Jun 9, 2020 - World

Scoop: Chinese-owned U.S. chemical company lobbied for tariff exemption

Illustration of a beaker made from a Chinese flag pattern with an American flag sticker on top of it.

Illustration: Annelise Capossela/Axios

A chemical company registered in the U.S. signed a letter urging the Office of the U.S. Trade Representative to exclude from tariffs a product made by its Chinese government-linked parent company — without disclosing that link.

Why it matters: The tariffs remain, but the process illustrates how Chinese-owned companies registered as U.S. entities can lobby the U.S. government to change policies that negatively affect their Chinese parent companies, all without registering as foreign agents.

  • This makes it more difficult to track the potential influence of Chinese corporate- and government-linked interests on U.S. policy.

What's happening: The letter, dated Nov. 13, 2019, and addressed to U.S. Trade Representative Robert Lighthizer, says the U.S. is unable to produce enough PMDI, which is used to make insulation and other household products, to fulfill the needs of U.S. manufacturers.

  • The letter is signed by eight entities, including Wanhua Chemical U.S. Operations LLC and several U.S. roofing and construction companies, as well as an industry group, the Polyisocyanurate Insulation Manufacturers Association (PIMA).
  • In the letter, these groups state they are part of a group called the "Competitive MDI Coalition," which has no website and, unusually for a trade advocacy group, is not registered in federal lobbying databases or in the states where its members are based.
  • "We cannot emphasize enough the adverse impact the tariffs on such a critical input will have on our U.S. manufacturing of downstream products," they wrote.

The big picture: Foreign-owned companies, through their U.S.-registered affiliates, have an avenue to lobby the U.S. government not only by hiring former U.S. elected officials to press their cause, but also through industry and trade groups.

  • Wanhua Chemical is a member of several U.S. industry groups, including the American Chemistry Council and PIMA.
  • Industry groups receive funds from member companies whose contributions are disclosed only to the IRS, not publicly, a phenomenon known as "dark money."
  • The groups are allowed to spend money on donations to super PACS and lobbying.

What they're saying: "Wanhua has been very public with its problems with tariffs," Edward Brzytwa, director for international trade at the American Chemistry Council, a U.S. industry group, told Axios in an interview.

  • "For our purposes, if they’re investing in the U.S., we call them a U.S. chemical manufacturer," he said.
  • Brzytwa later added: "A company needs to manufacture chemical products in the U.S. or sell chemical products in the U.S., among other criteria, to be considered a U.S. chemical manufacturer."

The intrigue: Wanhua Chemical U.S. Operations LLC is owned by Wanhua Chemical Group, a Chinese company that is among the world's largest manufacturers (and exporters) of PMDI.

  • An investment entity owned by a Chinese municipal government is Wanhua Chemical Group's largest shareholder (21.59%), according to the company's 2019 annual report.
  • But Wanhua Chemical U.S. Operations does not disclose this relationship in the letter it signed to Lighthizer, which states it is from "consumers of PMDI."
  • In 2017, Wanhua Chemical Group announced plans to build a $1.25 billion plant to produce MDI in Louisiana, but those plans are now on hold.

Background: Wanhua Chemical U.S. Operations LLC has not registered under the Foreign Agents Registration Act (FARA), nor has Wanhua Chemical Group.

  • But lobbying firms that represent Wanhua have registered their contracts under both the FARA and Senate lobbying databases.
  • In disclosures filed with the Senate database, law firm Alston & Bird wrote, "To the extent that Wanhua Chemical (America) Co., Ltd. realizes any benefit from legislative or executive action, so, too, would its parent company, Wanhua Chemical Group Co. Ltd."
  • AUX Initiatives LLC, a DC-based government affairs consulting firm, filed a FARA registration for its contract with Wanhua Chemical US Operations LLC in August 2018 "out of an abundance of caution."

Calls to phone numbers and emails sent to addresses associated with the U.S.-based affiliates of Wanhua Chemical Group went unanswered.

Editor’s note: This story has been updated with a new quote from Brzytwa, who asked to clarify his earlier comments.

Read the letter.

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