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The Filing of an Anti-Dumping or Countervailing Duty Trade Case

Written by David Phelps

The final determination on oil country tubular goods (OCTG) was released on Friday afternoon (Friday, July 11, 2014). The steel industry believes that a positive ruling in favor of the domestic steel industry will prompt a new round of dumping cases aimed at flat rolled products – specifically cold rolled, galvanized and Galvalume. However, these are just rumors and no one is quite sure an anti-dumping or countervailing duty filing will be made. But, the expectation is if one is made it will be soon. Steel Market Update asked David Phelps, former president of the American Institute for International Steel (AIIS) and one of our contributing writers to help explain what is dumping and how do the US Department of Commerce and the ITC fit in the process? Mr. Phelps represented the importers for many years and he has a specific point of view on the subject – any opinions presented in the following article are those of Mr. Phelps. However, he does provide an overview which is important to understand should there be new trade cases in the near future. John Packard, Publisher, Steel Market Update.

Steel Market Update will host a panel with attorneys representing both sides – the steel mills and the consumer – at our Steel Summit Conference in Atlanta on September 3 & 4. One of the attorney’s, Roger Schagrin of Schagrin Associates was one of the lead attorneys for the steel mills.

Recent posturing by domestic industry officials and their lawyers suggest that we could be on the precipice of a new round of major AD/CVD trade case filings.   While increased rhetoric does not always mean a filing is imminent, the domestic steel industry has not been bashful about filings, either more targeted against one or two exporters or massive, against the world, such as was done last year against OCTG.  You may remember that Korea and possibly one or two other major import suppliers were rumored to be the targets, but the filing turned out to be against nine countries, several of which were very small suppliers to the market and were named as a result of a little protectionist item in our trade law domestic petitioners use called “cumulation,” which allows them to add together the small suppliers for purposes of the AD/CVD process.  The importance of cumulation will become apparent below.  

So, the rumor mill is full and, not surprisingly, the principal target is China, with Taiwan and India named too.   Cold rolled sheet, along with galvanized and galvalume sheet are the products usually named, but some long products are also rumored too.  

What does it take for the domestic industry to justify – at least to itself – the filing of trade cases?

First, the process is bifurcated, with the Department of Commerce (DOC) and the International Trade Commission (ITC) involved.  The DOC is where the case is initially filed and DOC is responsible for officially starting the case – called initiating – and then in a two-step process, determining anti-dumping and or countervailing duty margins.  The ITC’s responsibility is to determine whether the domestic industry has been injured as a result of the increased imports, also in a two-step process.  

So, what is dumping under US law?  Oversimplifying the answer, dumping is selling a product at less than it is sold in an exporter’s home country, or selling at less than total cost of production.  “Illegal” dumping is increasing exports of a product to the US under the conditions above AND in the process, injuring the domestic industry.  Under US law, injuring the industry means causing “material injury.”  That sounds like a high level of injury, and it is in most countries, but not the US.  When that standard was codified the domestic industry managed to get their friends in Congress to define “material injury” as “any injury that is not immaterial or inconsequential.”  So the standard is pretty low.  

Note that I am focused on causality of increased imports and injury.  That is because the DOC has not found against the domestic industry in a new AD case for decades – at least one source says 1982.  So, DOC’s fealty to their clients in the domestic steel industry is readily apparent and the real fight in the trade case process is at the ITC where injury due to increase in imports must be proved.  

So, imports must be increasing.  But does that means increasing absolutely or as a percentage of the market?  It means both or either.  For how long?  Well there is no real formal standard that I am aware of, but generally the ITC, where the issue is relevant, likes to see a trend that is in some fashion clear –more than say two or three quarters and maybe clear over more than a year or more.  What makes this confusing is of course the issue of whether the increase caused the injury.  In prior decades before the domestic industry restructured, injury was pretty easy to show with all the red ink in the domestic steel industry.  Linking the losses to imports of course was the challenge.  Nowadays, when the US steel industry is more profitable, the petitioners have argued that declines in profitability are sufficient to prove injury.  [The government, in their mind one could suppose, is responsible for protecting profit margins.]

Boiled down, what does all this mean?  Notwithstanding the rhetoric, no surge in imports is required under law, the word surge is used for effect in the PR battle – “those evil unfair exporters’ steel is surging into our unprotected market.”  The domestic industry has to show increased imports, either absolute or as a percentage of the market.  This is where cumulation could jump in and hit other minor unsuspecting exporters and traders.  The domestic industry lawyers are clever and if it helps their case, they will bring in as many exporters as they need to prove increased imports and injury.  Hence, not just the primary targets are at risk, with cumulation, even small exporters can be caught up in the loathsome process.   This means almost everyone is at risk!

Bottom line, the domestic industry lawyers will file cases when they see the best shot at winning.  That generally means that the product in question should be able to show losses or impaired earnings for at least two quarters.  Of course, due to the actual processing of cases – discussed in a prior letter published in SMU – the good news for the domestics is that even if they lose the case at the end, they win by restricting imports of the target product for over a year while the case was being processed.  Obviously this gives the domestic industry an incentive even to file weak cases.  

Stand by; rumors do not always turn into cases.  Some recent articles in the metals press suggest that at least some Chinese participants in the US marketplace are backing off due to the rumors.  There are many ways to manipulate the market.  

– Dave Phelps
Former President, AIIS

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