Re: Proposed Determination of Action Pursuant to Section 301 Docket No. USTR

Transcription

1 Submitted via Honorable Robert E. Lighthizer U.S. Trade Representative Office of the U.S. Trade Representative th Street, N.W. Washington, D.C Re: Proposed Determination of Action Pursuant to Section 301 Docket No. USTR Dear Ambassador Lighthizer: The Independent Lubricant Manufacturers Association ( ILMA or Association ) submits the following comments on the United States Trade Representative s ( USTR ) proposal pursuant to Section 301 of the Trade Act of 1974 to add an ad valorem duty of 25 percent to certain products imported from China and set forth in the Annex to the April 6, 2018 Federal Register. This list of over 1,300 products includes lubricants and lubricant additives. ILMA agrees with President Trump s stated concerns that China has and continues to act counter to World Trade Organization ( WTO ) rules through inadequate protection of intellectual property and forced technology transfers. However, while the Association supports the Trump administration s efforts to address China s unfair trade practices, the imposition of tariffs in an escalating trade war with China is not the best means to resolve the president s concerns. Tariffs disproportionately hurt U.S. consumer and companies, including ILMA members, and the backand-forth retaliation with Beijing will do little to eliminate China s policies, practices and acts. ILMA respectfully requests the Trump administration, in addressing the complex trade relationship between the U.S. and China, remove the tariffs corresponding to the products discussed below and work constructively with Beijing to create a more predictable and fair-trade environment for U.S. companies, including ILMA members, doing business in or importing products from China.

2 Page 2 of 6 ILMA and the Importance of Its Members Products ILMA is a national trade association with 350-member companies that is headquartered in Alexandria, Virginia. ILMA s manufacturing members blend, compound, and sell over 25 percent of the United States lubricant needs (e.g., passenger car motor oils, gear oils, and hydraulic fluids) and over 75 percent of the metalworking fluids ( MWFs ) utilized in the country. The majority of ILMA s manufacturing members are small businesses based on the Small Business Administration s size standards. ILMA members, as manufacturers, are classified at NAICS Despite their small size, the Association s manufacturing members include those with global operations and those who supply well-established, international supply chains. Independent lubricant manufacturers are neither owned nor controlled by the companies that explore for or refine crude oil to produce lubricant base stocks or that produce chemical additives. Base oils are purchased from refiners and re-refiners, who are also direct competitors in the sale of finished products. Additives are purchased from suppliers, who also may be direct competitors in the sale of finished products. ILMA members succeed over their suppliers/competitors by manufacturing and distributing high-quality, often specialized, lubricants accompanied by localized, allied services to their customers. Lubricants are essential to the U.S. economy. Americans cannot get to work, shopping, recreation and their houses of worship without the engine oils, transmission fluids and other automotive lubricants in their vehicles. Manufacturers cannot operate most of their machinery without industrial oils and hydraulic fluids. MWFs are used to bend, shape or cut metal for the production or fabrication of automobiles, vehicle parts and accessories, military equipment, airplanes, medical devices and thousands of other products. Farmers rely on lubricants of all types to operate their farms and get their goods to market. ILMA members products are vital to the economic freedom, prosperity, and security enjoyed by Americans. Tariffs Have Real-World Impacts that Harm U.S. Companies Many within the business community, including ILMA members, are concerned about the escalating trade dispute with China and the chilling effects of tariffs as a tax on U.S. consumers and businesses. ILMA s members are not seeking tariff protection for their products or raw material inputs. The Association understood the Trump administration s intent in imposing tariffs was to target research-and-development and advanced technology activities between the U.S. and China. There is apprehension among the Association s members about China s intellectual property protections, because in many cases their formulations are their most valuable assets and provide them a competitive edge in the marketplace. 1 Counterfeiting and brand protection are real issues, especially because of the lack of enforcement by the Chinese 1 For ILMA member companies, what makes individual mixtures unique and work well in a specific, end-use application are variations in the lubricant formulations. As a result, these formulations, especially for MWFs, are closely-guarded intellectual property. ILMA supports stronger safe guards against Chinese infringement upon their products.

3 Page 3 of 6 government. However, history has shown that the back-and-forth imposition tariffs is counterproductive and disproportionately harms U.S. businesses. Here, the imposition of 25 percent tariffs on a broad swath of Chinese imports and tit-for-tat retaliation by Beijing will not solve the longstanding trade problems with China. 2 Tariffs hurt U.S. companies, including the Association s members, by increasing costs and decreasing necessary inputs for who have expended considerable time and financial resources to expand into foreign markets. Accordingly, ILMA urges USTR to remove lubricants and lubricant additives from the list of Chinese products subject to tariffs. ILMA members already are seeing the price impacts from the Trump administration s tariff action on steel products under Section 232 of the Trade Expansion Act of For example, the tariffs have increased the cost of steel drums that contain lubricant products. If these higher costs cannot be passed through to customers, the economic response from ILMA members is to defer investments and creating new jobs. ILMA members also fear that the higher costs will undermine their competitiveness in markets in Europe, the Middle East, other parts of Asia and South America. As noted above, lubricants are used in almost every manufacturing and agricultural activity, so the U.S. tariffs and Chinese retaliation will be a double hit to ILMA members. First, there are the effects from direct tariffs by Washington, D.C and Beijing on lubricants and lubricant additives. Second, there are the tariffs imposed on manufacturers, farmers and the many industrial sectors that will depress demand for lubricant products. U.S. businesses will suffer from the cost of market participation. The U.S Chamber of Commerce has estimated that international trade supports millions of U.S. jobs and that nearly half of all manufacturing jobs depend upon exports. 3 Further, retaliatory tariffs will cost U.S. businesses billions of dollars, as nearly $4 billion in exports are threatened from Texas alone. 4 The American Chemistry Council has estimated that the Chinese tariffs will affect $5 billion in chemical exports into the country. Exports support good- paying jobs in the U.S. and are vital for many companies. Tariffs threaten domestic jobs and undermine American businesses. Supply Chains and Customer Bases Will Be Lost Right now, ILMA members tell us that the uncertainty surrounding the trade dispute with China is having a direct effect on their planning and their work to increase exports of their U.S.-made lubricants to foreign trading partners. If the uncertainty persists, some of the Association s members with overseas operations will look to offshore their production to serve their global markets because of low to no tariffs, lower input costs and greater policy certainty. Those member companies without this flexibility to shift production simply will find their competitiveness and profitability harmed. 2 Much of the progress made by the Trump administration is in potential jeopardy of being upended if the trade dispute with China continues to escalate and the cost of participation in important foreign markets increases to unsustainable levels. 3 See 4 Id.

4 Page 4 of 6 ILMA members have spent years developing supply chains throughout the world to sell and deliver their products. Those supply and distribution channels are vital to their success and are now at risk because of the imposition of back-and-forth tariffs. Foreign customers will look to alterative products that do not carry the additional expense associated with the tariffs, removing ILMA members from customer networks. These customers may not be simply re-obtained overnight. Customer relationships are the result of reliable delivery and service that takes years to establish and maintain. Once the customer has shifted to an alternative supplier, the likelihood that it would return when and if tariffs were lifted is speculative at best. Tariffs pose both an immediate impediment to sell products and are a long-term threat to customer bases and supply chains. The Association is also concerned with the effects the tariffs and retaliatory tariffs will have on certain customers who use various lubricant to manufacture parts and other goods subject to long qualification periods. Forced changes from the trade dispute could lead to interruptions for parts manufacturing for key industrial sectors, including aerospace, vehicle manufacturing and military equipment. Certain Products are Unavailable Domestically ILMA manufacturing members are primarily chemical processors. They purchase base stocks, additives, and other chemicals from refiners and chemical manufacturers and then formulate them into lubricant products. Certain materials that are essential to lubricant formulations are not available domestically. For example, certain amines and corrosion inhibitors are essential components of metalworking fluid formulations. Functionally all production of these essential base materials has been outsourced to China, and the infrastructure does not currently exist for a U.S. company to commence production here, even if it desired to do so. As a result, ILMA members are searching for suitable alternatives from other foreign sources, and an overall supply shortage has developed for these chemical additives. This shortage has created significant operational and cost issues. In some instances, the cost to acquire these essential base materials has increased more than 50 percent. Tariffs are Unnecessary and Unwanted Tariffs are intended as protectionist mechanisms to defend certain domestic industry sectors from foreign competition. ILMA members do not believe such action is necessary or warranted. There is evidence that tariffs ultimately stifle U.S. businesses ability to create jobs, make investments, and foster innovation in the U.S. Now is not the time to risks for our economy after 18 months of solid growth under President Trump. ILMA urges the Trump administration to withdraw the tariffs on Chinese imports and, therefore, avoid the retaliation by the Chinese government. For the reasons set forth above, the Association requests that the following HTS codes be removed from the USTR s final list of products subject to the Section 301 tariffs:

5 Page 5 of 6 HTSUS Subheading Product Description Lubricating oils, w/ or w/o additives, petro oils and bitumen minerals (other than crude) or preps. 70%+ by weight from petro oils Lubricating greases from petro oil/bitum min/70%+ by weight for petro oils but n/o 10% by weight of fatty acid salts animal/vegetable origin Lubricating greases from petro oil/bitum min/70% by weight for petro oils > 10 percent by weight of fatty acid salts animal/vegetable origin Lubricating preparations containing 50% but less than 70% by weight of petroleum oils or of oils obtained from bituminous minerals Lubricant preparations containing less than 50% by weight of petroleum oils or of oils from bituminous minerals Lubricating preparations (including lubricant-based preparations), nesoi Additives for lubricating oils containing petroleum oils or oils obtained from bituminous minerals Additives for lubricating oils, nesoi Conclusion ILMA supports the Trump administration s efforts to improve U.S. competitiveness in the global marketplace. The U.S. should remain the best place in the world to do business. However, we hope that the Trump administration will recognize the risks to our economy from an escalating trade dispute with China and will not take enforcement action on the backs of U.S. companies, including Association members, through back-and-forth tariffs and the resulting uncertainty. We do not need a trade war. Instead, the Association urges the Trump administration to develop and execute initiatives, backed by enforcement mechanisms other than tariffs, to address effectively the underlying distortions, imbalances, and issues associated with trade with China.

6 Page 6 of 6 We appreciate this opportunity to provide comments. Respectfully submitted, Holly Alfano CEO CC: ILMA Board of Directors ILMA Global Affairs & Trade Committee Jeffrey L. Leiter, Esq. Daniel T. Bryant, Esq.