By Scott Patterson and John Miller

The Commerce Department, in a preliminary finding, said certain aluminum exports by China Zhongwang Holdings Ltd. to the U.S. circumvented antidumping restrictions imposed on the company in 2010.

The investigation was initiated last year in response to allegations by a U.S. trade group that China Zhongwang and companies affiliated with its founder, Liu Zhongtian, were shipping aluminum in the form of shipping pallets into the U.S. to evade punitive tariffs. The Commerce Department in 2010 punished China Zhongwang andother 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 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 be subject to restrictive tariffs.

The aluminum is so similar to restricted metal that it can be passed off as virtually the same kind, the memo said.

The findings apply to all Chinese aluminum exporters and U.S. importers.

"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," Alan Price, counsel to the U.S. trade group and chair of international tradepractice 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.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 President Lu Changquing, 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 themetal as shipping pallets. Aluminum Shapes LLC, which said it didn't control any of the pallets at its facility, wasn't specifically mentioned in the Commerce Department's Nov. 3 memo.

A U.S. trade group has alleged to the Commerce Department that the 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 Commerce Department's list of penalized items.

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.

In October, the Journal reported that the Department ofHomeland 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, which involves whether the companies committed criminal or civil violations that could include smuggling, conspiracy and wire fraud.

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," including 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 Miller at john.miller@wsj.com

(END) Dow Jones Newswires

November 08, 2016 10:13 ET (15:13 GMT)

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