The United States government has implemented policies to support US manufacturers, including something called the Berry Amendment. While this amendment of the Buy American Act requires the Department of Defense to buy certain goods from US manufacturers, there is a major loophole: if the DoD outsources work to defense contractors, they don’t have to comply in certain circumstances. We felt the impact of this first hand when we started losing business from our long-standing customer, the US Navy, and its contractors started purchasing amorphous silica fabrics (ASF) from Chinese competitors.
The Chinese government provides its manufacturers with huge subsidies to make fabrics at artificially low costs when they export to the US. Those practices came close to putting us out of business. You can learn more about the effort we mounted to combat Chinese dumping in this blog post. But our work is not complete. We need to urge the US government to truly support “Buy American” by requiring defense contractors to comply with the Berry Amendment.
Following is the testimony I presented last week at a hearing at the Department of Commerce on the Buy American Act. This issue has huge importance for our company, but the larger issue at stake is the impact on US trade deficits and the US manufacturing industry. This IndustryWeek story highlights some of the trade issues our country faces.
At AMI, we believe that our government must support our country’s manufacturers by enforcing the Berry Amendment for all government-related purchases. If we fail to follow through, then countries like China will beat us on our own turf.
Testimony of Kathie Leonard, President and CEO, Auburn Manufacturing, Inc.
My name is Kathie Leonard. I am the President, CEO, and founder of Auburn Manufacturing, Inc., a leading developer, manufacturer, and marketer of industrial textile products. AMI is headquartered in Maine, with facilities in Mechanic Falls and Auburn. AMI is the largest U.S. producer of industrial grade amorphous silica fabric (“ASF”), a type of synthetic fabric used during welding or other hot work activities. One of the major uses of ASF is for welding protection during shipbuilding, maintenance and repair of naval ships performed either by the Navy or by defense contractors that have been awarded contracts by the Navy. Although AMI sells ASF directly for use by the Navy, a significant portion of its sales have shifted away from the Navy to defense contractors.
For years, AMI had been losing significant sales to Chinese imports of ASF. Ultimately, in January 2016, AMI was compelled to file antidumping countervailing duty petitions against ASF imports from China. These investigations concluded in March 2017, with a finding that combined dumping and subsidy levels of between 200% and 300% materially injured the U.S. industry. AMI believes that one of the major causes of trade deficits with China is the injurious dumping by Chinese companies and the subsidy practices of the Chinese government. Nevertheless, other unfair trade practices by China also cause imbalanced trade.
AMI has been fighting for years to ensure that the Berry Amendment and the Buy American Act are enforced properly with regard to acquisitions funded by the Department of Defense. The Berry Amendment requires that funds appropriated to the Department of Defense for procurement of “synthetic fabric or coated synthetic fabric,” among other items, shall be used only for procurement of such items produced in the United States. AMI has experienced no issues when the Navy purchases synthetic fabric for the repair, maintenance and building of naval ships.
However, when the Navy outsources the same work to defense contractors, the Navy takes the position that defense contractors do not need to comply with the Berry Amendment (or Buy American) requirements unless the synthetic fabric is being incorporated into a ship or being delivered to the Navy as an end product. That’s right, even though tax dollars are being appropriated by DOD for the repair and maintenance of a naval ship, according to the Navy, defense contractors can purchase Chinese synthetic fabric. And that is what we believe has been going on in the market place for many years. To me, this is an absolutely absurd interpretation by the Navy. Obviously, when the Navy allows defense contractors to thwart the goals of the Berry Amendment, only China wins. This in turns creates trade imbalances. In addition, it is going to drive smaller companies like mine out of business causing further decimation of the U.S. defense industrial base.
The Administration recently issued an Executive Order regarding on Buy American Laws, including the Berry Amendment. The mandate of the Executive Order is for all agencies, including DOD, to maximize the use of products and materials produced in the United States. Given this mandate, AMI urges the Administration to require defense contractors to comply with the Berry Amendment and Buy American domestic preference requirements for any project funded by DOD that includes an item of synthetic fabric that is used in the repair, maintenance and building of naval ships, regardless of whether it is incorporated into the ship.
Country of Origin Marking and Transshipment
Finally, two other quick comments concerning trade practices that result in increased deficits from China. In the industrial fabric business, we see all the time that Chinese goods are not properly marked with the country of origin. During the hearing before the U.S. International Trade Commission in the AD/CVD case, our major competitor that purchases Chinese synthetic fabric testified that it does not tell customers the country of origin unless they ask. The ITC confirmed that importers of Chinese products fail to comply with the Customs marking requirements.
In addition, in our comments we gave an example of a very blatant attempt to transship ASF fabric. Obviously, illegal schemes to change the country of origin need to be shut down. In fact, illegal transshipment of Chinese-origin merchandise results in an understatement of the true bilateral trade deficit with China. Finally, now that the AD/CVD Orders are in place against China, we are worried that these same importers will simply switch to other countries, such as Belarus and Latvia. Historically, imports from these countries compete with imports from China. Thus, we encourage the Administration to self-initiate AD/CVD investigations if it sees that imports from these countries are replacing the unfairly-traded ASF imports from China.
Thank you for the opportunity to provide comments on these important topics.
Summary Testimony of Kathie Leonard, President and CEO, Auburn Manufacturing, Inc.
Auburn Manufacturing, Inc. filed an antidumping duty (“AD”) and countervailing duty petition on imports from China of amorphous silica fabric (“ASF”). The Department of Commerce recently issued AD and CVD orders, with resulting combined margins between 200% and 300%. These unfair trade practices cause trade imbalances with China. In addition, the U.S. government itself allows defense contractors to purchase Chinese goods used in shipbuilding, repair and maintenance contrary to the domestic preference requirements of the Berry Amendment. Based on the mandates of the recent executive order, the Administration should mandate that defense contractors comply with the Berry Amendment. The failure to comply with the Berry Amendment causes trade deficits by increasing imports used in the defense sector. Another cause of trade deficits is the failure of Chinese companies and importers to properly mark the country of origin of imported products. In the AD/CVD case, the ITC found this problem to be persistent. Finally, transshipment schemes involving Chinese companies are rampant. These illegal transshipment schemes results in an understatement of the true bilateral trade deficit with China.