Chinese exporters of furniture face tariffs from U.S.

http://seattletimes.nwsource.com/html/businesstechnology/2001960066_chinatariff19.html ^ | 6/19/04 | Mark Drajem

[take]

Chinese exporters of furniture face tariffs from U.S.

WASHINGTON — The U.S. Commerce Department slapped tariffs of as much as 198 percent on imported bedroom furniture from China, a decision that could cut the $1 billion a year of those imports and may raise prices for consumers.

Most of the largest exporters of furniture, representing 80 percent of U.S. imports, will pay tariffs of 24 percent or less, with 82 of the companies paying an 11 percent tariff, according to the Commerce Department.

"The duties could have been a whole lot worse," Mike Veitenheimer, a vice president for furniture retailer Bombay Co., which opposed the duties, said in an interview. Still, the thousands of companies not singled out will pay the 198 percent, and they "are going to be put out of business."

The tariffs begin next week. Yesterday's decision is preliminary and there are still two more rulings needed to formalize the tax, which would last for five years or more.

"The illegal dumping by the Chinese has devastated the U.S. bedroom industry," said John Bassett, chief executive of Vaughan-Bassett Furniture.

Since President Bush took office three years ago, some 35,000 wood-furniture workers, or 28 percent of the work force, have lost their jobs, the U.S. companies say.

Opponents of the protection, including nearly half the U.S. furniture industry, say that the tariffs won't restore U.S. workers' jobs, although they might help shift production from China to Vietnam or other Asian nations.

The Bush administration said that yesterday's ruling shows that it's cracking down on trade it labels illegal.

"We've had a lot of Chinese cases and we expect to have more," said James Jochum, assistant secretary of commerce for import administration.

China has denied unfairly selling its goods.

"We sold furniture to the U.S. based on fair market practices," Cao Yingchao, secretary general of China National Furniture Association in Beijing, said before the decision. "We deny any charge that we sold our wooden furniture in the U.S. at below cost."

He said he would urge Chinese producers to appeal.

Bedroom-furniture imports from China increased 121 percent from 2000 to 2002, and another 54 percent in the first six months of last year from 2002. Furniture makers such as Bassett, Stanley and Hooker Furniture say that increase threatens to put them out of business.

Imports of furniture from China and other low-wage countries rose to 33 percent in 2001 from 1 percent in 1972, according to a study by Andrew Bernard, an economist at Dartmouth University. They are likely to increase to 57 percent by 2011, he said.

[XBob]

93 - "Where do you get the 90% cost differentials between Chinese products and US products?"

[BJungNan]

Can you understand that we are dealing with Communist and Social governments that own these businesses. Point: Every company doing business in China must that must sign a contract with the Communist Government of China that states (51% ownership goes to Red China.)

Isn't that called taxes? In this country don't we often complain calling it confiscatory taxes? I think I've heard it called that that from conservatives a time or two before when we complain that government is getting their hands in too deep.

This country is all over business. You are making my point exactly. Only you think this is something sinister only to China. Goverment gets into business everywhere. And my point is that it does it so much in the U.S. that U.S. companies go over seas.

What you miss - likely because you have not worked and lived in China - is that there is privately owned businesses in China. They are making all manner of products. The government does not own them or tell the owners how to run them any more than they do in this country.

The state run factories are a thing of the past and fading quickly. My brother in law works for one and they just privatized it. It is sink or swim time for them. The Chinese government is offering incentives to foreign companies to come in and take over these state run companies to get them to run - few takers because they are such basket cases.

The party leader in the town where our factory is located told me himself, first a company has to make a profit. When was the last time you heard that philosphy put forward in this country. Here profit is a dirty word.

You really do not know what you are talking about. I'm sorry to put it like that but you really don't.

[take]

that there is privately owned businesses in China

Names them and i will show you China own 51%

[XBob]

93 - "Where do you get the 90% cost differentials between Chinese products and US products?"

[BJungNan]

Where do you get the 90% cost differentials between Chinese products and US products?

I don't know, where? I was not aware that the cost differentials were that high. On items like gloves and masks for employee protection there is a big savings but I don't think it is as much as 90 percent.

[XBob]

so give me a current idea, on costs of production for a chinese product verus the same product made in the US.

[BJungNan]

Oh geeze. How can a guestion like that be answered in this forum. You want me to email you my budget?

[XBob]

Not hard at all. As an example, last time I lived in Taiwan, admittely a while back (30 years ago). Though I am not in manufactring, so I don't have any experience there, but A pair of shoes I bought (after suitable bargaining) was $1.50. When I got back to the states, a similar pair of American shoes cost about $24. I spent many years overseas, in various cuntries, and the last comparison I have is about 5 years ago a $10 pair of shoes in Egypt, equivalent to about $45 here (though it was hard to find, as you chinese were starting to take over our shoe market). Now, it is nearly impossible to find American made shoes, period. All are chinese (and you were starting to intrude on the Egyptian manufacturing market).

Surely, with all your experience manufacturing in both countries, you can explain succinctly, with some simple examples.

So far, you have said basically, that costs are equal in both china and the US but there is more paperwork here, and that is all.

[BJungNan]

So far, you have said basically, that costs are equal in both china and the US but there is more paperwork here, and that is all

That is not what I said. What I said was that it is not labor savings that is the primary savings realized when moving a business to China. In some industries, labor intensive ones, of course labor is a factor. But, where automation in the U.S. has reduced the cost of labor, labor costs will not be the primary motivating factor in moving to China as is so widely the misconception.

And watch out for those shoes you are buying if you found them "off market".

[XBob]

cut the run around.

You have said you ran a factory in China and one in the US. The labor is inconsequential. The only difference is that safety eququipment is cheaper in china. And there is more paperwork in the US.

Quit running around in circles and ducking the questions, those are minor cost differentials.

What were the general cost differences to manufacture the same item in both countries?

You are not coming up with anything at all in the way of answers which reflect the real world and my own personal experiences of living and working overseas for 15 years.

[BJungNan]

Here, everyone of these line items is less in China except as noted.

COST OF GOODS
Raw materials
Freight & Delivery
Direct Prod. Labor
Direct labor payroll tax
Direct labor bonus
Inv. Adjust. (scrap)
Ttl Direct Prod Cost

Indirect Prod. Labor
Indirect Prod. payroll tax
Indirect Prod. meals
Indirect Prod. bonus
Depreciation Exp
Plant Supplies
Repairs
Rent - Factory
Utilities - Plant (inc tel)
Ttl Ind. Prod Costs

Total Cost of Goods

Gross Profit (RMB)
Gross Profit (USD)
Percent



CHINA
SELLING EXPENSE
Commissions
Adv. & Promotion
Salaries & Benefits -mgr/sec
Payroll Taxes, Sales
Salespersons salaries
Payroll Taxes, salespersons
Samples (Inc. Frgt)
Show Expense
Telephone (inc fax) ****SAME AS US***
Travel & Entertainment
Total China

HONG KONG
SELLING EXPENSE
Commissions
Advertising
Promotions
Samples (Inc. Frgt)
Show Expense ***SAME AS US***
Travel & Entertainment
Total Hong Kong

INTERNATIONAL
SELLING EXPENSE
Commissions
Adv. & Promotion
Promotions
Samples (Inc. Frgt)
Trade Shows ***SAME AS US****
Travel & Entertainment ***SAME AS US***
Market development ***SAME AS US***
Sub total

Total Selling Exp.



GEN & ADM EXP
Accounting (KPMG)
Audit - 1999
Automobile
Bad Debts (China) **MUST BE CAREFUL HERE***
Bank Charges & Fees
Collection Exp. - China
Data Processing Exp
Depreciation Exp
Dues & Subscriptions
Employee Dev.
Legal
Maintenance Contracts
Misc. G & A Expense
Office Supplies & Exp
Outside serv. - translator.
Postage & Delivery - Intl.
Postage & Delivery - China
Rent
Repairs & Maintenance
Research & Develop.
Salaries/Wages - G&A
Payroll Taxes - G&A
Pension -G&A
Emp Benefits - G&A
Taxes, Lic. & Permits
Taxes, Property
Tel/Fax - Domestic
Tel/Fax - International
Travel & Ent - G&A
Utilities
Total Gen & Adm

Other Income
Management fee & expses
Other Inc/Ded (Net)

NET INC (LOSS) RMB
NET INC. (LOSS) US$

[XBob]

Table 2-1.  Per Capita Annual Income by region (1994).
Eastern	Per Capita	Central	Per Capita	Western	Per Capita
	Annual Income		Annual Income		Annual Income
Liaoning	2099.40	Heilongjian	1541.01	Shanxi	853.27
Hebei	1442.48	Jilin	1456.39	Gansu	1041.97
Tianjin	3383.85	In Mongol	1112.49	Ningxia	1020.06
Beijing	4417.85	Shanaxi	1186.92	Sichuan	985.39
Shandong	1682.51	Henan	1019.15	Yunnan	942.46
Jiangsu	2613.54	Anhui	1047.83	Guizhou	609.80
Shanghai	7555.89	Hubei	1341.40	Qinghai	1055.46
Zhejiang	2443.99	Hunan	977.06	Xinjiang	1456.63
Fujian	1674.75	Jiangxi	1106.78	Tibet	930.86
Guangdong	2450.21
Guangxi	842.88
Hainan	1753.22
Source:  China Statistical Yearbook, 1995.
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[Willie Green]

N.C furniture industry is now China

Some industry analysts estimate that 40% of furniture sold in the U.S. comes from China.

[BJungNan]

And, so what is that table supposed to be telling me?

[XBob]

Your chart of accunts is chockablock full of labor, top to bottom, and considering the Yuan is worth about 12 cents, and the above chart is in Yuans or RMB, and the top income is about 7500 per year,

I would suggest that your arguments are full of crap.

Labor, and other costs are far less in China than here, because of deficient exchange rates, and vast variations in costs of living from the US, at the official rates, even in the relatively more highly paid eastern provinces.

Increase the value of the Yuan by about 40 times, and level the playing field.

[XBob]

"Labor, and other costs are far less in China than here, because of deficient exchange rates, and vast variations in costs of living from the US, at the official rates, even in the relatively more highly paid eastern provinces. "

And such costs, ripple through the whole cost structure, in every area.

What if you could cut your US costs by about 97%? Then, the costs would equalize, and we would be competetive.

[XBob]

What if you could cut your US costs by about 97%? Then, the costs would equalize, and we would be competetive.

Or, perhaps we put an import duty of 97% on all chinese goods, then that would equalize the costs of doing business.

[BJungNan]

Or, perhaps we put an import duty of 97% on all chinese goods, then that would equalize the costs of doing business.

And you probably wish we were still driving cars of 1970's quality.

Aluminum cylider walls anyone?
50 miles per quart of oil.

[XBob]

what in the world does that have to do with anything?

Are you trying to imply that there would be no improvements in the US without foreign procducts.

Are you still using rick-shaws?

[XBob]

"Aluminum cylider walls anyone?
50 miles per quart of oil."

Not ever innovation works. Silicon impregnated cylinder walls in solid aluminum blocks (instead of sleved iron walls in aluminum blocks) were a novel idea, but short lived in real life, where people failed to change oil regularly.