By Scott Patterson and John W. Miller

U.S. officials said a Chinese aluminum magnate is sidestepping U.S. trade sanctions, the latest development in federal attempts to rein in a flood of cheap metal imports that have overwhelmed U.S. producers.

The Commerce Department, following a year-long investigation, said certain aluminum imports from China Zhongwang Holdings Ltd., founded by Chinese billionaire Liu Zhongtian, circumvented antidumping restrictions imposed by U.S. trade authorities on the company in 2010.

The findings are the clearestsign to date that the U.S. government is acting on allegations by American companies about Chinese companies' trade practices that the U.S. producers say are unfair and have gutted their industry.

The Commerce investigation was launched last year in response to allegations by a U.S. trade group that China Zhongwang and companies affiliated with Mr. Zhongtian were shipping aluminum using a variety of methods designed to evade punitive tariffs. The Commerce Department in 2010 had punished China Zhongwang and other Chinese producers with tariffs as high as 374.15% after finding they were receiving illegal subsidies and dumping, or selling products in the U.S. below market prices. The tariffs led China Zhongwang's U.S. sales to plunge.

The preliminary determination, detailed in a Nov. 3 memorandum from Christian Marsh, the Commerce Department's deputy assistant secretary for antidumping and countervailing duty operations, found that a type of aluminum that didn't fall under the scope of the 2010 ruling should also be subject to restrictive tariffs. That type of aluminum is so similar to restricted metal that it can be passed off as virtually the same kind, the memo said.

Commerce said Chinese producers started employing new methods to sell aluminum in the U.S. after the tariffs were imposed, indicating they were designed to evade trade barriers. The expanded restrictions apply to all Chinese aluminum exporters and U.S. importers, not just China Zhongwang, the memo said.

China Zhongwang, initially contacted by U.S. government officials in April, didn't respond to questions, the Commerce Department said. By withholding information, "Zhongwang significantly impeded the proceeding, " Commerce said.

By not responding, "Zhongwang has failed to cooperate to the best of its ability in providing the requested information," Commerce said.

China Zhongwang PresidentLu Changqing, in a written response to the findings, said it chose not to participate in the inquiry because it ceased production of the products addressed by the Commerce Department's investigation in early 2015. "[W]e have no plans to produce or sell such products in the future," he wrote.

The Wall Street Journal reported in September that the Commerce Department was investigating whether thousands of tons of aluminum at a factory in a Philadelphia suburb formed part of an alleged scheme by Mr. Zhongtian to evade tariffs by disguising the metal as shipping pallets.

Aluminum Shapes LLC, which said it didn't control any of the pallets at its facility, wasn't specifically mentioned in Commerce's Nov. 3 memo. The metal was removed from the facility after the Journal inquired about it.

The U.S. trade group, the Aluminum Extruders Council, or AEC, alleged in its 2015 complaint to Commerce that pallets at Aluminum Shapes were imported as a way of circumventing tariffs on so-called extrusions, products made by heating and squeezing aluminum into shapes such as pipes and construction beams. Pallets, made by welding multiple extrusions together, aren't on the government's list of restricted items.

"We are gratified by Commerce's preliminary determination to take steps to shut down what has been a significant avenue of circumvention for Zhongwang and other Chinese producers," said Alan Price, counsel to the AEC and chair of international trade practice at Wiley Rein LLP, a Washington, D.C., law firm.

The decision comes as U.S. metals producers are struggling to compete against a flood of aluminum and steel produced in China, which they say is subsidized by the Chinese government, depressing prices. Alcoa, the largest American aluminum maker by volume, last week split away from its profitable parts-making unit. By the end of the year, only five aluminum smelters will be operating in the U.S., down from 23 in 2000.

After the U.S. this year imposed a raft of new tariffs on Chinese steel imports, Chinese steelmakers figured out another way to penetrate U.S. markets, shipping their steel via Vietnam, according to American steel producers. The Commerce Department on Monday opened two investigations into the practice. By shipping the metal to Vietnam before sending it to the U.S., the companies effectively mask its origin, hoping to skirt tariffs against Chinese-made steel.

Mr. Liu and China Zhongwang were also subjects of a Journal article in September detailing allegations that firms linked to Mr. Liu tried to disguise the Chinese origin of large quantities of aluminum and avoid U.S. tariffs by routing it through Mexico. Mr. Liu denied any connection to the metal stockpiled in Mexico, much of which has been exported to Vietnam in recent months, according to shipping records and people familiar with the matter.

In October, the Journal reported that the Department of Homeland Security and Justice Department launched a probe into whether some U.S. companies linked to Mr. Liu illegally avoided punitive tariffs. Homeland Security agents have questioned former employees of companies associated with Mr. Liu in the investigation, including Garry Goehring, a former manager of Aluminum shapes. Mr. Goehring told the Journal that agents asked about Mr. Liu and whether pallets stored at Aluminum Shapes came from overseas, among other things.

Last week, a dozen U.S. senators asked the Obama administration to block a $1.1 billion deal reached in August for Zhongwang USA LLC, controlled by Mr. Liu, to purchase a Cleveland-based aluminum company, Aleris Corp. The senators, in a letter sent to Treasury Secretary Jack Lew, said the deal would "directly undermine our national security, including by jeopardizing the U.S. manufacturing base for sensitive technologies" like military applications.

Zhongwang USA is an investment company owned by Zhongwang International Group Ltd., the parent company of China Zhongwang.

An Aleris spokesman, responding to the letter, said last week that less than 1% of its 2015 volume went to defense applications. A Zhongwang spokeswoman said the deal "will bring in additional resources and capital" to Aleris.

Write to Scott Patterson at scott.patterson@wsj.com and John W. Miller at john.miller@wsj.com

(END) Dow Jones Newswires

November 08, 2016 13:31 ET (18:31 GMT)

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