Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: SUNDAY, October 30, 1994 TAG: 9411010043
SECTION: NATIONAL/INTERNATIONAL PAGE: A10 EDITION: METRO
SOURCE: THE WASHINGTON POSt
DATELINE: SHANGHAI, CHINA LENGTH: Long
As millions of American students went back to class and bought pencils this fall, they unwittingly took sides in a battle between American pencil makers and their Chinese competitors.
It is a battle about high principles and cheap products, the survival of industries and forests, and ordinary folks in China and the United States trying to earn a living.
At its heart lies the humdrum pencil. In four years, Chinese pencil makers have captured more and more of the U.S. market. More than one in every five of the 2.16 billion pencils purchased last year in the United States were made in China.
Now American pencil makers are pointing at what they call unfair Chinese sales tactics that they say could put them out of business. The American producers say Chinese manufacturers are selling pencils for less than it costs to make them.
There's a name for that in trade law, and it's called dumping.
In June, the U.S. International Trade Commission and the Commerce Department slapped tariffs ranging from 58 percent to 107 percent on Chinese pencil makers as a counterweight for what it deemed unfairly low prices charged by the Chinese. In other words, as of June, the import duties paid in many cases to the United States government by importers of Chinese pencils cost more than the actual pencils.
But there's more to the story than tiffs and tariffs, as can be seen in Lewisburg, Tenn., the heart of the American pencil industry, and Shanghai, the home of China's biggest pencil manufacturer.
Few places could seem farther from China than Lewisburg, where Faber-Castell Corp., America's biggest pencil maker, has a factory employing about 1,100 people. At the sleepy town square, a few rundown retail stores ring a staid municipal building.
Faber-Castell employee Carl Cooper says the basic process for making pencils hasn't changed during his 35-year career. Each pencil is made of two pieces of wood with matching grooves. Material commonly called ``lead,'' but actually made of graphite and Georgia clay, is cooked in big vats, churned out like spaghetti, waxed, dried and hardened, and laid into the grooves. Then the two pieces of wood are glued together, shaved to uniform size and painted.
Lewisburg no longer has its own wood supply; the Tennessee cedar is mostly gone. Faber-Castell uses incense cedar wood from federal lands in California; it says the price climbed 42 percent from 1990 to 1992, driven up by environmental concerns that trimmed the harvest.
And while labor is cheap in Lewisburg by American standards - there is no union because Tennessee is a right-to-work state - the average Faber-Castell factory worker at $8 an hour makes as much money every two days as an experienced Chinese pencil-factory hand makes in a month.
``Supply and demand - we always said it was the greatest thing since hip pockets,'' Cooper said. ``But it might not be when someone's got more supply than you do.''
And that somebody is China.
Carl Cooper, meet Wu Jinhui, 47, an assembly-line worker at China First Pencil Co. Ltd., located smack in the middle of bustling Shanghai.
Wu has been working in the pencil industry for 30 years. She makes less than $75 a month, plus a bonus that in a good month will tack on another $35. She takes an hour-long bus ride to work. She wears a pair of 50-cent shoes.
Crammed between apartment buildings and noisy streets, China First assembly lines churn out 2.1 million pencils a day. Yellow ones head to the United States. Blue and black ones go to Singapore. Black and red ones are destined for Hong Kong.
The China First plant is less advanced than Faber-Castell's, but the process of making pencils doesn't look much different here.
Nevertheless, the two companies are as different as Lewisburg and Shanghai.
``If we lost a pencil deal with Office Depot, a lot of other things would go with it,'' said Mike Agnew, a financial officer with Faber-Castell. ``First we'll talk about the pencil price, and then we talk about markers, binders and other items.''
At China First, the government has played a big role. The company was founded privately in 1935 when China was being ravaged by Japanese invaders and its own civil war. Shortly after the Communist victory in 1949, the Chinese government took over the plant and dubbed it, with the Communists' usual flair, the Number One Pencil Factory.
With Deng Xiaoping's economic-reform program, the company was renamed and allowed to operate as a private company.
As the largest of China's 26 pencil makers, China First produces 550 million pencils a year, about 12 percent of the country's total output, according to SBCI Finance Asia Ltd. in Hong Kong.
SBCI estimates that about 30 percent of the firm's pencils are exported, an increasingly important factor for the company as Chinese consumers become better off and start buying pricier writing tools such as pens. The new U.S. tariffs could cost the company about $3 million a year, according to one estimate.
Faber-Castell says the key to competing with the Chinese is the price of wood, which makes up nearly half of the production cost of an American pencil. U.S. firms have alleged that Chinese companies get wood free from the army. The Americans also suspect China of importing jelutong wood from Indonesia's threatened rain forests.
Faber-Castell has also considered using Indonesian rain-forest wood, which can be cut and delivered in the United States at a fraction of the cost of California incense cedar. But Faber-Castell fears a customer backlash.
Eager for an alternative, Faber-Castell makes a pencil from recycled paper products.
The Chinese deny the American allegations. Frank Sailer, a Washington lawyer representing the Chinese pencil makers, says his clients use linden wood from northern China's Jilin Province.
``They are paying for wood and the price is going up, up, up just like the U.S.,'' Sailer said.
But many American workers fear that if it's pencils today, tomorrow it might be automobiles.
``Those people are competing with you. They're not stupid. If you turn loose 1.2 billion people, you might as well lower your standard of living because that's what you're going to do,'' said Cooper. ``China and the United States are on a collision course.''
by CNB