ANTICIPATING THE RESULTS OF THE U.S. ITC INVESTIGATION

The investigation of low-speed personal transportation vehicles (LSPTVs) from China is proceeding toward its final conclusions and recommendations, which are expected in the first quarter of the new year. It is widely anticipated that anti-dumping tariffs and/or countervailing duties will be assessed to “level the competitive playing field”.

Such tariffs or duties would work to the benefit of the three major domestic manufacturers of LSPTVs, i.e., Club Car, E-Z-GO Textron, and Yamaha Golf Cars. The first two of these companies make up the American Low-Speed Personal Transportation Vehicle Manufacturers Coalition, which is the official petitioner before the International Trade Commission (ITC). At the preliminary hearing in June, the ITC took statements from both petitioners and respondents, the latter comprised of 10 companies currently importing subassemblies from China. Among these were StatEV, Atlas, ICON, and Evolution.

Imports rise sharply in anticipation of import levies 

In economics, one of the factors that shifts the demand curve for a product is expectations. This basically mean you take action prior to a given event actually happening. This factor was at work subsequent to the June hearings. As seen in the table below, imports of subassemblies and finished units (mostly subassemblies) took a jump in June and have kept up a pace of twice the average monthly level of the previous five months.

Imports of Subassemblies from China,

January-September 2024 (Units)

As for prices over the same period, they have remained at least stable and possibly slightly lower, despite the substantially greater demand. As seen in the table below, the average landed price ranged between just over $3,400 in January to about $2,500 in June. In September, the latest month available at the time of this writing, the price was just under $2,800. The overall price stability, despite the increased demand has interesting implications, as well. In particular it suggests that the industry in China is a constant cost industry. In turn, this means that the supply curve, reflecting input costs (materials and labor) is essentially flat; i.e., as output increases, cost per unit are unchanging. Of course, this could also mean that the rate of subsidies by the Chinese government is also increasing. We await the ITC findings with regard to this issue.

Prices at Landed Value,

January-September 2024 (U.S.$)

Substitutability of LSPTV imports for domestic product

Substitutability is an important factor in determining whether there is some form of unfair competitive practices involved with the importation of LSPTVs from China. Specifically, it is important to determine whether price is the key factor in the purchase decision, or whether other factors play an important role.

If subsidies are giving the Chinese product an advantage with regard to price, and price is the key factor in the purchasing decision, this would constitute an unfair practice, and tariffs or countervailing duties would be in order. Conversely, if other factors play a major role in the decision to buy, then the basis for penalties becomes more tenuous.  

For example, let’s say you are making a choice between a filet mignon steak at the supermarket and a Miani Dolphins T-shirt. Price may indeed  be a factor, as prices always are given the constraints on our budgets, but most would agree that the products are quite different and are substitutable only because of other factors (e.g., whether or not it is football season). In other words, you would not impose a tariff on imported T-shirts to compensate for alleged losses by grocery stores or cattle ranchers.

ITC findings on substitutability of imported vs. domestic LSPTVs

Here in its own words are the findings of the ITC staff regarding the degree of substitutability of imports vs. domestic product:

Based on available data, staff believes that there is a high degree of substitutability between domestically produced LSPTVs and LSPTVs imported from subject sources.30 Factors contributing to this level of substitutability include limited significant factors other than price, availability from both U.S. producers and importers of all types of LSPTVs through the same channel of distribution (i.e. dealers), and little preference for particular country of origin or producers.

Looking closely at the conclusion, it appears that the staff found there were, “…limited significant factors, other than price…”, which contributed to the purchasing decision. If there are other factors involved in the purchase decision, albeit limited, what are they and how was the evidence for this finding compiled?

Addressing the second part of the question first, the answer is found in footnote 31 on page II-10 of the report: “This information is compiled from responses by purchasers identified by petitioners to the lost sales lost revenue allegations.” (Italics added.) Given that petitioners selected the respondent purchasers, one would expect that the responses would be heavily weighted toward price as the predominant reason for their vehicle purchase. It turns out that this is not the case.

Results of the survey of purchasers with regard to what motivated their purchase decision

The results of the survey are laid out in Table II-7 of the ITC report, which is reproduced below. The columns indicated the degree of importance of the various considerations listed in the right-hand column. A number of things catch the eye right away:

• First, of the 27 purchasers indicating the most important factor in their buy decision, only six indicated it was price, as compared to 13 indicating quality was the most important factor;
• Altogether 21 respondents indicated issues other than price were their first, most important factor is their purchase decision; and,
• Price was the second most important factor for a plurality of respondents.

Table II-7

LSPTVs: Count of ranking of factors used in purchasing decisions as reported by purchasers, 

by factor

Given the results of this survey it is difficult to see how the ITC staff could conclude that factors other than price were, in fact, limited.  It would appear from the data presented in the report, as seen above, that other differentiating considerations played an important, if not major role in the purchase decision.

Implications for the finding on substitutability

Based on the ITC’s own survey factors other than price play a critical role in the market. Therefore, the case for tariffs would be significantly mitigated. It could be that the wrong standard is being raised. Afterall, quality, warranties and service support, as well as availability all contribute to price, as they contribute to total cost of the product.

The important consideration, therefore, should be whether or not Chinese manufacturers are benefitting from subsidies. If they are, then that would be the basis for tariffs and/or countervailing duties. The ITC findings with regard to subsidies will, no doubt, be the subject of a future article.