Deja vu rides a 10-speed

Insight on the News, March 25, 1996 by David Sands, Bill Gertz

There are only half as many wheels at stake, but a controversial unfair-trade complaint -- pitting the three biggest bicycle manufacturers in the United States against their emerging rivals in China -- contains striking parallels to U.S. automakers' recent tangles with Japan.

"In our view, China is by far the greatest threat the bicycle industry here has ever faced," says Michael Kershow, an attorney for the Bicycle Manufacturers Association of America, or BMAA, the trade group for Huffy Bicycle Corp. and Murray Ohio Manufacturing Co., both based in Ohio, and Roadmaster Corp. in Colorado. The Big Three account for 95 percent of the bikes made in this country.

The Big Three's argument, contained in filings with the Commerce Department and International Trade Commission, or ITC, is simple: Chinese producers have taken market share by selling their bikes below cost -- "dumping," in trade parlance. Using some fancy calculations and enlisting Indonesia as a rough proxy for the state-controlled Chinese economy, U.S. companies have sought antidumping duties as high as 98 percent -- easily enough to drive Chinese producers out of the mass-merchandiser market. Since the complaint was field last April, however, import surges have continued to devastate the profits of the Big Three, says Kershow. "Unfortunately, we will have no problem demonstrating the extent of the injury to our producers when we provide updated numbers."

But Chinese bike manufacturers and their American allies tell a different story, ridiculing the Big Three's numbers and saying the real culprit is cutthroat price competition among the U.S. companies, led by Roadmaster. "This case is an effort by the three petitioners to have the federal government implement an industrial policy whereby import competition would be excluded, or severely attenuated, in the mass-market sector," according to a brief filed by Shun Lu, a Chinese bike maker.

James Pollock, bicycle buyer for Toys R Us, the largest seller of bikes in the United States, also pointed the finger at Roadmaster during an ITC hearing last year, claiming that the company initiated a fierce round of price-cutting in 1994 in a bid to boost its market share. Roadmaster wanted to "transform itself with attractive, competitively priced products which Huffy and Murray could not match," he said.

The bike battle illustrates how international trade disputes can scramble national loyalties. Toys R Us and some 6,500 bike shops composing the Coalition for Fair Bicycle Trade have allied themselves with the Chinese manufacturers against the Big Three.

"This case represents the latest in a long series of efforts by the BMAA to use the trade laws as a marketing tool to stifle competition," the coalition charged in a filing with the ITC.

"If the government grants the tariffs the U.S. companies want, you're talking about cutting off China as a source of a lot of these bikes," says Brock Landry, an attorney for the coalition. "No question that means higher prices for the consumer."

The Commerce Department, traditionally friendly to the pleas of U.S. companies for import relief, dealt American bike markets an unexpected setback in September. After studying internal production figures of nine major Chinese bike exporters, the department recommended against antidumping tariffs for seven of the nine and only small duties for the other two. But Commerce did recommend antidumping duties of 61.67 percent for all other Chinese bicycle exporters it did not examine in detail -- some 150 companies that include large producers. Both the ITC and Commerce are scheduled to hear more arguments in late April.

The case is coming to a head at a time of rising economic and diplomatic tension between the United States and China. A clash about the future of Taiwan and a simmering dispute concerning alleged Chinese piracy of U.S. copyrights, patents and software top a long list of grievances between the two countries. (See sidebar.)

In addition, the European Union, Canada and Mexico have moved to protect their domestic markets by imposing heavy new tariffs on Chinese bike imports. With Japan's bicycle market also closely controlled, the 16 million-unit U.S. market is the last major industrial-country outlet for Chinese bikes.

There are domestic political undercurrents, too. Rep. Glenn Poshard, an Illinois Democrat, let the ITC know in a letter last May that several hundred Roadmaster employees in his southern Illinois district "rely heavily on the principles of fair, balanced trade to provide them job stability and security."

Ironically, the trade dispute involves a product that was supposed to be an American business success story. U.S. designers invented the wildly popular mountain bike, and companies such as Cannondale and Trek began turning out state-of-the-art models that helped U.S. bike exports soar from $13 million in 1987 to $225 million in 1994, according to the Commerce Department. Premium bikes boasting alloy frames, sophisticated gear shifts and high-tech shock absorbers can sell for $1,000 or more.