By Andrew Tangel
The humble washing machine is becoming a new trade battleground
between Washington and its international partners.
After years of dominating the U.S. market, Whirlpool Corp. is
struggling to hold off stiff competition from South Korea's Samsung
Electronics Co. and LG Electronics Inc., which have made inroads
with American consumers with their sleek designs and pleasant
chimes.
Whirlpool, of Benton Harbor, Mich., has won a series of
conventional regulatory skirmishes by arguing its rivals are using
anti-market practices to gain an edge, such as selling their
appliances for less than the cost of producing them.
Now it's asking Washington to rescue it with one of the most
potent -- and controversial -- weapons in its arsenal. The
long-dormant protectionist measure doesn't require a U.S. industry
to show that foreign competitors are cheating -- only that it has
suffered "serious injury" from imports.
The decision over the 1970s-era provision, known as the
"safeguard" law, is in the hands of the U.S. International Trade
Commission, an independent, bipartisan federal agency, which is
expected to rule Thursday on whether to recommend action by
President Donald Trump. The ITC last month approved a separate
petition for relief by U.S. solar-panel makers, and the Trump
administration is awaiting specific remedy proposals from the body
before making a final decision.
"If we had a level playing field, we would sell more, we would
hire -- we believe -- at least 1,300 people," Whirlpool Chairman
Jeff Fettig said in an interview.
The Trump administration has vowed to take a fresh look at a
wide range of protectionist powers in pursuit of its "America
First" trade agenda. Trump aides have in recent months considered
dusting off other trade-law provisions to pressure China over
intellectual property, and to protect U.S. steel and aluminum
makers.
This marks a break with previous administrations from both
parties, which played down unilateral actions in deference to
global arbiters such as the World Trade Organization. Remedies
under the safeguard law were last invoked by George W. Bush to
protect the U.S. steel industry, in 2002. The administration soon
removed the steel tariffs after the WTO deemed them improper, and
industries had, until now, been discouraged from pursuing such
protection.
The Whirlpool case is a microcosm of the debate over
international trade. Free-trade skeptics say existing policies
aimed at protecting domestic manufacturers and jobs are ineffective
because conventional measures to punish foreign competitors for
unfair trade practices are too easy to evade.
Proponents note the benefits to consumers of robust
international competition, including falling prices. And
protectionist measures that protect American companies may not help
all American workers. Both Samsung and LG, following the example of
many foreign auto makers, have recently launched plans to build
factories on U.S. soil and hire locally.
The South Korean conglomerates blame Whirlpool for failing to
keep up with American tastes.
"Consumer preferences shifted to design and style. Whirlpool
didn't keep pace," John Herrington, a Samsung senior vice
president, told a September ITC hearing. "How and where consumers
shopped for appliances changed. Whirlpool didn't adjust."
Whirlpool attorney Jack Levy dismissed the claim as a "tired
argument," adding: "Whirlpool has made tremendous innovations in
its washer lineup over the years."
Whirlpool produces washing machines for the U.S. market at a
sprawling factory in the northern Ohio city of Clyde, between
Toledo and Cleveland. The plant's workforce of more than 3,000
employees cranks out some 20,000 washers a day.
Employees there have fretted over their own future and dimming
prospects for getting relatives hired there because of shelved
plans to make new products, said Paula Cosiano, an operations
manager at the Clyde plant.
"They talk about it all the time," said Ms. Cosiano, who started
her career as an assembly-line worker at another Whirlpool plant in
Ohio. "They know that if we are not able to play on a level playing
field that could mean serious harm for them and their
families."
Whirlpool has long enjoyed a major chunk of the U.S. appliance
market, though in the past competition came more from domestic
rivals including General Electric Co.
Whirlpool shored up its dominance of the U.S. appliance market
in 2006 with its $1.7 billion acquisition of rival Maytag Corp.
U.S. antitrust regulators probed whether to block the deal over
concerns the combined appliance giant would stifle competition. In
the end the Bush administration's Justice Department let the deal
go through, concluding it would ultimately benefit consumers. It
also noted fresh competition from the likes of LG and Samsung,
relative newcomers into the U.S. appliance market at the time.
The South Korean companies entered the U.S. market with washers
of different colors and designs, chimes instead of buzzers when a
load of laundry was finished, and energy-saving features. Samsung's
innovations, for example, have included a little drawer to add
clothes after the machine started washing.
In the first quarter of 2007, Samsung only had a tiny foothold
in the U.S. with 1% of the dollars spent on retail sales of washing
machines, according to TraQline data from the Stevenson Co.
research firm, while LG had 10%. Whirlpool's brands had a combined
37% share of the U.S. market.
Four years later, Samsung and LG were making inroads with
washers produced in South Korea and Mexico. Whirlpool cried foul,
accusing Samsung and LG of "dumping" their washers onto the U.S.
market, or selling them to wholesalers below what they cost to
produce. The prices would affect how much retailers pay for the
washers, but not directly what consumers pay. Whirlpool claimed
this practice has edged it out of prime retail floor space
retailers give to higher-margin products.
In 2012, Whirlpool successfully persuaded the U.S. Commerce
Department to impose duties on imported washers made in South Korea
and Mexico. The regulators found that Samsung and LG sold below
costs.
The victory was short-lived. Samsung and LG shifted production
to China, rendering the just-imposed tariffs moot, since
enforcement under the 1930s-era U.S. "anti-dumping" law is
generally country-specific.
Samsung and LG's share of the U.S. market continued to grow,
thanks to a mix of innovation and, at times, aggressive pricing,
according to David MacGregor, senior analyst at Longbow Research
near Cleveland. "It's not rocket science but clearly someone's
thinking outside the box," he said. For consumers who saw the new
offerings at Best Buy and other big-box retailers, "there was a wow
factor," Mr. MacGregor added.
By the start of 2012, Whirlpool and its brands commanded 41% of
the U.S. market. Its South Korean rivals were catching up, with a
combined share of 19% of retail sales, according to TraQline.
Three years later, Whirlpool again complained that Samsung and
LG were engaging in unfair trade to gain market share with their
washers now coming from China. Whirlpool went back to the U.S.
Commerce Department.
At a hearing in Washington, D.C. last year, Mr. Fettig of
Whirlpool told regulators that underselling by Samsung and LG meant
his company had to delay adding to the workforce at its Clyde
plant, eat operating losses in its washer segment and put off
investing in new washer types.
"I believe this situation is unsustainable for U.S.
manufacturing," he told them.
As regulators mulled new tariffs, Samsung and LG shifted
production again -- this time to Vietnam and Thailand, where the
two companies already had factories.
Mr. Trump's election victory in November 2016 gave manufacturers
such as Whirlpool fresh hope for more aggressive protection.
Peter Navarro, an adviser to Mr. Trump on manufacturing and
trade policy, pointed to Whirlpool's dumping allegations against
Samsung and LG earlier this year as "precisely the kind of trade
cheating that must be stopped."
"This heartland of America icon is grappling with a practice
called country hopping, in which two of its South Korean
competitors, LG and Samsung, simply move their production to
another country each time Whirlpool wins an anti-dumping case
against them," Mr. Navarro said at a gathering of economists.
During a speech in September, U.S. Trade Representative Robert
Lighthizer suggested tough trade policy could compel foreign
manufacturers to invest more in the U.S. Mr. Lighthizer pointed to
cases of Japanese auto makers deciding to build their own factories
in the U.S.
Samsung and LG haven't officially been accused by Whirlpool or
trade regulators of dumping washers manufactured in Thailand and
Vietnam into the U.S. market, and the two companies have repeatedly
denied violating U.S. trade laws. Combined, they now command 35% of
the U.S. market, neck-and-neck with Whirlpool.
Both companies, meanwhile, announced plans this year to open
factories in the U.S.
LG is building its first-ever major U.S. factory, a $250 million
washing-machine plant near Clarksville, Tenn. The investment was
praised by U.S. Commerce Secretary Wilbur Ross, who joined local
officials shoveling dirt at a groundbreaking ceremony there.
"Foreign direct investment in America is a win both for the company
and our nation," Mr. Ross said at the event in August.
John Riddle, LG's senior vice president for U.S. home
appliances, warned in an interview that consumers would wind up
paying more if the U.S. imposes new duties on imported washing
machines. "It's fair to say the pricing would go up," he added. "We
would still certainly try to be competitive."
Samsung announced plans earlier this year to take over a former
Caterpillar Inc. plant in South Carolina, and estimated the project
could lead to nearly 1,000 new jobs by 2020. People familiar with
Samsung's case said the company wanted to move production closer to
the U.S. market but declined to the say whether the decision to
locate a factory here was related to the anti-dumping tariffs.
Samsung likened Whirlpool to American car companies seeking
government trade protection in the 1980s when consumers ultimately
wanted smaller, energy-efficient cars from Japanese auto
makers.
"Today we're all better off," Shara Aranoff, an attorney for
Samsung, told regulators at the trade commission hearing in
September. "American auto makers have become much more competitive,
foreign auto makers have established U.S. production creating
thousands of American jobs, and consumers have more and better
choices."
--Jacob M. Schlesinger in Washington contributed to this
article.
(END) Dow Jones Newswires
October 04, 2017 15:08 ET (19:08 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
Samsung Electronics (PK) (USOTC:SSNHZ)
Historical Stock Chart
From Mar 2024 to Apr 2024
Samsung Electronics (PK) (USOTC:SSNHZ)
Historical Stock Chart
From Apr 2023 to Apr 2024