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Mike's often irreverent, thought-provoking analysis of the industry.

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The Canvas "Dumping" Issue: Another View

What IS dumping? And is it necessarily bad?

by Frank Stapleton, MacPherson's (May23, 2005)

(Note: Is there any industry-related issue more complicated than international trade? CLN hasn't found it. In the May 2 edition CLN reported on Tara filing an anti-dumping petition with the U.S. Department of Commerce and the International Trade Commission against Chinese exporters of pre-stretched artist canvas, canvas panels, rolls, archival boards, and canvas pads. The following is reprinted from the #195 edition of ArtiFax, the fax newsletter published for its customers by MacPherson's, the art material distributor and importer.)

One of the big topics of discussion at the recent Chicago NAMTA show was the anti-dumping case filed by the U.S. Commerce Department related to the importation of stretched canvas to the United States from China. Everyone I talked to seemed familiar with the basic facts that led to the action. Nearly everyone, for instance, knew that this action was initiated and sponsored by Tara Materials, Inc. and that Tara alleges that China is illegally selling (dumping) product into the U.S. below cost to the detriment of U.S. manufacturing workers.

What these conversations also uncovered was that there isn’t a clear understanding of some key details and possible consequences if Tara’s action is successful. Many people weren’t aware, for example, that if Tara’s action is upheld during an investigative process, the Commerce Department could impose significant tariffs that would raise the price of imported stretched canvas, such as Art Alternatives, to our customers. With this in mind, I felt it would be helpful to devote some space in the Big Idea to foster a greater understanding of the facts, as well as to explore what we may soon be facing.

Dumping laws were enacted in the United States to prevent manufacturers in any given country from selling products in the United States either at a) prices below their cost; or b) prices below those at which the products are being sold domestically. In principle, we should all be against an unfair practice that undermines the economic strength of our country. But the fact is that China is not dumping canvas into the United States. A little known loophole in the law allows petitions filed against China to ignore the actual costs paid for labor and raw materials, and to look instead to a different, higher cost country for the data. Although painting a completely false picture, it becomes possible on paper to show that products are sold below this hypothetical, inflated cost. Using this biased reasoning, it suddenly becomes highly possible that Tara’s complaint could result in tariffs being imposed.

Tara is asking that import tariffs be set at levels as high as 277% to, in their words, "level the playing field"! And what happens to the revenues these tariffs generate going forward? Congress passed a law four years ago that mandates tariffs be paid to the plaintiffs. Because Tara is essentially the only U.S. company taking part in the petition, 95% or more of future tariffs could be paid to Tara. [Editor's note: Duro Art Industries has joined Tara in the petition.] The altruistic idea behind the law is that the money will be used to help displaced factory workers. On recent visits to several stores in the Western U.S., we were unable to find a single Fredrix stretched canvas that was not made in Mexico. Which begs the question, which country’s workers, if any, will see the money?

If Tara wins, do we all win? Or does Tara win while the industry loses? If the anti-dumping petition is left unchallenged, retailers who have benefited from our imported canvas program as well as from other brands could face an end to the programs, programs that have increased both retail sales and the usage of a key component in any painter’s creative process. A 277% tariff would probably force a significant increase in MSRPs in addition to a rollback to the discount levels of five years ago. Back would be the days when you needed to place $2,000 orders to get a discount of 60% off and, as in the past, the retailer buying direct could, once again, have to pay the freight. Forget about the case-at-a-time, turn-and-earn buying that keeps the product always in stock at a deal that allows business-building promotions. These programs, along with our Art

Alternatives merchandising plans, have stimulated explosive sales of canvas over the last five years. And these same canvas sales have increased the turnover of all the materials needed to make art on canvas.

As sympathetic as you might be to the idea of helping an ailing U.S. business with a high-labor product, is forcing out competition through government action the best solution for everyone? When we think of all the retailers who have benefitted from imported canvas programs, we don’t think so. We think this solution has many drawbacks, and we will do everything in our power to keep Tara’s action from ending a phenomenon that has done so much good for our fragile industry.

We would also like to point out that the tried-and-tested tools of our free enterprise system have allowed Masterpiece, a domestically produced canvas company with some of the highest costs in the nation, to thrive against low-cost imports. We only wish that Tara shared Masterpiece’s optimism, ingenuity and belief in the power of strong business relationships.

We expect a tariff determination to take approximately five months. Given the possibility that Tara’s efforts may be successful, we are considering options that could insure that our valued retailers will continue to benefit from this truly phenomenal merchandising concept. There is no guarantee that we will be successful, but be assured that our company’s considerable resources are dedicated to trying.

(Note: To comment on this or any other industry issue, email your thoughts to CLN at mike@clnonline.com. To read previous Business-Wise columns, click on the titles in the right-hand column.)

xxx

 

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