Steel at Heidtman Steel Products says it was duped eight years ago by a Chinese business that claimed to have a great supply of coking coal for sale.
A Toledo company that has supplied steel for the Detroit Three automakers and raw materials to steel mills says it was duped eight years ago by a Chinese business that claimed to have a great supply of coking coal for sale.
After nearly a decade of legal wrangling overseas, Heidtman Steel Products Inc. is still owed nearly $5.9 million, plus 5 percent interest from the Chinese company. The interest brings the award to about $7 million.
“A simple business transaction. Well, it never shipped and they never returned the money,” said Mark Ridenour, chief financial officer for Heidtman Steel. “I think we got ripped off, to be perfectly honest. I think we got shanghaied.”
Toledo Mayor Mike Bell and about 20 local businessmen left for China on Nov. 13 and are to fly back today.
The mayor has been urging Toledo businesses to explore doing business with Chinese investors and businessmen.
The trip to China to seek investors is Mr. Bell’s fourth. His spokesman, Jen Sorgenfrei, reached in China on Tuesday morning, declined to make the mayor available for comment about the problems Heidtman Steel had in China.
In December, 2010, an arbitrator in Geneva agreed with Heidtman and ordered the Chinese company — Hebei Huiyuan Group Tangshan Import & Export Co. Ltd. — to repay $3.5 million plus other costs for 44,000 tons of coke it had promised to deliver but did not. Two years later, Heidtman is still without its money and never received the shipment.
In 2004, when coke was difficult to obtain and the price of steel was sky-high, John Bates, Heidtman’s chief executive officer, thought he had found a supply of coke to satisfy his customers.
“We became aware that there was maybe some coking coal available in China for export to the United States, so our CEO went over and met with some individuals,” Mr. Ridenour said. “We signed a contract [and] made a payment in order to obtain this coking coal, which we would then turn around and sell to a steel producer; in this case, it was SeverStal.”
The deal with Hebei was signed on Nov. 13, 2004, and the money was wired three days later. The coke was supposed to be waiting on a dock in China north of Beijing on Dec. 5, 2004.
After Hebei failed to deliver the coke, Heidtman agreed to cover the difference between the contract price and the cost of buying 44,000 tons of coke on the dock from another seller to honor its commitment to SeverStal. In January, 2005, SeverStal demanded $1.68 million from Heidtman for the purchase price difference of that coke and extra shipping costs.
The arbitrator awarded Heidtman $3.51 million as reimbursement and the $1.68 million it had to pay to SeverStal. Heidtman was also awarded $440,000 plus $185,876 in legal fees, hearing costs, and arbitration fees.
Xu Jianguo, chairman and legal representative of Hebei, could not be reached for comment at his office in China. Mr. Xu and the company are listed on a variety of Chinese-language Web sites. One site calls him “the city of Tangshan coke king” and says that he has been chairman of the board of the Entrepreneurs Association of Hebei Province, Tangshan City Federation executive committee.
Mr. Ridenour alleged Mr. Xu asked for an additional $10 million after the coke shipment didn’t arrive at the docks.
John Carey, a lawyer with Eastman & Smith Ltd. who is working for Heidtman, said the arbitration award has been ignored but there are legal options in China.
“We have a two-year window to do something with it in China,” Mr. Carey said. “We have had a Chinese lawyer in Beijing for about a year trying to help us. ... We have been told by everybody and their aunt that you can go through the Chinese judicial process if you want to; it will take a really long time; it will be really expensive, and really there is no certainty for outcome.”
Derek Scissors, an expert on China and an Asian scholar at the Heritage Foundation in Washington, said he was not surprised to hear about Heidtman’s troubles with the Chinese company. He said American companies should first check out businesses in China before proceeding because recovering money in a legal dispute is very difficult.
“No certainty for an outcome is an understatement,” Mr. Scissors said. “The fundamental problem for the U.S. is that it wants to encourage private Chinese companies, but private does not mean ethical or well run. ... It could be owned by thieves and all of these companies have the shelter that they are not going to be forced to pay unless they have other overseas exposure.”
Mr. Scissors said American companies in similar disputes will not get a judgment on any basis of law. “There is no rule of law in China,” he said. “Decisions are made on a political basis and the top one is keeping people employed, so if the Chinese company says it would have to lay off workers to pay this order, then forget it, you are not going to get squat.”
Mr. Ridenour admits Heidtman should have used an international letter of credit rather than paying up front for the coke.
“This was our first foray into China and maybe our last,” he said. “It’s a story about the perils of doing business in China without having your behind protected.”
Heidtman and its law firm have asked for help from U.S. Sen. Rob Portman (R., Ohio), U.S. Rep. Marcy Kaptur (D., Toledo), the U.S. Department of State, the U.S. Department of Commerce, the American Embassy in Beijing, and the International Chamber of Commerce.
Miss Kaptur said she is trying to “get justice” for Heidtman by going through official channels.
“I am seeking a personal meeting with the ambassador from China to the United States and we have asked for that meeting and we are waiting for a reply,” she said. “We are operating with a country that does not have reciprocal trade practices. They do not have a rule of law and they do not abide by the normal practice of global trade.”
She said Heidtman’s situation is a cautionary tale.
“This is indicative of many American companies doing business in China,” Miss Kaptur said.
Contact Ignazio Messina at: email@example.com or 419-724-6171.