by Macy, Beth
But the Byrd money collection pipeline was nearing its end. In 2006, back when few economists were calculating the costs of trade in human terms, Congress killed the Byrd Amendment due to mounting political pressure from several U.S. industries, the GAO, and the WTO, which found that the Byrd Amendment violated its rules. The Byrd Amendment was “WTO-incompatible” and “therefore must go,” said Pascal Lamy, the European Union trade commissioner, who argued that importers were being punished twice by handing over the duties to American firms making the competing products.
With the repeal of the amendment, Chinese factories found to be dumping would still have to pay duties, but eventually those duties would stop going to the injured domestic producers and would be funneled directly into the U.S. Treasury instead.
How soon the repeal would actually take effect was still a matter of intense negotiation, and, as usual, JBIII wanted a say in the matter. He met with top aides to Speaker of the House Dennis Hastert and Senate majority leader Bill Frist.
In the spring of 2007, John Bassett was tasked with speaking on behalf of the industries that had filed successful antidumping petitions. Of all the CEOs representing industries from shrimp to ball bearings to magnesium and cement, the group members had chosen the persistent, slow-drawling furniture maker from Galax to plead their case.
U.S. trade representative Rob Portman was in Geneva at the time, so his assistant led the meeting, detailing—for a solid forty minutes—the concerns of each country that had opposed the Byrd Amendment and how most wanted it repealed, pronto. Especially China. (During Portman’s thirteen-month tenure as trade rep, America’s trade deficit to China rose by almost $228 billion.)
JBIII had a page full of notes on his legal pad, and he had been practicing his remarks in the shower for days. But by the time he was given the floor, there was just ten minutes left.
An astute observer looking down on the scene would have noticed the red creeping into John Bassett’s face. That person would have noted the eye rolls, the nervous up-and-down bouncing of the heel and the knee, the pocket change clinking against the silver money clip, the frequent checks of the pocket watch—a gift from his wife, engraved with a favorite line from his favorite movie, Casablanca: The fundamental things apply.
John Bassett had some fundamental things he wanted to say now, and he was furious that his time was nearly up.
He picked up his legal pad, turned it over, and slammed it on the table. Then he asked the audience members to turn around and look behind them—to the American seal displayed on the door. Joe Dorn looked as if he might faint.
“What country do you represent?” JBIII asked the lawyer from the trade representative’s office.
Um, the United States, he said.
The ass-chewing commenced: “We’ve been here forty-five minutes, and you haven’t mentioned our country once. Listen, you are not paid to look after these other countries; you’re paid to look after us.”
When the staffer objected, saying, “No one’s ever talked to me like this before,” JBIII cut him off.
“Well, somebody should have, sir. China has its own trade rep, and I’m quite sure that person is capable of looking after China. Yo’ job is to look after us.”
The two of them disappeared into a back office, and a compromise was shortly announced. The Byrd Amendment monies would be extended an additional nine months.
“It was a bunch of money, by the way,” JBIII said later of the Byrd money extension checks. “But we had to get smack in their face.”
Like so many Washington deals involving trade, the closed-door exchange was not reported in the media. Although manufacturing had taken the biggest hit in the history of the country, with five million jobs eliminated in a single decade, very few articles connected offshoring to the decline of the working class. Or to the number of people receiving food stamps—which had tripled between 2000 and 2012, easily topping the number of newly created jobs.
The principles espoused by Friedman and the free-trade cheerleaders always got top billing. None of which was news to Wyatt Bassett. After the 2012 company Christmas potluck, I asked him about the economists’ criticism of his family’s decade-long battle to keep its flagship factory going. Sitting at his spreadsheet-papered desk, Wyatt shrugged his shoulders and half smiled. “Everybody should just be an economist, I guess?” he said.
“If somebody wants to predatorily kill your industry and take market share, that’s fine as long as the consumer can get it a little cheaper? But what happens when they destroy your industry and then raise prices thirty percent once all your factories are gone?
“Our issue is, let’s separate the fair and legal competition from the cheaters; to us there’s a difference. Should the Chinese be allowed to devalue their currency?… And where does all this money come from to educate everyone?”
He threw his questions out rapid-fire, his mouth struggling to keep pace with his brain, which had clearly mulled over the academic arguments many times before, always defaulting to the same images: his crotchety dad striding through the factory in his New Balance tennis shoes (made in Massachusetts; he’d checked), complaining about too much machinery downtime, and asking Shirley Johnson (the hot-glue lady, they called her) about her grandkids. Real people, in other words.
Wyatt was cordial, though not exactly relaxed during our interviews—except when his wife called to tell him to pick up burgers on his way home, or when Sheila interrupted to ask which Nutcracker performance he wanted to attend. (Doug’s daughter was playing a mouse in the Winston-Salem holiday production.) His khakis were worn, with strings hanging from the hems, and cinched by a preppy, embroidered belt (pink, with blue whales).
When I asked the line workers about him, one woman told me he used to come across to the factory workers as being “stuck up.” She was near retirement and therefore had nothing to lose when she confronted him one day and said, “You act like you’re better than we are.”
Wyatt started laughing and told her he’d try harder to talk to people, which he did—though frankly, he seemed more at ease among the spreadsheets. (“Wyatt’s actually a hoot, if you can get him to relax,” his mother told me.) I watched him lead one management meeting in the fall of 2012 while his dad sat along the periphery, straining not to speak except when his opinion was sought. Wyatt was confident and firm, interrupting managers who didn’t have their facts lined up, at one point barking, “What else haven’t we done?”
He was more open than I thought he’d be about navigating the settlements, something neither John nor Dorn had divulged to media, both of them offering the standard “no comment” to trade publications and national business reporters. When I ventured that the process sounded almost like Moneyball with furniture, Wyatt brightened, as if I were finally, after all these months of interviews, speaking his language.
“I love Moneyball,” he said. “The book and the movie.”
Maybe Wyatt was Paul DePodesta, the money-crunching assistant GM and the man upon whom Jonah Hill’s character in the movie was based. In Michael Lewis’s bestselling book, Oakland Athletics’ general manager Billy Beane accomplishes a rare thing in Major League Baseball: He creates a killer team on a bargain budget. In the movie, computer spreadsheets designed by Hill’s character, a Yale economics graduate, become scouting tools, a statistical means of ferreting out the best players nobody’s ever heard of, on the cheap. On his way to a near miraculous winning season, Beane does things nobody else in the business would do, like moving a catcher to first base and ignoring his seasoned scouts in favor of advice from the upstart Yalie.
If furniture is the baseball in this story, Wyatt is the brains behind the dugout, spreadsheeting and conferring with his dad, or in the movie’s case, Billy Beane (played by Brad Pitt). JBIII is the general manager, the guy who would actually move a lumbering catcher to shortstop—or spend millions taking on China—if he thought it would keep his organization intact.
What father and son pull off isn’t
a game changer in the annals of global business, but to the home team back in Galax, it’s a grand slam.
The annual furniture playoffs known as the settlement payments begin in February, just as the Chinese factories turn their cost data into the Commerce Department. Dorn’s trade lawyers sift through the information, trying to figure out if the Chinese have accurately filled out the questionnaires or if they’re trying to game the system—choosing the cheapest plywood or mirror glass, for instance. (They’re less likely to appear as dumpers if they use, or claim to use, the lowest-priced raw materials.)
New information comes in throughout the months-long process, including the quantities of furniture shipped by Chinese factories, measured both in container loads and in dollars, the prior year. The King and Spalding lawyers calculate dollars per container load, then rank the companies on a list. Typically, the company with the least amount of dollars per container is dumping the worst.
But higher-end furniture must be adjusted for, as must the amount of furniture sold by the company the preceding year so the lawyers can scope out irregular pricing trends. Throughout the year, if a coalition member spots a piece of furniture in a store that seems uncommonly cheap—another Dalian dresser, say—the coalition lawyers make a note to look at that company’s figures when the next customs report comes out. “You have to keep your ear constantly to the ground,” Wyatt said.
Around the first of February, the phones at King and Spalding start ringing. This is the time when lawyers representing dozens of Chinese companies begin their settlement negotiations with the firm. According to Wyatt, if a company’s settlement offer is too high, it can backfire. “If a guy calls in and says, ‘I’m gonna pay you a half million to get off this thing,’ he obviously has something to hide,” and Wyatt and the lawyers confer again about whether that company should be on the administrative review list. Maybe that company gets moved to the top of the list—especially if its figures are markedly lower than the previous year’s. Maybe, as new offers trickle in, more evidence of large-scale dumping appears, and the list reshuffles again.
Some Chinese factories have been found to be funneling, or illegally shipping their furniture under the name of another, lower-duty factory or importer. “Say it’s a guy who’s shipped twenty million dollars the year before, then he shows up with one million, and you’re pretty confident he’s funneling,” Wyatt explained. “But you know he’s not going to end up as one of the two or three mandatory respondents” chosen for the Commerce Department audit, because there’s already strong evidence that at least that many companies are dumping worse. (Mandatory respondents are the two or three factories suspected of most egregiously dumping furniture into the American market.)
As Wyatt put it: If that guy offers him a settlement that would pay for, say, two months of legal fees—and Wyatt and Dorn already know his factory isn’t at the top of their list—why not accept his settlement offer, knowing that they’ll take a hard look at his numbers again next year? By which he means: Don’t let the perfect stand in the way of the good.
For four months, Dorn and the other attorneys reshuffle the spreadsheet as new offers and information stream into the firm. “You’ve got a half dozen lawyers representing sixty-some Chinese companies,” Wyatt said. “In addition to our list, other U.S. companies submit their own lists, and some Chinese companies have asked to be reviewed,” hoping to have their previous duties lowered.
“It’s like playing a board game,” Wyatt said, “and you’re moving the tiles. You’re trying to get this tile over here, and yet there are all these tiles in the middle” that need adjusting before you can make the desired move.
By the end of May, the firm of King and Spalding submits the winnowed-down list to the Commerce Department, which then sets out to review the mandatory respondents.
It’s Moneyball meets Connect 4 meets card-counting at the blackjack table, all of it played with millions of non-Monopoly dollars. And it’s perfectly legal. Dorn had checked first, of course, noting that out-of-court settlements had been common in prior cases involving the shrimp and cement industries, not to mention in 90 percent of American commercial litigation. “I think trade lawyers in general tend to be unimaginative and uncreative by not doing more settlements,” said Dorn.
While some Chinese furniture makers claimed the payments became a replacement income stream for coalition members after the Byrd money petered out, Wyatt insisted that “substantially all” the settlement money has gone to fund the coalition’s legal expenses. “I can absolutely understand why the other side is upset,” Wyatt said. “One of the ways they could’ve killed us was financially, if we couldn’t have continued to collect money to fight” for the annual reviews.
“Now, not only do we have a way to fuel it, hell, it’s coming from them! And they are the ones who came to us offering it! I’m sure it grates like hell on ’em, that they’re essentially funding our side.”
The settlements have become the de facto method for making sure the ITC order gets enforced—a convoluted, indirect way to ensure that at least somebody, even if he is billing by the hour, is minding the back room of the global store. The settlements pay for the King and Spalding lawyers to sort through the surrogate-country figures, raise questions with the Commerce Department about suspected funnelers, and sift through every document filing and every appeal.
They pay for them to file Freedom of Information Act requests and hire private investigators to walk the docks and ferret out funnelers who are cheating at the ports. With Doug Bassett’s help, the lawyers lobby public officials to force compliance among factories and importers that still haven’t paid their duties. According to Dorn, the uncollected duties amount to $369 million, much of which is still owed to the petitioner companies.
“The amount of uncollected duties is astronomical,” said Bonnie Byers, an economist at King and Spalding who’s worked on the bedroom-furniture case for years. Some companies with outstanding duty bills disappear, only to reemerge in another location with a different name. “Then what you want to find out is whether they have assets in the U.S. that we can go after,” she said.
All in all, the firm employs five people who work the case year-round, which is why the bills are so large.
“If we are taking money to support and enforce the ITC order, our intentions are clear: We want it to be enforced so we don’t have dumping from China,” Wyatt insisted. “Would [critics] prefer we go on a vacation [with the money] instead? To enforce the order, we have to stay in the game.”
Greenwald estimated the case has so far generated fifty to sixty million dollars in legal fees for lawyers on both sides of the battle. JBIII bristled when I mentioned those figures, then dismissed Greenwald’s claim and demanded that I not put Greenwald’s numbers in the book. Months earlier, though, he had described a dinner party he’d been to, during which a “lady lawyer” guessed that the coalition paid out some fifty thousand dollars a year in legal fees. “She was off by at least fifty to a hundred to one!” he exclaimed. “People have no idea how slow the wheels of justice are, and the millions upon millions we’ve spent in legal fees every year.”
All in all, using the liberal end of JBIII’s estimate (five million dollars a year), Dorn’s fees were not a bad investment, considering the coalition companies walked away with $292 million in antidumping duties. Now channeled to the U.S. Treasury instead of the petitioners, the duties continue to cut into Chinese wooden bedroom-furniture imports, which have declined more than 70 percent, from $1.85 billion in July 2006, when the ITC order was first initialized, to $538 million as of June 2013. Three-quarters of the almost two hundred Chinese companies submitted for administrative review have been assessed duties higher than the initial 7.24 percent, Wyatt Bassett pointed out, underscoring both the effectiveness of the order and the hunch that sent JBIII to Dalian in the first place: Many Chinese factories were cheating.
“I feel good about our work,” said the former ITC commissioner Charlotte Lane.
“At the sunset reviews, we can tell if the orders are working or not, and we found generally that most of them were.”
When I asked why so many furniture makers closed their factories anyway, she wasn’t sure. The petition was filed late in the game, she offered, the housing recession added more stress to an already struggling industry, and it’s hard for Americans to compete with countries where companies don’t have stringent environmental regulations or health-care costs to maintain—to say nothing of the labor-cost differential or claims of currency manipulation.
“One of the things I heard over and over from all the domestic industries—and I was there eight years—was that American companies can compete against anybody as long as the playing field is level,” Lane said.
Among the most egregious dumpers put forth for review was Dalian Huafeng, which received a whopping 41.75 percent duty, applied retroactively to its 2009 shipments, Greenwald said. That helps explain why its owner, He YunFeng—who’s on the Chinese equivalent of Forbes’ four-hundred-richest-people list—cut back his American exports and closed his American warehouses.
He YunFeng now manufactures mainly for China’s emerging middle class, he told a Furniture/Today reporter, citing as his reasons the antidumping duties and the elimination of Chinese government incentives to export. Multiple requests to interview Dalian Huafeng managers for this book, submitted to the company’s Washington attorney, were ignored.
Asked how he felt when Dalian Huafeng was zapped with such a large duty, John Bassett called it “totally anticlimactic,” coming as it did after scores of hearings, meetings, and testimonies. It was now some eleven years after he’d first gone eyeball-to-eyeball with He YunFeng and his hundred-dollar dresser.
Making furniture in America now relies as much on lawyers and settlements and private eyes manning the docks as it does on sawdust. “It should not be this laborious,” he said, sighing. “But it is.”