Trade Cases

Section 232 Testimony Heavily Weighted Toward Domestic Industry

Written by John Packard

The Chinese, Russians, Turks, Vietnamese, Koreans and to a lesser extent the Taiwanese ears were burning Wednesday after the “bad-mouthing” they got at the Section 232 hearing on steel. Of the 37 scheduled speakers 9 domestic companies/organizations along with four foreign entities (Russia, China, Ukraine and Eurofer) spoke on behalf of allowing foreign steel without restrictions (other than AD/CVD restrictions). The balance (24 companies/organizations) were there to support the steel industry and to call for restrictions against foreign steel products.

At the beginning of the hearing Secretary of Commerce, Wilbur Ross spoke about the questions the DOC has been charged to answer:

•    Is steel being imported into this country impairing our national and economic security?

If the DOC finds foreign steel imports threaten our security, the DOC will recommend appropriate action to the president.

Key questions Wilbur Ross raised that need to be answered include:

•    Does the problem rise to the level of crisis sufficient to warrant action above AD/CVD cases?
•    If the president does take action, should it cover all steel from everywhere?
•    What do we do with steel imports from NAFTA partners.
•    Are all products covered?
•    What kind of tariffs?
•    Should some countries be excluded?
•    Should tariffs be broadly applied or to groups of products?

Secretary Ross, in a response to Congresswoman Marcy Kaptur of Ohio, told the audience that he does not expect this review to take the 270 as allowed under the guidelines. He said he will have the report to the President by the end of June 2017.

This falls right in line with the timeline provided by trade attorney Lewis Leibowitz in a recent article written for Steel Market Update. His expectation is for the President to make an announcement around the end of July of this year.

From SMU perspective, and from the perspective of many of those with whom we spoke after the hearing, the presentations were stacked against those who support allowing foreign steel into the U.S. market.

The main points being made by those supporting the Section 232 argument were:

•    The need for a strong steel industry to insure the country has what it needs for infrastructure, oil and gas drilling and movement of supply, electrical grid as well as for defense-specific projects.
•    A call for additional duties or quotas on foreign steel with one speaker recommending using the year 2012 as the base year from which to assign quotas.
•    Speakers pointed to the massive global over-capacity which some put anywhere from 400 to 800 million metric tons.
•    Government distorting policies resulting in predatory export pricing.
•    Foreign steel does not have same EPA restrictions, wages, taxes, etc. which exist in the U.S. industry.
•    Current trade remedies (AD/CVD) are not working to keep steel out of the US market.

Pipe & Tube Industry Used as an Example

The pipe and tube industry was well represented and perhaps used as an example of what happens to an industry, even with AD/CVD complaints, as imports now represent more than 50 percent of the total market.

Barry Zekelman, President & CEO of Zekelman Industries (a pipe and tube manufacturing company) in his prepared remarks told the panel, “In sum, to ask if pipe and tube is vital to our national security is not the right question.  The question is really how our country could possibly be secure without it?  Our economy and our military would grind to a screeching halt without a vibrant domestic tube industry. We employ tens of thousands of people, providing income levels far superior to the touted minimum wage victories.  In addition, our industry consumes over 20 million tons of the flat rolled steel produced in the United States, the largest single category.  So, if we go out of business, the steel producers are not far behind.  Imports have decimated our industry, resulting in the closure of a host of pipe and tube mills and throwing thousands out of work.  In the first quarter of this year, imports in all pipe and tube categories exceeded 60 percent of consumption, with some categories reaching 70 percent and higher.  It would be the epitome of folly to allow our nation to continue to permit imports to grow, putting U.S. producers out of business, and making our country vulnerable due to its reliance on foreign producers in China, Korea, Vietnam, Turkey and elsewhere.”

AIIS Warns of Unintended Consequences

The American Institute for International Steel (AIIS) speaker was attorney Gary Horlick and he spoke about the repercussions of the Section 232 cases in the past.

“The past history of this clause illustrates the extreme caution needed to avoid misuse for political reasons.  It is frequently stated that the statute has only been used for import protection twice, both involving relatively minor uses involving crude oil in the 1970s.  But this forgets the largest use of this statute, under a predecessor statute.  From 1959 to 1973, the U.S., for internal domestic political reasons, imposed quantitative restrictions on the import of crude oil.  This had 3 very direct consequences:

(a)    In the name of protecting our national security, the U.S. for those 12 years pumped out our own reserves, and in the end of the period, the U.S. for most of its history a major net oil exporter, had become a net importer of crude oil.
(b)    During this period, U.S. downstream industry, as a direct result of the quotas, paid 50-100% more for its oil (used both as an input and as energy) than its foreign competitors, effectively giving a huge cost advantage to competitors in the newly reconstructed industries in Japan and Europe.  At the end of the quotas, the U.S. ran a trade deficit in goods.
(c)    The U.S. granted an exemption to the quotas to its close ally and neighbor, Canada.  In 1959, the minister of national patrimony of Venezuela, then a very close U.S. ally, flew to Washington to ask for a similar exemption.  This was refused and Minister Alonso instead of flying back to Caracas flew directly to Riyadh and founded OPEC.”

Mr. Horlick went on to warn of what he felt would be a certainty, retaliation against United States exports. The two largest areas of concern would be military related exports (planes, rockets, etc.) and the second would be agricultural products.

Most of the speakers supporting foreign steel were product specific (for example: ADI wanted a waiver on .010”-.012” G30 galvanized, Steelscape wanted a waiver on hot rolled) while the opposition focused on how the commercial sides of their businesses were also tied to the defense side. Without a strong commercial core they could not exist to produce the necessary products to support military and infrastructure applications.

The DOC panel asked only a few questions and gave no specific indications as to how they were leaning.

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