Mixed Ruling on Chinese Aluminum

The Commerce Department on Tuesday found that the Chinese government unfairly subsidized $514 million of aluminum exports to the U.S. last year.

But the U.S. said it wouldn't investigate allegations that China's currency policies function as export subsidies for Chinese manufacturers of aluminum and coated paper.

The decision sets the stage for a battle on Capitol Hill, where lawmakers have been pushing to penalize China for not moving quickly enough to revalue its currency.

The currency allegations, made in connection with two trade cases, didn't meet the legal standards for initiating an investigation, according to the Commerce Department, which has taken a similar stance in a string of similar trade cases in recent years. China in June began allowing its currency to appreciate, freeing it from a de facto peg to the U.S. dollar, but the yuan has since risen just 0.3%.

For the subsidies it deemed unfair, the Commerce Department said it would impose countervailing duties ranging from 6.2% to 137.7% of the value of the imported aluminum extrusions, shapes squeezed out of aluminum.

"We are opposed to the U.S. government's repeated practice of imposing such protectionist measures against Chinese exports, and we don't think it's helpful to the healthy growth of bilateral trade," Chinese Embassy spokesman Wang Baodong said.

"The Commerce Department made its finding while still managing to ignore the elephant in the room, which is China's currency manipulation," said Sen. Charles Schumer (D., N.Y.).

Mr. Schumer, as well as Sen. Sherrod Brown, (D., Ohio.) and others, are pushing for legislation that would force Commerce to investigate currency policies as potential export subsidies when well-documented allegations are presented.

The currency issue should be fought in Congress, manufacturers say. "It's now up to Congress to pass legislation to strengthen and modernize our trade laws, so that the devastating impact of currency manipulation can be factored into penalties for subsidies and dumping," said the Alliance for American Manufacturing, a nonprofit trade association made up of 10 companies, mostly steel concerns, and the United Steelworkers.

The Commerce Department finding is a victory for domestic aluminum extrusion companies that have been hit by the influx of Chinese imports from 2007 to 2009. Duncan Crowdis, president of Bonnell Aluminum, one of the domestic petitioners, said his industry couldn't compete with Chinese aluminum imports.

Companies that import Chinese aluminum extrusions to the U.S. will now be required to post a bond or deposit cash, in the amount of the estimated duties. Commerce Department officials will continue their investigation of illegal subsidies by going to China before setting a final countervailing duty.

The $3.57 billion domestic annual market for aluminum extrusions includes companies that assemble the extrusions for aluminum siding, door frames, bicycles and other products. China is the world's largest exporter of aluminum extrusions, with such exports increasing more than 10-tenfold since 2001. Canada and Australia have made claims similar to that of the Commerce Department's. The domestic industry said that China's share of the U.S. extrusion market rose to 20% last year from 8% in 2007.

Peter Koenig, an outside counsel for Zhaoqing New Zhongyua Aluminum Co., which makes aluminum extrusions in China and has a U.S.-based import division, was assessed a 10% preliminary duty. Mr. Koenig said the Commerce Department made the correct call in not investigating whether alleged currency manipulation was a subsidy.

"It is not something for the subsidy law to address," he said. "Commerce has never initiated on that, and it seems like the right move."

Attorneys for domestic producers said they would urge the Commerce Department to change its ruling before the final investigation commences.

"We believe there are problems with Commerce's decision on this issue, and will consider between now and the final determination what further steps and arguments we should pursue," said Stephen A. Jones, of law firm King & Spalding, the lead attorney for the domestic petitioners' case.

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