Posted November. 23, 2017 07:28,
Updated November. 23, 2017 08:03
The U.S International Trade Commission (ITC) has called for safeguards on foreign-made washing machines. South Korea’s Samsung Electronics Co. and LG Electronics Inc. said it was “not the worst ruling,” but worried it would affect their future sales. This is the second case in a safeguard petition against Korean products, after photovoltaic cells and steel pipes. Accordingly, there is a growing concern among Korean companies whether this could signal the spread of protectionism to other items including steel, semiconductor and petrochemical products.
The U.S. trade body on Tuesday (local time) released a range of recommendations that include implementing the tariff rate quota (TRQ), which imposes tariffs up to 50 percent on imported large residential washing machines exceeding a quota of 1.2 million units for three years. A TRQ refers to a two-level tariff system, where a certain quantity of goods is allowed to be imported at a lower rate of duty, but once the tariff rate quota is met, all subsequent goods will be charged at a higher rate of duty.
The trade commissioners suggested the United States impose a 50 percent tariff in the first year of enforcement, and the rate would be lowered to 45 percent and then 40 percent in subsequent years. The recommendations would be applied to all large washing machines to be brought into the United States. However, only Samsung and LG would be much affected because they are importing washers on a large scale to the American market.
The two South Korean companies are exporting some 2.5 million units of washers a year to the United States mostly from manufacturing sites in Thailand and Vietnam. LG’s Korean plant located in Changwon produces about 20 percent of its exports, which will be excluded from the import tariff recommendations in accordance with the ROK-US free trade deal. When a final ruling is made by February next year, Samsung’s 720,000 units and LG’s 360,000 units will be subject to tariffs starting next year.
American appliance giant Whirlpool Corp. had demanded a 50 percent tariff rate on all imported washers while the Korean companies proposed a 50 percent tariff on washing machines exceeding a quota of 1.45 million. The ITC appears to have balanced the demands from the two sides.
Nevertheless, the Korean companies, which had enjoyed one percent tariff, would have no option but to raise prices due to the latest safeguards. Whirlpool has 38 percent of the market share of the U.S. large home washing machine, followed by Samsung with 16 percent and LG with 13 percent.
To minimize damage, the Korean companies decided to begin operating their washing machine factories in the United States as early as possible. The production at LG’s washer plant in Tennessee has been advanced to the second half of next year, from previously scheduled early 2019. Samsung plans to begin production at the manufacturing site in South Carolina in the first quarter of next year. The two are also looking into expanding their parts businesses to the United States.
The Korean Ministry of Trade, Industry and Energy held Wednesday an emergency meeting with the Ministry of Foreign Affairs and the electronics companies to come up with private-public joint counter measures, at the Korea Technology Center in Seoul. Before U.S. President Donald Trump makes a decision on the final recommendations, the Korean government will spare no effort to inform the relevant bodies of the potential negative impact to avoid a 20 percent tariff being imposed on the all goods below a quota.
The companies are arguing that a 20 percent tariff imposed on the units below quota will drive up the price by 10 to 15 percent, restricting U.S. consumers’ choices. They will also analyze any possible U.S. violations of WTO rules to file a petition against the U.S. safeguards with the World Trade Organization. President Trump has to decide whether to finalize or veto the decision within 60 days after reported on the commission’s recommendations on December 4.