Leibowitz on Trade: New Developments in Product Exclusion Cases

We are left to speculate about why BIS denied these requests because the decisions do not contain any details of their analysis. The three companies received objections to their exclusion requests and were denied exclusions. When their requests were denied, BIS stated, as it usually does, the language in the regulation: “the product referenced in the above-captioned exclusion request is produced in the United States in a sufficient and reasonably available amount or of a satisfactory quality….” 

These denials will have clear consequences for the companies concerned. CSI, a rolling mill restarted after Kaiser Steel closed its integrated steelmaking operations in Fontana, California, is on the West Coast, which means slab supplies from the eastern part of the United States are effectively blocked by prohibitive transport costs. The Fontana mill never restarted its steelmaking operations after the plant was reopened as a rolling mill in the 1980s and the machinery for steel production was sold to China in the 1990s. Since the closure of Geneva Steel in 2002, there is essentially no basic steel production west of the Rocky Mountains. CSI is, and will remain, limited to Imported slabs for its feedstock. That company will continue to rely on imported slabs; with the denials of CSI’s exclusion request, they will pay extra for their slabs, either to the US government in tariffs or to Brazilian suppliers in quota rents. CSI will compete for business with imports of finished steel products.

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For NLMK, which has rolling mills in Pennsylvania and Indiana, the consequences will be similar to CSI, but domestic supplies of slabs will be closer at hand. The concern for NLMK is that domestic steel producers are not in the business of supplying re-rollers; indeed, steel mills compete with NLMK in finished product markets. Relying on a competitor for a vital raw material constitutes a major risk over the long term. The tariffs raise prices for domestic steel as well as imports.

ATI is a consumer of stainless steel slabs for its mills in its plant in Pennsylvania, a joint venture recently reopened. ATI asserted in its exclusion requests for A240 stainless slabs that the domestic producers of stainless steel slab were in no position to supply ATI, because all of them compete with ATI in end use markets. The mill obtains about 300,000 metric tons of stainless slab per year from an Indonesian supplier affiliated with its China-based joint venture partner.

The denial of ATI’s exclusion request will increase the joint venture’s cost of manufacture and will limit its competitiveness in the United States and around the world. It is not easy to see how granting the exclusion would damage the national security of the United States. Whether ATI supplies more or fewer customers rather than other domestic producers seems beside the point of national security—unless the government is choosing one business model over another.

Lewis Leibowitz

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