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U.S. Outlines Measures to Address Steel Overcapacity

The Obama administration has released a fact sheet outlining the steps it is taking to help the U.S. steel industry deal with the “significant challenges” it is experiencing as a result of global excess capacity. Specifically, the fact sheet said, the industry saw a 10 percent drop in crude steel production in 2015, a 37.9 percent increase in imports by volume in 2014 (although imports dropped in 2015) and a 17 percent drop in exports between 2014 and 2015, along with announced layoffs totalling more than 12,000 jobs in 2015.

U.S. Trade Representative Mike Froman told a hearing convened to examine the problem that while excess steel capacity “is not limited to China,” that country is “the principal source of the world’s overcapacity.” Froman added that the United States is willing to work with mainland China on this issue “as cooperatively as possible” but will “remain clear that they cannot shift their excess capacity onto global markets without serious trade responses.” Froman indicated that this will be a key topic at the Strategic and Economic Dialogue meeting between U.S. and mainland Chinese officials this summer.

The fact sheet sets forth the following on-going measures.

Duty Evasion
The recently enacted Trade Facilitation and Trade Enforcement Act of 2015 gives U.S. Customs and Border Protection more tools to combat the evasion of antidumping and countervailing duties in steel and other industries and requires evasion allegations to be addressed within strict timelines. Commerce Secretary Penny Pritzker said the U.S. Department of Commerce is sharing information with CBP about possible instances of fraudulent transshipment, mislabelling and other evasion schemes. In addition, Pritzker said, the DOC has renewed its partnership with CBP and steel industry associations to educate port personnel on how to spot and stop the evasion of AD/CV duties on steel imports. This enhanced enforcement is expected to target a range of products of interest to Hong Kong and mainland Chinese exporters in addition to steel products.

AD/CV Measures
The American Trade Enforcement Effectiveness Act enacted in 2015 overturns past judicial interpretations that limited the DOC’s ability to enforce AD/CV laws, including by providing stronger rules to deal with foreign producers that do not co-operate in AD/CV proceedings. The DOC has already begun implementing its new statutory authorities in proceedings involving a broad range of steel products from countries including mainland China, Brazil, India and South Korea and is considering ways to further strengthen such enforcement. Products other than steel will also be targeted under these new rules.

The DOC and CBP are currently enforcing 149 AD/CV duty orders against foreign steel, with mainland Chinese products accounting for many of those orders. Nearly two-thirds of the 62 AD/CV investigations initiated in 2015 (the largest number in 14 years) cover steel products, as do 75 percent of the 61 on-going investigations. Petitions in 2016 are on pace to exceed the number filed in 2015 and the number of AD and CV duty orders on mainland Chinese products – including steel and non-steel products – is expected to grow appreciably this year.

The DOC is using a 10 percent increase in its fiscal year 2016 funding to hire 38 new staff to support the AD/CV-related workload, which allows it to examine more foreign firms, conduct additional inquiries in verifications of foreign firm data, and exhaustively investigate issues and concerns raised by the domestic industry. In addition to steel, the new staff is expected to target various other products of potential interest to Hong Kong and mainland Chinese exporters.

CBP Actions
In February CBP implemented a targeted approach to increase reviews of steel imports, which will provide both a statistically valid measure of the risk presented by such imports as well as targets for further enforcement. CBP is also requiring live entry on certain high-risk steel imports, a process that requires all documentation to be filed by the importer and examined by CBP and all duties deposited before the goods are released into U.S. commerce. CBP is increasing other operational measures on steel imports as well, including audits of steel importers.

The United States is also actively working with other countries to address the problem of global excess steel-making capacity. For example, the governments of the United States, Canada and Mexico recently called on the governments of all major steel-producing countries to make strong and immediate commitments to address this nagging issue. According to a joint press release, steel excess capacity more than doubled from 2000 to 2014 and is expected to continue to grow through 2017 despite weakening demand worldwide. In North America, steel production declined while the volume of non-North American Free Trade Agreement finished imports increased by more than 40 percent in 2014 and 2015 compared to 2012 and 2013. Steel exports from these three countries declined 19 percent from 2014 to 2015 and the region’s steel industries are experiencing decreased profitability and thousands of job losses.

The Organisation for Economic Cooperation and Development’s Steel Committee held a high-level meeting in Belgium on 18 April that assessed the situation, although participants in the meeting were unable to reach a deal on cutting steel overcapacity. A day after the meeting, the United States, Mexico, the European Union, Canada, Japan, South Korea and Switzerland issued a statement calling for urgent action to deal with this problem.

In other news, United States Steel Corporation filed on 26 April a petition requesting that the U.S. International Trade Commission institute a Section 337 investigation regarding mainland Chinese carbon and alloy steel products. A USSC press release states that the petition targets the largest mainland Chinese steel producers and their distributors (a total of 40 companies located in the United States, Hong Kong and the Chinese mainland) for illegal conspiracy to fix prices, theft of trade secrets, and circumvention of tariffs by false labelling.

The USITC is expected to seek input from interested parties in early May on any public interest issues raised by the above complaint, including whether the remedies requested by the complainant would affect the public health and welfare in the United States, competitive conditions in the U.S. economy, the production of like or directly competitive articles in the United States, or U.S. consumers. In particular, the USITC will seek input that (i) explains how the articles potentially subject to any remedies are used in the United States; (ii) identifies any public health, safety or welfare concerns in the United States relating to the potential remedies; (iii) identifies like or directly competitive articles that the complainant, its licensees or third parties make in the United States that could replace the subject articles if they were to be excluded; (iv) indicates whether the complainant, its licensees and/or third-party suppliers have the capacity to replace the volume of articles potentially subject to the requested remedies within a commercially reasonable time; and (v) explains how the requested remedies would impact U.S. consumers.

Section 337 investigations primarily involve claims regarding intellectual property rights violations by imported goods, including the infringement of patents, trademarks and copyrights. However, other forms of unfair competition involving imported products, such as misappropriation of trade secrets or trade dress and false advertising, may also be asserted. While it is unusual for steel products to be the target of a Section 337 proceeding, an industry official referred to the new petition as “a new arrow in the quiver” to combat “China’s illegal and predatory acts targeting [the U.S.] steel sector.”

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