Early this year, the U.S. Dept. of Commerce sided with Mercury Marine’s allegations that Japanese companies were “dumping” or selling engines in the U.S. for less than they sell them in Japan. While American consumers may initially benefit from these prices, in the long run, dumping can demolish an entire indigenous industry, resulting in thousands of lost jobs and plant closings.

Mercury Marine is the last major manufacturer of outboard engines in the U.S. The Outboard Marine Corporation, OMC, went bankrupt in 2000 and its Johnson and Evinrude engine operations were sold to Bombardier Corp., a firm based in Canada.

Under the federal Tariff Act, duties or tariffs can be imposed on foreign-made products when they are sold in the U.S. for less than fair market value. This is called “dumping” and allegations such as Mercury Marine’s are investigated by the Dept. of Commerce. The federal agency also evaluates whether alleged dumping causes injury to a U.S. industry. While a final ruling in the outboard engine case is expected early next year, Commerce has imposed a preliminary 22.5% tariff on many Japanese outboard engines and powerheads.

To compound the problem, Yamaha and Mercury signed an agreement in 1998 that Yamaha would sell Mercury 70,000 80hp to 120hp powerheads through March 2006. Presumably, the price agreed upon was the “dumping” price that Mercury has since protested.

But, with the recent imposition of a tariff on Yamaha, they announced that the cost of powerheads would sold in the U.S. would increase by 91.6% to eliminate the alleged dumping advantage.

In response, Mercury’s parent company, Brunswick, filed a lawsuit against Yamaha in U.S. District Court for anticipatory breach of contract. In essence, Mercury is suing to make Yamaha honor the original agreed-upon price — the price Mercury has also alleged was below fair value, prompting the dumping allegations to the Dept. of Commerce. New details about this lawsuit were emerging as this issue of BoatU.S. Magazine went to press.

While Mercury claims Yamaha is trying to “punish” them for filing a complaint with the federal government, Yamaha said, “Brunswick cannot both claim that its own negotiated contract price for powerheads … is unlawful in one forum and yet take the position, in another forum, that the very same contract price is acceptable.”

In the middle of all this, industry rivals of Brunswick, quickly responded with a string of open letters to marine trade periodicals.

“The fact is,” wrote Genmar president Irwin Jacobs in an open letter sent to marine dealers and the boating press, “In 2001 Genmar management held several very tense and serious meetings with Mercury management, discussing with them that their engine quality and performance were substandard and not performing compared to their competitors.

“We further stated that their competitors were gaining market share, not because of price, but because Mercury engines lacked quality and were becoming obsolete in technology and performance,” Jacobs said. “During the same time, there were many boat manufacturers, dealers and customers who were having the same problems Genmar was having with Mercury’s Optimax engines.

While it is true that Optimax engines had problems since their introduction in the late 1990s through the early 2000s model years, Mercury appears to have corrected these problems. Jacobs’ open letters don’t mention this, although he did warn that the cost of engines — even ones manufactured by Mercury — will increase as a result of whatever tariff is imposed on Japanese engines. Bombardier purchased powerheads from Suzuki for use on Evinrude and Johnson engines. Engines and components sold by Honda and Tohatsu, which produces Nissan engines, are also affected.

According to Mercury Marine president Patrick C. Mackey, “The commerce department’s decision was not determined on opinion, but based on facts considered during a lengthy, thorough and independent investigation.

“To assert that the Dept. of Commerce has [as Jacobs suggested] ‘no interest in facts, but only in how they can protect a U.S. company’ does the agency, its experts and its expertise in such matters a grave disservice.”

“What we seek is a level playing field upon which all outboard engine manufacturers sell at ‘fair value,' competing solely on the basis of their products' features, appeal, price and value,” Mackey said. “As other industries have seen, by deliberately undercutting pricing to create an artificial advantage in the marketplace, these Japanese companies did not follow U.S. law. Our hope is that these findings will ensure that everyone competes on an equal footing in the marketplace going forward.”

Meanwhile, Yamaha Marine Group president Phil Dyskow contends that the Commerce Department’s findings create “a misleading impression” because they compared unit prices and other expenses paid by retail dealers in Japan with the prices paid by original equipment manufacturers (OEM), in other words, engine makers, here in the U.S. He said prices to retailers are “substantially higher” than they are to builders because retailers are buying a finished product and engine makers are buying components.

According to Dyskow, “Preliminary analysis indicates that dumping margins on sales [of whole engines] by Yamaha to dealers and boat builders in the U.S. were under 15% while [dumping] margins on the sales of OEM powerhead s to Mercury were more than 100%.”

Dyskow claims that Mercury was the “primary beneficiary of the alleged dumping.”

Department of Commerce investigators declined to comment on Dyskow’s assessment, but explained to BoatU.S. that extraneous costs were stripped away so that actual engine prices could be compared accurately.

Dyskow said Yamaha doesn’t expect to pay duties in the amounts announced by the Dept. of Commerce because those duties “are based on past pricing, not Yamaha’s current pricing, which has already been adjusted both in the United States and Japan.

“We do not intend to increase our prices to our customers in response to this calculation,” he added, in a statement released before Brunswick’s lawsuit was filed.

The Department of Commerce will consider comments from interested parties on its preliminary determination, as well as other evidence, in making its final determination, which is expected before the end of the year.

If the department makes a final determination that imports were sold below fair value, and the International Trade Commission finds that such imports were “materially injuring, or threaten to materially injure the domestic marine engine industry, the Department will issue an antidumping order and instruct U.S. Customs and Border Protection to collect cash deposits for antidumping duties at the specified rate.”

Until the Dept. of Commerce makes its final ruling, boating consumers can only cross their fingers and hope that they are not left to foot the bill for an industry scramble for market share.

(c) Copyright BoatU.S. Magazine, November 2004