China drops DDGS anti-dumping case

By Holly Jessen | June 22, 2012

Eighteen months after it was initiated, the anti-dumping investigation against U.S. dried distillers grains with solubles (DDGS) exports to China has been terminated. “This was an exceptional example of how competitors can come together to do what is correct,” said U.S. Grains Council President and CEO Thomas Dorr during a conference call June 22.

China’s Ministry of Commerce announced that the case was terminated after the three Chinese ethanol plants that initiated the case withdrew their petition on May 10. The Chinese companies were identified as AnHui Ethanol Co. Ltd., Jilin Fuel Alcohol Co. Ltd. and Meihekou Fukang Alcohol Co. Ltd. The termination signals the case is closed, said Mark McConnell, partner with Hogan Lovells U.S. LLP, who served as an attorney for USGC and the ethanol industry. “From a legal perspective we’re essentially in the position we were before the anti-dumping investigation was filed in the first place,” he added. “The bottom line here is the investigation has come to a close without the imposition of duties.”

China skyrocketed to the No. 1 U.S. distillers grains export spot in 2010, importing 2.5 million metric tons of U.S. DDGS, or 28 percent of total DDGS exports. Announcement of the anti-dumping investigation at the end of 2010 slowed exports to China by 15 percent in 2011 due to the risk of imposition of high import tariffs. However, export numbers for the first four months of 2012 (the latest for which data is available) show a rebound in DDGS exports to China. “Those tonnages are up about 84 percent,” Dorr said. “They are actually are on track—if they would continue as they are—to exceed our record year of 2010. But again, markets are the drivers of these things in the long run and the product is actually now somewhat higher than corn, so it is hard to say.”

One thing is clear, however. China has the potential to be a significant market for DDGS, due to a combination of factors, including an emerging middle class raising the demand for more animal feeds and a large and growing industrial and domestic milling industry in China, Dorr said. DDGS exports rose because Chinese DDGS customers realized it was a competitively priced product that was in demand. Another positive factor was that increased tariffs or duties were never imposed. “We think that people were sensing that this may be the outcome,” he said, referring to the termination of the investigation.

Out of 80 facilities that initially registered with the USGC, the Chinese government selected Big River Resources LLC, United Wisconsin Grain Producers LLC and Golden Grain Energy LLC to investigate as a sample of the U.S. ethanol industry, Dorr said. Later on, the investigation was narrowed to Big River Resources and United Wisconsin. These plants provided extensive information about prices, cost and export prices, he said.

The legal defense to the anti-dumping case had two central points, McConnell said. The first one was that imports of U.S. DDGS were not injuring Chinese production of the product. “The principal argument that was made there was that we weren’t really taking sales away from them, what we were really doing was growing the market,” he said.

The second argument was that importing the product was in the public interest, a facet of Chinese law. “Both we and many customers in China participated in the investigation, making that point, that given the growth of food demand in China, given high commodities prices, that it was not in China’s public interest to put a restriction on a valuable livestock feed ingredient,” he said. The argument was that even if injury to Chinese DDGS producers was found, it was in the public interest not to impose duties or to impose lower duties.

USGC had a lot of industry support in answering the anti-dumping case, Dorr said. Out of the large number of people that he said deserved recognition for their work on the case he specifically named several USGC staff members and Ray Defenbaugh, president and CEO of Big River Resources, who he said was heavily involved in tackling the issue head on.