.S., down from 23 in 2000. Alcoa Corp., the largest American aluminum maker, last year split in two, isolating its profitable parts-making units from its troubled raw-aluminum operations.

Chinese aluminum production has surged in recent years, accounting for 55% of global output in 2015, up from 24% a decade ago, according to the U.S. Geological Survey. The U.S. accounted for 2.7% of global production in 2015, according to the USGS.

Experts say the latest WTO complaint applies more broadly to China’s boom in production, which has fed a world-wide glut in everything from steel to soybeans.

“The case is a systemic challenge to China’s industrial model, which is state support to build up capacity that depresses prices,” hurting competitors world-wide, said Alan Price, chair of international trade practice at Wiley Rein LLP, a Washington law firm that consulted with U.S. trade authorities on the complaint.

The allegations in the WTO complaint could heighten tensions between the U.S. and China. Mr. Trump in December announced the creation of a new National Trade Council inside the White House to facilitate industrial policy and tapped as its leader a fierce skeptic of China’s trade policies, Peter Navarro, a University of California, Irvine, professor.

During the presidential campaign, Mr. Navarro worked with New York financier Wilbur Ross Jr., Mr. Trump’s pick for commerce secretary, who has lobbied for a more aggressive posture toward U.S. trade partners.

Mr. Trump’s pick for trade representative, Robert Lighthizer, has made a career arguing for trade barriers when partner countries break the rules. Mr. Lighthizer could put greater emphasis on import tariffs, especially in the metals sector, and even at the risk of retaliation from China or running afoul of the WTO, trade lawyers say.

The complaint by the Obama administration, following a review by the WTO, could ultimately result in higher U.S. tariffs on Chinese exports of aluminum and other products.

The trade-enforcement action would be the 16th filed by President Barack Obama against China with the WTO. Other complaints include allegations that export duties for copper and other commodities make the minerals cheaper in China than outside the country and promote domestic manufacturing.

The administration’s complaint is based in part on more than a year’s worth of research by a team of U.S. industry-funded investigators who collected reams of data and information inside China, people familiar with the investigation said.

In October, eight U.S. senators asked Mr. Froman to take action against China over what they said were unfair subsidies to the Chinese aluminum industry. The senators, including Sens. Brown, Rob Portman (R., Ohio), Charles Schumer (D., N.Y.) and Debbie Stabenow (D., Mich.), asked Mr. Froman to take action against China at the WTO “before U.S. manufacturers and their workers incur further irreparable harm.” Other signatories include Sens. Kirsten Gillibrand (D., N.Y.), Bob Casey (D., Pa.), Jeff Merkley (D., Ore.) and Ron Wyden (D., Ore.).

WASHINGTON, D.C. – (January 12, 2016) – The China Trade Task Force strongly applauds the decision by United States Trade Representative Michael Froman to today launch a new trade enforcement complaint at the World Trade Organization against China’s illegal aluminum subsides. The complaint is the first step in eradicating China’s illegal subsidization of its primary aluminum industry, which has negatively impacted the U.S. economy and cost thousands of Americans their jobs.

In 2001, when China joined the WTO there were 18 aluminum smelters in the United States. Today, there are only five, following a series of closures due to China not playing by the rules. Over the same time, China has doubled down on its domestic aluminum production, now producing more than 50% of total global supply, even though China’s industry consists primarily of high-cost smelters. China’s aluminum industry is also emblematic of the ways in which the government’s influence has expanded from the state sector into supposedly “private” enterprise.

“The case is a systemic challenge to China’s industrial model, which is to use state support to build up capacity that depresses prices, hurting competitors worldwide” according to Alan H. Price, Partner and International Trade Group Practice Chair at Wiley Rein LLP, who consulted with U.S. trade authorities on the WTO case.

Chinese aluminum production capacity has increased by 22 million tons (130 percent) in the last eight years, depressing world prices of the commodity by more than 35 percent. China’s capacity is expected to grow further over the next five years. In the last decade, some 15,000 U.S. aluminum production workers have lost their jobs, including more than 3,000 U.S. workers in the last year alone.

“USTR’s decision to file the landmark WTO case is a critical first step in leveling the playing field for thousands of U.S. workers.” said CTTF Executive Director Mark Duffy. “We very much hope that the incoming Trump Administration will stand up to China’s illegal trade practices and move this historic WTO case forward.”

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About China Trade Task Force:
The China Trade Task Force (CTFF) is committed to supporting and saving tens of thousands of American jobs. The U.S. aluminum market directly creates more than 10,600 American jobs, indirectly supports tens of thousands more jobs, and contributes more than $6 billion in U.S. economic output each year. China is targeting American workers by providing illegal subsidies to Chinese aluminum producers. For more information, please visit us online at www.chinatradetaskforce.com

Century Aluminum Co.’s Michael Bless is on a crusade to save his industry from what he sees as its impending doom at China’s hand. So far, he’s struck out.

The chief executive officer hasn’t been able to persuade Alcoa Inc. to publicly back him. He invited all the presidential hopefuls last fall to tour a smelter, and nobody took him up on it. A glitzy documentary made by a group Century funds has scored only about 6,800 views on YouTube.

Bless says he’s frustrated but undeterred. China subsidizes its smelters to an extent that violates World Trade Organization rules, he says. What he wants is for the Obama administration — or the one that comes next — to put up as big a fight for aluminum makers as the U.S. has for those who manufacture steel.

“Something has to give,” he said after a tour of Century’s smelter in Hawesville, Kentucky, where the payroll has been cut by more than half in the past two years. China produces 55 percent of the world’s aluminum, and according to researcher Harbor Intelligence it plans to increase output in 2017 by more than 9 percent. “If we wait another year,” Bless said, “there may be nothing left to talk about.”

‘Devastating’ Job Losses

That might come off as hyperbole, but Bless could be right. With aluminum on the London Metal Exchange averaging about $1,564 a ton — down from an average $1,682 last year after a slide from $2,800 in 2011 — U.S. output is threatened, according to Harbor. If the price slips under $1,528, Harbor says, the five remaining smelters may have to close.

Century and Alcoa are the last two U.S. makers of primary aluminum, which is used in products from beer cans to F-16 fighter jets. While politicians have backed lobbying efforts for American steel that have won trade cases and succeeded in imposing duties, aluminum hasn’t received similar attention. That could have something to do with the fact there are about 140,000 workers in steel production, and some 3,500 in aluminum.