August 2004

U.S. Copper Industry Battles Corruption and Subsidies in China

Washington— The U.S. copper industry must compete with business conduct in China that is rife with smuggling, bribes and illegal subsidies, according to a white paper published by the trade group representing American manufacturers of copper industrial products.

"The policies and practices of the Chinese government have had a destructive impact on world trade, and particularly on the U.S. copper industry," said Joseph L. Mayer, president and general counsel of Copper and Brass Fabricators Council, Inc. (CBFC). "Chinese government ownership and control, preferential tax treatment, customs fraud, disregard for the global copper market, and currency manipulation are a lethal combination and have unfairly increased the cost of doing business for those of us who practice integrity in such matters."

CBFC contends that the internal production of copper ore is completely inadequate to meet China's voracious metals needs, forcing it to import large amounts of copper scrap, copper concentrates, and copper cathode. Explained Mayer, "As China has taken an increasing proportion of U.S. copper scrap, supply shortages and large price increases have ensued. CBFC, along with the Non-Ferrous Founders Society, recently were forced to petition the U.S. government to temporarily monitor and restrict U.S. exports of copper scrap to bring back some normalcy to the supply and demand mechanics. The government ruling on the petition is expected shortly."

Chinese policies that encourage the development of its copper industry to the detriment of the world market place are grouped under five headings in the white paper entitled Smuggling, Bribes, and Subsidies: The Copper Industry in China.

The headings are:

1) Ownership and control of China's copper industry by provincial and city governments has protected the industry from market forces and bestowed direct and indirect subsidies.
2) Preferential refunds of value added taxes paid on imported raw materials have acted to lower costs to the Chinese industry.
3) Various forms of misclassification and customs fraud are understood to be taking place at Chinese ports of entry, allowing copper products to obtain raw materials at artificially reduced costs.
4) The Shanghai Metal Exchange has been maintained as an exclusive entity handling future agreements and trading of non-ferrous metals within China and appears to act as a means of encouraging China value-added in copper processing and production, independent of the dictates of the global copper market.
5) The pegging of the Chinese currency to an artificially low rate of exchange with the U.S. dollar has acted to increase Chinese exports of finished products produced from copper and copper alloys and has allowed China to build up massive reserves of U.S. dollars, which are in turn used to pay top dollar for raw materials, notably copper scrap, in the U.S. market.

Concluded Mayer, "More than ever before, the globalization of business mandates ethical business practices and respect for the rule of law. The U.S. copper industry plays by the rules and we expect the same of our trading partners."

The Copper and Brass Fabricators Council, Inc., in Washington, D.C., represents U.S. manufacturers of a wide variety of products fabricated from copper and copper-alloys. The industry as a whole is referred to as the "brass mill industry."