Tuesday, February 20, 2018
Sandler, Travis & Rosenberg Trade Report
The Department of Commerce has recommended the imposition of tariffs and/or quotas on imports of steel mill products and wrought and unwrought aluminum after determining that the quantities and circumstances of such imports are threatening to impair U.S. national security. Any such remedies would likely impact a wide range of downstream users that now have a limited amount of time to communicate their concerns to the White House. President Trump has until April 11 (steel) and April 19 (aluminum) to determine whether to impose these or other remedial actions.
The DOC determined that “national security” for purposes of these section 232 investigations includes the general security and welfare of certain industries beyond those necessary to satisfy national defense requirements that are critical to minimum operations of the economy and government. The DOC also recognized the close relation of economic welfare to national security; the impact of foreign competition on the economic welfare of individual domestic industries; and any substantial unemployment, decrease in government revenues, loss of skills, or other serious effects resulting from the displacement of any domestic products by excessive imports.
Steel. The DOC finds that the U.S. is the world’s largest importer of steel, with imports nearly four times its exports. These imports “have adversely affected the steel industry,” the report states, with six basic oxygen furnaces and four electric furnaces having closed since 2000 and employment having dropped by 35 percent since 1998. For some types of steel, such as electrical transformers, only one U.S. producer remains.
In the meantime, world steelmaking capacity has increased 127 percent since 2000 and global excess capacity has now reached 700 million tons, almost seven times the annual total of U.S. steel consumption. China is by far the largest producer and exporter of steel, the report states, and its excess capacity alone exceeds total U.S. steelmaking capacity.
Given that the U.S. already has 169 antidumping and countervailing duty orders in place against steel products (including 29 against China) along with 25 ongoing investigations, the DOC recommends that the president consider the following alternative remedies.
- a global tariff of at least 24 percent on all steel imports from all countries, or
- a tariff of at least 53 percent on all steel imports from Brazil, China, Costa Rica, Egypt, India, Malaysia, Russia, South Africa, South Korea, Thailand, Turkey, and Vietnam with a quota by product on steel imports from all other countries equal to 100 percent of their 2017 exports to the U.S., or
- a quota on all steel products from all countries equal to 63 percent of each country’s 2017 exports to the U.S.
Aluminum. The DOC states that imports and global production overcapacity, caused in part by foreign government subsidies (particularly in China), have had a substantial negative effect on the economic welfare and production capacity of the U.S. primary aluminum industry. Since 2012 import penetration has risen from 66 percent to 90 percent, the report states, while domestic aluminum industry employment has fallen by 58 percent and six smelters have shut down. Only two of the remaining five smelters are operating at full capacity and only one of these produces high-purity aluminum required for critical infrastructure and defense aerospace applications, including types of high-performance armor plate and aircraft-grade aluminum products.
The DOC has two AD and CV duty orders in place on aluminum, both against China, and four ongoing investigations against China. The DOC is now recommending the following alternative remedies, which would cover both aluminum ingots and a wide variety of aluminum products.
- a tariff of at least 7.7 percent on all aluminum exports from all countries, or
- a tariff of 23.6 percent on all products from China, Hong Kong, Russia, Venezuela, and Vietnam, with all other countries subject to quotas equal to 100 percent of their 2017 exports to the U.S., or
- a quota on all imports from all countries equal to a maximum of 86.7 percent of each country’s 2017 exports to the U.S.
Next Steps. For both steel and aluminum, any tariffs and/or quotas would be in addition to any duties already in place. However, the report recommends implementing a process to allow the DOC to grant requests from U.S. companies to exclude specific products if the U.S. lacks sufficient domestic capacity or for national security considerations. Any exclusions granted could result in changed tariffs or quotas for the remaining products to maintain the overall effect. In addition, the president could exempt specific countries from any remedies imposed.
The reports are currently under consideration and no final decisions have yet been made. The president may take a range of actions, or no action, based on the DOC’s analysis and recommendations. Actions could include making modifications to the courses of action proposed, such as adjusting percentages.
Business groups have reacted negatively to the DOC’s recommendations. National Foreign Trade Council President Rufus Yerxa urged the president to reject the proposed measures, which he said would increase costs to downstream industries that “are far greater than steel and aluminum in terms of manufacturing output, jobs and exports.” The NFTC and Business Roundtable also warned that using national security as a pretense for import restrictions could embolden other countries to take the same approach, which could restrict U.S. exports of goods and services.
For more information, please contact Leonard Rosenberg at [email protected] or (305) 894-1002.
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Reprinted with Permission and Provided courtesy of IR Global Member Len Rosenberg, Sandler, Travis & Rosenberg, P.A.