When the European Union (EU) slashed HFC supplies by 37 percent last year, some refrigerants became scarce, prices skyrocketed, and many worried that sales of illegal imports from non-EU countries could flourish. That is exactly what has happened, according to a new report from the Environmental Investigation Agency (EIA), which states that as much as 16.3 metric tons of carbon dioxide equivalent (MtCO2e) bulk HFCs were illegally placed on the EU market in 2018, representing more than 16 percent of the 2018 quota. This is in addition to “illegal imports of HFC-containing equipment and illegal HFCs that are likely being smuggled under the radar of customs.”
Given the drastic cut in HFC supplies, the new black market for refrigerants in the EU is not surprising. What may be surprising to many is that the same problem appears to exist in the U.S. as well, even though HFCs are still readily available. According to the American HFC Coalition, whose members include refrigerant manufacturers Honeywell, Chemours, Arkema, and Mexichem Fluor, importers of HFC blends and R-134a of Chinese origin are successfully evading U.S. antidumping laws by using a number of creative strategies.
EVADING THE LAW
The current U.S. antidumping laws have been applied to the import of HFC blends and R-134a since 2016, when the American HFC Coalition prompted the U.S. International Trade Commission (ITC) to investigate whether imports of HFC blends and R-134a from China harmed the American refrigerant industry, because they were sold in the U.S. for less than fair value. The ITC ruled that they did cause harm, and as a result, levied hefty antidumping duties on Chinese imports of HFC blends and R-134a. However, imports of HFC components from China were exempt, as the ITC determined they did not injure the U.S. market.
Ken Ponder, owner of Choice Refrigerants, begs to differ. He believes that it is this exemption of HFC components that is causing many of the illegal import issues today.
“We said at the time that this was a big loophole,” he said. “You have to shut down the components, because if that doesn’t happen, a whole new set of people will come in and play in our industry. And I was right. We now have multiple Chinese-owned companies that have put packaging facilities in place in the U.S., and they are importing low-cost HFC components, formulating them, and selling them in our marketplace.”
Ponder contends that some of these Chinese-owned companies have also imported millions of pounds of his patented refrigerant, R-421A (a replacement for R-22), for which he obtained an exemption from tariffs. They are then separating it into its constituent components of R-125, which is a key component of tariffed HFC blends, and R-134a, which is subject to its own antidumping tariff, reformulating them into other blends, and potentially selling them in the U.S.
“The Commerce Department actually confiscated a counterfeit load of my refrigerant imported by a Chinese-owned importer at the port of Tampa, Florida, tested it, verified it was my product, then gave it back to the importer,” he said. “They said they don’t get involved in patent disputes. That’s why I asked for a scope review, which the Commerce Department still hasn’t ruled on. Once that review is done, it will answer the question, ‘Who can import a patented product?’”
Ponder thinks he will ultimately prevail, noting that his is a “righteous fight;” however, he is concerned over the length of time it is taking the Commerce Department to rule on his case.
“The original importer has already changed its name in order to circumvent the potential for filing bankruptcy,” he said. “But they’re still doing the same thing, just under a different name.”
Bruce Ernst, executive vice president of marketing and regulatory affairs at A-Gas, is also concerned about the increase in refrigerant components coming across the border, as well as the changing names of importers. A-Gas is a major U.S. refrigerant reclaimer and an importer of halocarbons, including R-32 and R-125, and like other manufacturers, was affected by antidumping duties.
“Several years ago, I started tracking key refrigerant imports and exports through the U.S. borders,” Ernst said. “Over the past year or so, we’ve seen millions of pounds of refrigerant components coming into the U.S., and they’re going to multiple company names. Often, it is to the same address — sometimes to the same person but in different companies. We’ll see a new name pop up, then a spike in imports, then that particular company stops importing. It’s very odd.”
Ernst wants to know whether these components are coming into the U.S. at a competitive price, as well as whether or not they’re properly documented. The latter is of particular concern, as some importers seem to be circumventing the antidumping duties by shipping the components from countries not covered by antidumping duties and claiming they were made there as well.
“For example, we see R-134a coming into the U.S. from South Korea, and the consensus is that no one is making R-134a in South Korea,” he said. “Our concern is, if it is produced in China, shipped to Korea, packaged in Korea, and then shipped to the U.S., that would still require the payment of an antidumping duty for R-134a of Chinese origin. Merely repackaging it in South Korea would not make it exempt from the duty. But we have seen it labeled as ‘Made in Korea.’”
When individual components such as R-32 and R-125 arrive in the U.S., they can be blended into finished refrigerants and sold through normal sales channels, and then the question becomes, where is that happening? Or is it even happening yet? Ernst is not sure whether these companies are actively selling all of these finished refrigerants or components or if there are growing stockpiles. He said that the market has not experienced volume pressures yet, but there has been downward price pressure, which likely indicates a supply surplus.
Even with these various importing schemes, Ernst stressed that there is nothing illegal about components coming into the U.S. from China.
“Even if one of these importers bought R-125 and was warehousing it in the U.S., there is nothing illegal about them selling it to a distributor to be blended,” he said. “It’s all commerce. It’s all legal. The problem is if some importers are getting special purchasing conditions from Chinese manufacturers that are not available to other U.S. companies. That puts U.S. importers and blenders at a distinct economic disadvantage. We’d like to see stricter investigation of imports and enforcement of U.S. trade laws.”
The American HFC Coalition, which was instrumental in securing the antidumping orders regarding HFC blends and R-134a made in China, continues to focus on imports of refrigerants that violate the unfair trade laws, including the antidumping law. The organization cannot estimate how many imports have violated the law, because they may be misclassified or marked with an incorrect country of origin, which makes it very difficult to estimate the volume of imports evading the antidumping duty order.
To help stem the tide of illegal imports, the U.S. Department of Commerce has initiated investigations regarding imports of HFC components from China that are being blended in India in order to escape antidumping duties, said a spokesperson from the HFC Coalition. In addition, the department has initiated investigations of imports of HFC blends that are further processed after importation, and Customs and Border Protection (CBP) has separately started looking into whether certain imports of HFC blends are evading the antidumping laws. Given that antidumping duty rates on HFC blends and R-134a range from 101 to about 286 percent, Chinese producers and importers have a strong incentive to evade the duties.
“The circumvention of the antidumping duty orders has a substantial negative impact on U.S. industry sales volume, market share, revenues, price levels, and profits,” said the spokesperson for the American HFC Coalition. “When the imports from China evade the antidumping duty order, they continue to capture market share at unfairly low prices.”
That is why the Department of Commerce needs to issue final rulings with respect to the anti-circumvention requests that have been filed by the American HFC Coalition, said its spokesperson.
“Commerce should reject the arguments by importers that seek to evade antidumping duties by minor modifications to the product or by moving the blending process outside China,” the spokesperson added.
In addition to the concern over the evasion of antidumping duties, manufacturers are worried about the quality and purity of the illegally imported refrigerants coming into the U.S. Low-quality refrigerants or blends can affect both the performance and reliability of HVACR equipment as well as create safety issues for technicians, particularly if there is a flammable component involved.
“At Chemours, safety is a core value of our company, so we take all elements of people, product, and community safety seriously,” said Nicole Fox, global brand protection leader at Chemours. “If a counterfeit refrigerant is used, this becomes a safety concern for all involved. Low-quality components and blends can cause damage to systems, can result in increased flammability, and can even contain banned ozone-depleting substances.”
Unfortunately, there is no easy way to determine whether imported refrigerant — legal or illegal — meets the specifications of Air-Conditiong, Heating and Refrigeration Institute (AHRI) Standard 700, which mandates the purity requirements for refrigerants.
“Moisture and other contaminants can only be detected by running a gas chromatograph (GC) test on every cylinder of gas, which is unreasonable and cost prohibitive for a contractor,” said Scot Swan, global market manager at Arkema Inc. “Utilizing a refrigerant that is not certified to industry standards can potentially cause operational issues and void warranties, which is why Arkema reminds its customers to know their source and only purchase refrigerants from a trusted distributor. Buying from a known source with a trusted brand that has a proven record is usually the most effective way to ensure the purchase of an AHRI Standard 700 refrigerant.”
Lesley Aulick, global business director at Chemours, agreed, noting that now more than ever, it’s important to understand the quality and origin of the product that is being purchased.
“We recognize that and offer our customers peace of mind through demonstrated product performance and features such as packaging security measures,” she said. “We believe technology has helped in communicating the authenticity of our products.”
Illegally imported refrigerants continue to have a significant negative impact on the U.S. refrigerant industry, said Fox, which is why Chemours is aware, active, and investing globally to thwart this serious issue.
“Across North America and Europe, we are monitoring and collecting data, including scanning the internet for potential infringements and counterfeit products being sold illegally,” she said. “We are working closely with industry members’ governing agencies such as U.S. Customs and Border Protection. We are also prosecuting where it is needed and appropriate.”
With the large installed base of HVACR equipment in the U.S., there will always be an incentive for countries such as China to try and evade the law and import low-cost refrigerants into the country illegally. Refrigerant manufacturers are optimistic that through their diligent efforts in bringing attention to this issue, the government will take steps to shut down — or at least slow — the amount of illegal refrigerants coming into the U.S. They’re just hoping it will be sooner rather than later.
Publication date: 6/24/2019