Trade: Made In America?
Zenith Electronics Corp. claims to be the only American-owned company that manufactures color TVs in the United States. In 1985 it began assembling TVs in Mexico. During the next eight years, it moved almost all of its TV-assembly operations there. But it continued to maintain a minor assembly plant in Springfield, Missouri. A worker recently laid off by the plant says managers told employees there that "Zenith will always maintain one assembly line at the plant so Zenith can claim to be an 'American manufacturer of color TVs.'"
This is not simply a matter of advertising slogans or patriotic fervor. Because of U.S. anti-dumping laws, there are definite advantages to keeping that assembly line going. Under anti-dumping laws, a U.S. manufacturer can ask the Commerce Department to fine its foreign competitors for selling goods to Americans at a price that's too low.
The idea is to stop foreigners from establishing an unbreakable monopoly by driving American producers out of the market through predatory underselling. Since there is no historical or theoretical reason to think this is likely to happen, the main effect of the laws is to make a range of products, from forklifts to pistachio nuts, more expensive. This is bad for consumers but good for companies like Zenith. The catch is, you can't file an anti-dumping complaint unless you're an American producer.
Zenith has been bringing anti-dumping complaints against its foreign competitors for decades. Japanese TV manufacturers have been coping with anti-dumping orders since 1971. Zenith's Korean and Taiwanese competitors have been operating under them since 1984.
After the Commerce Department receives a complaint, it has to decide whether dumping has occurred. This involves looking at prices in the company's home market or calculating a "constructed value" for the foreign-manufactured item—essentially, a price high enough to be considered "fair." Commerce estimates the foreign company's cost of production, adds 10 percent for administrative overhead, and throws in another 8 percent, the department's notion of a "fair" profit. If the selling price in the United States falls below the constructed value, the company has to pay extra import duties. Commerce adjusts the amount in an annual administrative review.
These reviews and the court appeals they generate can drag on for years or even decades. Because of undecided court appeals, none of the Taiwanese TV companies—AOC International, Tatung Company, Sampo Corp., Proton Electronic Industrial Co., and others—know what they will eventually owe for any year from 1984 to now. Attempting to do business under an anti-dumping order is fraught with uncertainty.
William J. Clinton (no relation to Hillary's husband), a Washington attorney who represents Taiwanese TV makers, says that since 1984 the Taiwanese presence in the American market has practically disappeared. Tatung is selling fewer than 20,000 TVs a year; Proton, only a couple of thousand; and AOC and Sampo have withdrawn from the market entirely—which does not absolve them from their responsibility to pay fines based on their alleged past attempts to run Zenith out of business.
Television Digest, a newsletter of the TV industry, reports that these Taiwanese companies have commanded less than 0.3 percent of the American market since 1986, while Zenith has hovered between 10.3 percent and 15.75 percent during the same period. Yet Zenith lawyer Frederick L. Ikenson asserted in a June 1992 letter to the Commerce Department that "it is well-known that, for years, Zenith has been struggling for survival against an onslaught of aggressively and unfairly priced (dumped) imports of color television receivers from Pacific Rim countries, including Taiwan."
Zenith has been able to punish its competitors through anti-dumping laws based on the premise that it's an American producer. But in a marketplace of global corporations, what exactly is "an American producer"? Zenith is involved in a variety of TV-set–related activities at its 20 U.S. facilities, including service, sales, distribution, design, and engineering. But do these activities entitle Zenith to file dumping complaints?
Commerce weighs six factors in defining a U.S. producer: 1) the value added by the company in its U.S. operations; 2) the technical expertise required by these operations; 3) the number of American employees involved; 4) the extent of the company's capital investment in the United States; 5) the quantity and types of parts from the United States; and 6) miscellaneous other costs and activities contributing to production. There are no hard-and-fast rules associated with these criteria; they are merely the questions that Commerce tries to address in making its judgment.
The Commerce Department has received affidavits from recent and current employees of Zenith's Springfield factory that cast doubt on the company's standing as an American TV producer. When the affidavits were filed, Zenith had one assembly line running in Springfield. John Peine, former president of the union that represented workers there, describes it as a "half line," since it rarely ran 40 hours a week and was completely dependent on parts from Mexico. According to one worker on this assembly line, the week of January 18, 1993, was the first 40-hour week on the line since July 1992; more typical was the week of January 11, when the line operated for only eight hours.
One ex-employee testifies that "at the time I began working at the Springfield plant [in 1973], I considered the operations to constitute color TV production. By the time I was laid off in 1992, Zenith did not produce color TVs in the United States. Zenith was an American-owned company and that was the only thing American about it….at most Zenith was an assembler of color TVs. For example, the Springfield plant assembled 'Mexi-kits' produced in Mexico. A 'Mexi-kit' consisted of a virtually complete color TV; the only assembly missing was the cathode ray tube (CRT). At the Springfield plant, we simply screwed the CRT into the cabinet and plugged in a few wires connecting the CRT to the printed circuit board….only six to 12 people were needed to operate the assembly line." Peine says the line in Springfield often stopped dead for lack of shipments from Mexico.
Other Zenith workers and ex-workers confirm that in Springfield they merely engaged in simple screwdriver operations, attaching CRTs and chassis assemblies to cabinets, connecting speaker wires, and attaching yokes, beam benders, labels, and cabinet backs to the chassis assembly. These actions do not appear to require significant technical skill or expertise. As one assembly-line worker laid off in 1992 says in an affidavit, "all operations performed on the assembly line in the U.S. are very simple in nature, such as screwing, bolting, and connecting wires." This same worker says that the average assembly-line worker's wage was $7.50 an hour. (Workers also claim that many of these TVs are marked "Made in the USA," which the Taiwanese companies say violates Federal Trade Commission and U.S. Customs regulations on country-of-origin labeling.)
Based on this testimony, the lawyers representing the Taiwanese TV companies calculated that the value added to the TVs in Springfield amounted to only $7.80. The Taiwanese companies have twice filed claims asking Commerce to reclassify Zenith or at least to investigate the company's status as a domestic producer. Commerce denied these requests, first in June 1992 because it claimed no prima-facie case had been made, then in February 1993 based on a narrow procedural point.
Clinton, the lawyer representing the Taiwanese companies, complains that it was hard to meet Commerce's burden of proof. In particular, it was difficult to find Zenith workers and ex-workers who were willing to talk. "Commerce has not conducted any independent fact finding in this investigation," Clinton says. "They are absolutely incurious about the whole thing." In February, the Taiwanese companies requested a "changed circumstances review," in effect asking Commerce to remove the anti-dumping order because Zenith, given the nature of its activities in Springfield, can no longer be considered a domestic producer of TVs. In April, Commerce rejected this request as well.
Zenith, of course, denies its competitors' claims. John Borst, vice president and general counsel of Zenith, said in an affidavit on June 15, 1992, that the line in Springfield would continue to produce 4,000 to 6,000 TVs a month and employ about 500 people. Zenith attorney Frederick Ikenson says Zenith produced an average of 4,700 TVs a month in Springfield from June to December 1992.
If the line were operating a full 40 hours a week—which, according to the testimony of employees, it was not—this would mean producing an entire TV approximately every two minutes. This isn't as hard as it sounds when "production" consists of the simple operations described above. But if the Springfield workers were assembling TVs from scratch, the task would be almost superhuman.
Union officials say the Springfield operation did indeed employ about 500 people, but only 25 were working on the assembly line. The rest were involved in distribution, general administration, and janitorial work. The quality-control line, which requires more technical expertise than the assembly line, was reduced by 66 percent between August 1992 and January 1993.
Defending its status as a domestic TV producer, Zenith notes that it produces CRTs in Illinois that are then combined with other elements. While CRTs represent from one-third to one-half of a finished TV's value, the Commerce Department considers CRT production a distinct industry. Zenith is certainly a U.S. producer of TV components, but whether it is a U.S. producer of TVs is a different question. Zenith clearly understands the difference: In 1986 it filed a separate antidumping claim against CRTs from Japan, Korea, Canada, and Singapore.
Nevertheless, Zenith contends that if all the various TV-related functions it performs in this country were done under one roof, it would be clear that Zenith should be considered a domestic producer. In Ikenson's response to the Taiwanese claims of January 28, 1993, he includes printed circuit boards among the items Zenith makes in the United States. But a current Zenith employee states in an affidavit that "the printed circuit boards, chassis assemblies, and finished cabinets are all produced in Mexico and shipped to the Springfield plant. None of the printed circuit boards are made in the United States."
Zenith's competitors are not likely to prevail in their attempt to remove the company's privileged status. Zenith Chairman Jerry Pearlman is known to hang around at the Commerce Department to make his case personally. An attorney who used to be involved in anti-dumping cases observes: "In these cases, white skin usually trumps yellow skin."
Meanwhile, in May Zenith moved the last remnants of the assembly line in Springfield to one of its distribution warehouses in McAllen, Texas—about 10 miles from the Mexican border.
Brian Doherty is assistant editor of Regulation magazine.