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Photo: Wikimedia Commons/Gnovick. Creative Commons Attribution 3.0 License. |
2016 marked an unprecedented year for steel producers and
consumers across the United States. The
domestic steel industry overwhelmingly prevailed in its antidumping (“AD”) and
countervailing duty (“CVD”) trade cases with the U.S. Department of Commerce
(“Commerce”) imposing large duties on many steel products from all over the
world. However, while this was great
news for the domestic steel industry, these actions actually harm American
consumers as the prices of many goods increase and thousands of Americans who
work in the construction and automotive sectors face job losses because drastic
increases in steel prices can harm employment in these downstream
industries. If history is any lesson,
more Americans will lose their jobs then are employed by the entire U.S. steel
industry.
2016 was an unprecedented year for trade enforcement in
terms of the number of AD and CVD orders that were imposed and also in terms of
the sky-high duties that were levied. In 2016 alone, Commerce issued over 30
new AD and CVD duty orders, many of which imposed large dumping and subsidy
margins on countries from China to the United Kingdom. These large duties
effectively prevent producers in these foreign countries from being able to
sell steel in the United States. To put
the number of AD and CVD orders generated in 2016 in context, at the beginning
of 2016, there
were 332 AD and CVD orders in existence with just under half (149) on steel
products. Thus, Commerce and the International
Trade Commission (“Commission”) increased
the total number of AD and CVD orders in effect by 10 percent (over 30 AD
and CVD orders) in just one year with all 10 percent of the increase targeting
steel products.
This rapid expansion in trade enforcement in 2016 is unlike
anything even the most seasoned veterans have experienced during their careers
in international trade. Donald B.
Cameron, Partner at Morris, Manning & Martin, LLP, who has represented the
Korean steel industry for over 30 years, stated that “the domestic industry
filed an unprecedented number of cases on steel products between 2015 and 2016,
and thanks to several trade bills they passed through Congress that went into
effect in 2016, this made it even easier for Commerce to manufacture and levy
high AD and CVD duties on producers that are completely unrelated to any actual
dumping or sale of subsidized merchandise actually taking place.”
Why does any of this matter?
One could argue that there must have been a good reason to protect the
domestic steel industry. Recent news
reports have estimated that the U.S.
steel industry has lost 48,000 jobs since 2000,
with the total number of jobs in the steel industry declining from 135,000 in
2000 to 87,000 in 2015. Although ArcelorMittal, one of the largest U.S. steel
companies who is often involved in filing cases with Commerce and the
Commission to impose large duties on foreign steel producers, attributes much
of this decline in workers to automation and advances in technology, the
common narrative in the media is that imports of foreign steel are flooding
the market and costing American steelworkers their jobs.
The problem with this narrative is that not only is it
incorrect, but this protectionism of one industry will have adverse effects on
American consumers and on Americans employees in downstream industries that
turn steel into the products and structures that we all use on a daily
basis. Take, for example, the automotive
and construction industries. These two
industries make up the two largest consumers of steel, and a conservative estimate
of the number of people employed in these industries is north of 10,000,000 Americans.
In one of Commerce’s most stunning decisions in 2016, it
calculated subsidy margins of over 58 percent for cold-rolled
and hot-rolled
steel produced by Korean steelmaker POSCO.
A subsidy margin is calculated by taking the total subsidies a producer
allegedly received and dividing it by their total sales of the subject
merchandise. The percentage or margin is
the amount of countervailing duties importers will have to pay if they want to
import that product. In addition, Commerce
also calculated combined 38+ percent dumping and subsidy margins for Hyundai
Steel, South Korea’s other major steel producer, in the cold-rolled
steel case, a 13+ percent margin in the hot-rolled
steel case, and a 47+ percent margin in the investigation of corrosion-resistant
steel.
These margins shocked steel trade observers because POSCO
and Hyundai Steel had received de minimis
margins in CVD investigations and administrative reviews for the past
decade and margins ranging from 0 to 3 percent in AD investigations and
administrative reviews of flat rolled steel cases during that same period. When a company receives a de minimis margin in either an AD or CVD
investigation, the investigation with respect to that company is terminated,
they are not subject to any duties, and they are excluded from any AD or CVD
order. Similarly, when a company
receives a de minimis margin during
an administrative review, which takes place every year after an AD or CVD order
is imposed if the Petitioner or the foreign producer request one, the company
is not subject to any duties for that review period. For more than 10 years, POSCO and Hyundai
Steel had not been subject to any subsidy margins as Commerce consistently
calculated de minimis margins in any
CVD investigations against them.
Further, the AD margins calculated for POSCO and Hyundai Steel during
this period were never above 3 percent for flat-rolled steel investigations or
reviews.
However, all of that changed in 2016 when these two major
Korean steel producers received some of the highest margins ever levied against
a market economy producer of goods. This
decision to place exorbitantly high duties on Korean steel will have a
significant impact on American jobs and the U.S. automotive industry. Both Kia Motors and Hyundai Motors use steel
from POSCO and Hyundai Steel.
Collectively, Kia
and Hyundai
employ 57,000 Americans across the United States. Kia and Hyundai also indirectly employ
thousands of other Americans across the country through their 755
dealerships and 800+
dealerships, respectively.
This decision by Commerce to impose such high margins for
steel products forces downstream steel-consuming companies, like Hyundai and
Kia, to either significantly increase the cost of their vehicles to pay these
high duties or suddenly find an entirely new source of steel, which will also
most likely lead to increases in the cost of their vehicles. When steel prices increase due to punitive
tariffs, American employees of downstream steel-consuming industries suffer. Higher steel prices lead to the cost of other
goods increasing, which then leads to fewer goods being purchased. This, in turn, leads to layoffs and reduced paychecks
for employees in these downstream industries, as American consumers become less
likely to purchase these downstream products.
While no recent study has been conducted to measure job
growth or loss after this recent surge of AD and CVD orders, a comprehensive
study conducted in 2003 after a wide array of AD and CVD tariffs were imposed
found that 200,000
Americans lost their jobs due to higher steel prices. This is especially shocking given the fact
that more Americans lost their jobs in one year because of higher steel prices
than were employed by the entire U.S. steel industry.
Yet, today, the United States again finds itself in a
similar predicament. While the jobs of
87,000 steelworkers are undoubtedly important, Commerce and the Commission have
buckled to the political pressure exerted by steel industry executives and
protectionist politicians and have started manufacturing AD and CVD margins to
protect one shrinking industry at the expense of both American consumers and
the millions of Americans who work in downstream industries that consume steel. Although there are laws and regulations
instructing Commerce on how it should calculate margins, the agency maintains
significant discretion in applying this methodology, which allows it to make
decisions that can significantly impact the margin.
Further, in 2015, Congress passed new legislation allowing
Commerce even more authority to make decisions that significantly increase
margins. Although technically legal,
reliance on such techniques to manufacture high margins does not satisfy the
intent of these trade laws, which are supposed to allow for the imposition of
duties commensurate to any dumping or benefit resulting from subsidies and not
to allow for duties to be used as a mechanism to insulate domestic industries
from competition from imports. In some
of the most egregious cases, Commerce preliminarily determined that a company
either was not selling its goods at less than fair value (i.e., dumping) or did not receive any unlawful subsidies and then
reversed course in the final determination to levy duties between 58
and 92
percent.
What could explain this dramatic change? Based on the public record from these cases,
Commerce was pressured by Congressional representatives, unions, and other
interested parties to manufacture margins.
On one such letter from the Secretary of Commerce, Penny Pritzker, in
response to a letter from the President of the United Steelworkers Union,
Secretary Pritzker included a handwritten note on a form letter saying that “We
are using our tools.” Although it is
unclear exactly what Secretary Pritzker meant by this, one thing is clear: Commerce felt pressured to generate these
margins and margins increased exponentially between the preliminary
determinations and final determinations.
Even with a 10 percent increase in the number of AD and CVD
orders in one year and massive dumping and subsidy margins levied against a
large portion of foreign steel imports, politicians from both sides of the
aisle, including President Trump, Senator
Rob Portman, and Senator
Sherrod Brown continue to push for more investigations on steel, including
a Section
201 investigation, under which, if successful, the United States would
impose high duties on certain products from all countries. Section 201 duties could, therefore, prove
even more fruitful for protectionists and be used to isolate domestic producers
from competition from all imports of
specific products.
Some trade lawyers think a Section 201 investigation is
likely, especially in the new Trump Administration. Mr. Cameron stated, “Given that Trump’s USTR
team is filled with lawyers that represent the domestic industry who are
constantly arguing for even higher duties to be levied, it is only a matter of
time before the Trump administration files a Section 201 petition to block all
imports.”
*E.J. Thomas is a law student at Georgetown University Law Center and an International Trade Law Clerk at Morris,
Manning & Martin, LLP. This Article
represents the author’s personal views and does not necessarily represent the
official views of Morris, Manning, & Martin, LLP.
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