By Waldaniel Amadis | 2023-07-10

SÃO PAULO – The Ministry of Development, Industry and Foreign Trade of Brazil (MDIC) has opened a new investigation into China's alleged practice of dumping exports of fiber optic cables.

This is the second investigation of dumping by China in the fiber optic cable market in less than a month.

In late June, MDIC confirmed to Entorno that it had opened a preliminary investigation based on a second complaint filed by three local manufacturers: Cablena, a Mexican company; Prysmian Brasil, a subsidiary of the Italian multinational; and Furukawa, a Japanese company.

The Brazilian subsidiaries of three companies filed a new complaint alleging that Beijing's "unfair" practice of granting subsidies to Chinese cable manufacturers reduced prices and made their products less competitive between July 2021 and June 2022.

The complaint, which is specific to the issue of "subsidies", alleges that the practice violated World Trade Organization rules.

MDIC explained that the investigation to corroborate the complaint "can take up to six months."

Distorting the Brazilian economy

MDIC's Department of Commercial Defense, known as Decom, published in late June the opening of an investigation into alleged Chinese government subsidies to fiber optic cable manufacturers in the Official Gazette of the Union.

Decom said that the subsidies could "distort" the Brazilian economy in the "long term."

A first "generic" investigation was opened in May for the same reason and presented by the same claimant companies, as reported by the Folha de São Paulo newspaper.

After the first investigation was opened, Chinese government officials contacted their Brazilian counterparts and asked that the case not be taken to international commercial arbitration courts.

The Chinese government replied that its state-owned fiber optic cable manufacturers "follow the rules of the free market," according to Folha de São Paulo.

The subsidies offered by Beijing have allowed Chinese state and non-state companies to offer their products at reduced prices compared to the international market and to win bids in various countries globally.

Beijing's subsidies have given Chinese state-owned and private companies a significant advantage in the global market. By offering their products at reduced prices, these companies have been able to win bids in countries around the world, even when their products are not the highest quality.

This practice has put pressure on local manufacturers in other countries, who are struggling to compete.

"China denies that its state-owned companies and commercial banks controlled by the Communist Party of China (CCP) are considered public entities," said foreign trade specialist Teresa Franco.

However, as she told Entorno, "even many of the companies presented as 'private' arouse suspicion that they are controlled by the government."

The "issue of China being a 'market economy' or not, which is a global discussion, is not what interests the claimant companies at the moment," said Franco.

She explained that the companies want only "compensation for the benefits that their competitors", Chinese ZTT and FiberHome Telecommunication Technologies, receive from Beijing, which make their prices the lowest in the market.

Unfair advantage

According to the complaint, both Chinese companies obtained financial incentives from the government, including bank loans under special conditions and discounts on electricity. Fiber optic cable manufacturing is electricity intensive.

These incentives gave the Chinese companies a significant advantage over their Brazilian competitors, who did not receive the same level of government support.

In May, MDIC published a circular based on the first complaint, which pointed out that a ton of Brazilian cables for export costs $9,234. In contrast, Chinese companies charge $2,580 per ton, less than 28% of the Brazilian price.

This significant price difference suggests that Chinese companies may be benefiting from unfair subsidies.

China has defended itself against these accusations by saying that Brazilian production cannot supply 50% of local demand. The Chinese government has also pointed out that the Brazilian fiber optic cable market grew by 55.9% between 2018 and 2022, to 45.7 million users. This growth, the Chinese government says, requires Chinese suppliers to meet the demand.

China has also alleged that none of the three claimant companies is "Brazilian" because they are subsidiaries of foreign multinationals. This attribute, China argues, would prevent them from being covered by the anti-dumping defense mechanisms of MDIC.

According to a study by the Center for Strategic and International Studies, a Washington-based think tank, the Chinese government channels hundreds of billions of dollars in subsidies annually towards selected domestic companies.

These benefits, which include direct subsidies, below-market-rate loans, land sales, tax breaks, and capital from state-run investment funds, allow these companies to offer lower bids abroad than their foreign counterparts can. As a result, these companies gain a competitive advantage in the global marketplace, stated the study.