Competitors Raise Stink Over Garlic AGRICULTURE: Top importer could lose tariff-free advantage. by Henry Meier The U.S. headquarters of Harmoni International Spice Inc., the nation’s largest importer of garlic from China, stands amid a row of inconspicuous beige warehouses on the outskirts of City of Industry. But that drab exterior belies the drama playing out in Los Angeles, Washington, D.C., and China as competitors seek to overturn Harmoni’s longstanding place as the lone Chinese garlic importer to be exempted from American anti-dumping import tariffs. If its coveted status is lost and Harmoni is forced to pay those duties, which could boost the cost of its imports by nearly 400 percent, the world of imported Chinese garlic could be thrown into disarray. Underpinning the dispute are loopholes in the regulations governing the U.S.’ controversial, decades-long attempt to prevent cheap Chinese goods from undercutting domestic producers and manufacturers. “The whole system certainly smells to high heaven,” said Bill Perry, a Seattle-based partner at Dorsey & Whitney who has spent four decades navigating international trade cases for clients on both sides of the Pacific. The system of so-called anti-dumping tariffs in the garlic industry is controlled by a small number of actors and, typically, is very stable. But a request to review Harmoni’s business threatens to upend the industry. The review process is intended to evaluate whether companies shipping garlic from China to the United States are selling it at below market rate or skirting tariff obligations. There are four importers, including Harmoni, that import garlic at tariff rates below the 376 percent cash deposit rate set by the U.S. government in 1994. That tariff effectively raises the price of garlic brought in from China by $4.71 a kilo, or a little more than $2 a pound, making it competitive with the cost of domestically grown garlic. Though it could not be determined exactly how much garlic Harmoni brings into the United States each year, the importer and its competitors agree the Harmoni holds the largest share of that market. That position is directly tied to its exempt status, according to legal documents filed by rivals. And that market advantage means big business for the company. Americans consume more than 250,000 metric tons of garlic a year, about three-quarters of which is produced domestically, mostly in California’s Central Valley, where the root vegetable has become a huge source of income. The domestic garlic crop brought in nearly $280 million dollars last year, most of it from four large California producers. Gilroy is the crop’s hub and home to industry heavyweight Christopher Ranch. But the city’s self-proclaimed title as the “Garlic Capital of the World” rings hollow lately. China, specifically the Henan and Shandong regions just south of Beijing, surpassed Gilroy and America’s total garlic production long ago. China is now by far the largest garlic grower in the world, producing about 20 million metric tons yearly and supplying the United States with almost a quarter of the garlic it consumes. That percentage would surely be higher but for the 1994 anti-dumping order. Harmoni’s reprieve from the tariffs imposed by the order was approved in 2002 after it requested a “new shipper review” from the U.S. Department of Commerce. At first, the rate was conditional and only applied to fresh garlic both produced by Harmoni’s Chinese subsidiary, Zhengzhou Harmoni Spice Co. Ltd., and shipped by the company. After two more administrative reviews, however, Harmoni earned the right to ship garlic produced by anyone in China at the 0 percent rate and, critically, did not have to submit to any further reviews to keep that rate – unless domestic producers or the company itself requested an accounting from the Commerce Department. The practical result is that Harmoni’s importation of Chinese garlic has not undergone any official government scrutiny since 2004. Chinese connection Over the last decade, Harmoni’s absence from yearly Department of Commerce reviews has been facilitated by an unlikely ally. The Fresh Garlic Producers Association is a trade group that represents the four largest U.S. garlic companies, including Christopher Ranch. It has used a quirk in the system to effectively prevent Harmoni from being included in the review process. While this seems counterintuitive – why would domestic companies help a Chinese competitor duck tariffs? – Christopher Ranch and other California producers actually buy and then resell Harmoni’s garlic. “We have customers that specifically request Chinese garlic, and we purchase it from Harmoni and then sell it in their packaging,” Bill Christopher, the second-generation proprietor of the Christopher Ranch garlic business, said in an interview. Christopher said his company has a solid business relationship with Harmoni and that, according to his knowledge, the company always follows import regulations. While legal opponents claim a review of Harmoni would show it is bringing underpriced garlic, Christopher disagreed. He said that if the company were reviewed, its duty rates would remain low and, due to Commerce Department regulations, would be incorporated into the yearly rates set for new Chinese shippers. This would enable the very same group of Harmoni competitors to skirt millions in upfront duties and flood the market with cheap product. “If they include Harmoni in the review process, other Chinese shippers who don’t follow the rules will benefit from Harmoni’s good behavior,” Christopher said. “It would upset the garlic market tremendously.” Gangs of Shandong In filings made last month intended to prevent a review of Harmoni by the Commerce Department, lawyers for the FGPA and the company redacted the names of individuals, entities, and sometimes entire pages of documents because disclosure “would place the declarants and their families at personal risk, from both an economic standpoint as well as their physical safety.” The alleged danger comes from what is called the Chinese Garlic Association, which, according to court documents, consists of other Chinese garlic import companies. Robert Theodore (Ted) Hume, the group’s El Prado, N.M., attorney, is portrayed as the mastermind behind a vast conspiracy to undermine Harmoni and flood the U.S. market with Chinese garlic from companies under the control of three Chinese businessmen and their allies. Court documents filed by Harmoni allege the plot began in November 2014, when Hume initially requested a review of the company on behalf of Stanley Crawford, a New Mexico garlic producer who operates a small farm. This review was scheduled to go forward until it was suddenly withdrawn in March of last year, weeks before the Commerce Department was scheduled to rule on Harmoni’s inclusion. Court documents describe the review request and subsequent withdrawal as an attempt to coerce Harmoni to import garlic produced by the Chinese Garlic Association. Other allegations leveled against the Chinese garlic group include claims it attempted to extort $32 million from Harmoni and Christopher Ranch and that forged documents from China were submitted to the Department of Commerce by Hume as part of his attempt to initiate a review of Harmoni. Harmoni and its affiliates are run by three brothers, including Frank Zhou, the U.S.-based chief executive, and Rick Zhou, who is listed on the company’s incorporation papers.
Home Free Trial Preview
