Leibowitz: Trade Gets Easier for Allies, Harder for China

First, the administration issued “final guidance” under the “Build America, Buy America Act” (BABA) regarding what imported parts and components may be used in federally funded infrastructure. The coverage of this guidance is complicated, and it won’t apply to all federally funded projects. But in general, unlike the rules under the Buy American Act (BAA), which covers federal purchases of products, the new guidance covers projects that are funded in whole or in part by federal money.

The new final guidance covers projects funded under BABA. But federal funds for projects approved before the effective date of this final guidance (probably late October 2023) under the “Bipartisan Infrastructure Law” (BIL) will be governed by earlier BABA rules published in April 2022.

Prelim Tin Mill Product Duties

Second, last week the Commerce Department issued two decisions that are of note. The first deals with the antidumping and countervailing duty investigations of tin mill steel products. In a split decision, Commerce found rather small antidumping margins for imports of steel mill products (tin can stock) from South Korea, Canada, and Germany as well as significant margins (122% of entered value) for China.

The split decision comes on products imported from the Netherlands, Taiwan, Turkey, and the United Kingdom. Those countries received zero margins. The battle is not over yet because these are only preliminary determinations. The final determinations are due in 75 days (subject to extension).

China Solar Panel Circumvention Case

Third, Commerce issued a final determination on circumvention inquiries into imports of solar panels and cells from China, which are already subject to antidumping and countervailing duties. Eight companies were investigated. Five were found to be circumventing the duties on Chinese exports to the US. And three were found not to be circumventing. Another split decision.

But this determination will not go into effect immediately because of a presidential decision in June postponing any additional duties until June 2024. That decision, as I reported on earlier this year, was because domestic production of solar cells and modules is not sufficient to meet domestic demand.

The Big Picture

Commerce is usually the toughest on China, and the tin mill and solar cells decisions bear that out. In both trade cases, China bore the brunt of the actions.

While delayed for several months, the solar cells decision will collect duties for cells made in China and shipped through four countries (Cambodia, Malaysia, Vietnam, and Thailand) if they are subject to “minor” processing in those intermediate countries. If China’s exporters find other intermediary countries to use for such processing, expect more circumvention cases.

Tin mill is an antidumping investigation (and, for China, a countervailing duty investigation examining alleged subsidies). Major trade associations and companies that purchase tin mill products for manufacturing cans and other items in the United States lobbied vigorously against the tariffs. Their efforts appeared to pay off in that the preliminary margins on all countries but China were low, and in that five countries received zero margins.

If the final determination confirms these results (decisions are due early next year), the potential for disrupting supplies of foreign tin mill products will not be nearly as bad as the canning and food industries had feared. There is still uncertainty. But Commerce appears to be taking account of market realities here.

On the Buy American front, the Biden administration, through its Office of Management and Budget, seems to be issuing some split decisions too. The final guidance issues rules for eligibility under the BABA provisions for three categories of products: (1) iron or steel products; (2) manufactured products; and (3) construction materials. The three definitions are intended to be mutually exclusive.

“Iron and steel products” are limited to products where the costs are 50% or more of the total cost of making the product. If that is true of a product, then the process of manufacturing (from melting the steel to final production, including coating the steel) must take place in the United States.

“Manufactured products” include products that are shaped or assembled from different materials. If a product meets that definition, then final assembly must occur in the US, and at least 55% of the materials based on cost must come from the US. This is a more stringent standard than under the BAA.

Under the BABA rules, agencies or companies may apply for a waiver of the provisions based on lack of availability (“short supply”) of materials from domestic sources. The Office of Management and Budget will supervise the waiver process.

Trading partners have complained that the BABA rules violate a World Trade Organization agreement on government procurement, which 48 countries (27 of which are member countries in the EU) have signed on to. The final guidance states that the waiver process should be used to comply with provisions of the Government Procurement Agreement, which obligates member countries to treat manufacturing in member countries as if it took place in the territory of the member countries.

It remains to be seen how the US will treat these provisions. But if the government liberally grants waivers, two consequences are certain: (1) the reach of the BABA rules will be significantly less; and (2) members of Congress and their constituents will complain.

It is too early to predict all these outcomes, of course. But there is, in all three of these decisions, the possibility of more even-handed treatment of our trading partners, at least those not named China.