Steel, Aluminum, and the WTO’s Pandora’s Box – Part II

Source: Trade Law
Link: Steel, Aluminum, and the WTO’s Pandora’s Box – Part II

On Thursday March 8th, President Trump followed through on his threat to impose tariffs on all of steel (25%) and aluminum (10%) on a global basis. The Proclamations on the two products are notable in that it aims to link the tariffs to the national security of the United States.  “The persistent threat of further closures of domestic steel production facilities and the “shrinking [of our] ability to meet national security production requirements in a national emergency.” This same rationale is used to justify exempting both Canada and Mexico.  As the Proclamation on steel sets out:

Given our shared commitment to supporting each other in addressing national security concerns, our shared commitment to addressing global excess capacity for producing steel, the physical proximity of our respective industrial bases, the robust economic integration between our countries, the export of steel articles produced in the United States to Canada and Mexico, and the close relation of the economic welfare of the United States to our national security …  the necessary and appropriate means to address the threat to the national security posed by imports of steel articles from Canada and Mexico is to continue ongoing discussions with these countries and to exempt steel articles imports from these countries from the tariff, at least at this time.  I expect that Canada and Mexico will take action to prevent transshipment of steel articles through Canada and Mexico to the United States.

However the President added an important caveat and linked the exemption to the ongoing NAFTA negotiation:

Without this tariff and satisfactory outcomes in ongoing negotiations with Canada and Mexico, the  [aluminum and steel] industry will continue to decline, leaving the United States at risk of becoming reliant on foreign producers of steel to meet our national security needs — a situation that is fundamentally inconsistent with the safety and security of the American people … 

Note that “steel articles” are defined at the Harmonized Tariff Schedule (HTS) 6‑digit level as:  7206.10 through 7216.50, 7216.99 through 7301.10, 7302.10, 7302.40 through 7302.90, and 7304.10 through 7306.90, including any subsequent revisions to these HTS classifications.

“Aluminum articles” are defined in the Harmonized Tariff Schedule (HTS) as: (a) unwrought aluminum (HTS 7601); (b) aluminum bars, rods, and profiles (HTS 7604); (c) aluminum wire (HTS 7605); (d) aluminum plate, sheet, strip, and foil (flat rolled products) (HTS 7606 and 7607); (e) aluminum tubes and pipes and tube and pipe fitting (HTS 7608 and 7609); and (f) aluminum castings and forgings (HTS 7616.99.51.60 and 7616.99.51.70), including any subsequent revisions to these HTS classifications.  The tariffs to go into effect on March 23, 2018.

For the full text of the Proclamations see:

President Trump’s action has led to swift responses from U.S. trade partners and raised the spectre of a global trade war.  The Administration appears to welcome a trade war as “good (and) easy to win.” Nevertheless, “U.S. allies” have been invited “‘to discuss with the United States alternative ways to address the threatened impairment of the national security caused by imports from that country.” This process will be managed by the United States Trade Representative (USTR).   U.S. importers of steel and aluminum are also invited to apply for exclusions on a product specific basis if the United States lacks sufficient domestic capacity or for national security considerations.

By way of further background and in the context of the likely upcoming consultations with “U.S. allies” – In its Section 232 investigation, the U.S. Department of Commerce (‘DOC”) found that U.S. national security was threatened by imports of steel mill products and from imports of wrought and unwrought aluminum.   The steel products fall into one of the following five categories: Flat products, long products, pipe and tube products, semi-finished products, and stainless products. The findings on steel included:

• The United States is the world’s largest importer of steel – imports are nearly four times our exports.
• Domestic employment is down by 35% since 1998. The recent global excess capacity is 700 million tons – almost 7 times the annual total of U.S. steel consumption.
• China is by far the largest producer and exporter of steel, and the largest source of excess steel capacity, one which exceeds the total U.S. steel-making capacity.
• China produces nearly as much steel in a month as the U.S. does in a year.
• The United States has 169 antidumping and countervailing duty orders in place on steel, of which 29 are against China, and there are 25 ongoing investigations.

The DOC’s recommendations set out three options:

• A global tariff of at least 24% on all steel imports from all countries, or
• A Tariff of at least 53% on all steel imports from 12 countries (Brazil, China, Costa Rica, Egypt, India, Malaysia, Republic of Korea, Russia, South Africa, Thailand, Turkey and Vietnam) with a quota by product on steel imports from all other countries equal to 100% of their 2017 exports to the United States, or
• A quota on all steel products from all countries equal to 63% of each country’s 2017 exports to the United States.

See: https://www.commerce.gov/sites/commerce.gov/files/the_effect_of_imports_of_steel_on_the_national_security_-_with_redactions_-_20180111.pdf

With respect to aluminum, the DOC’s findings included:

• Aluminum imports have risen to 90% of total demand for primary aluminum, up from 66% in 2012. From 2013 to 2016 aluminum industry employment fell by 58%
• At today’s reduced military spending, military consumption of aluminum is a small percentage of total consumption and therefore is insufficient by itself to preserve the viability of U.S. smelters.
• There is only one remaining U.S. producer of the high-quality aluminum alloy needed for military aerospace. Infrastructure.
• The United States has two anti-dumping and countervailing duty orders in place on aluminum, both against China, and there are four ongoing investigations against China.

The DOC’s recommendations included three alternative remedies for imports of aluminum ingots and a wide variety of aluminum products.

• A tariff of at least 7.7% on all aluminum exports from all countries, or
• A tariff of 23.6% on all products from China, Hong Kong, Russia, Venezuela and Vietnam. All the other countries would be subject to quotas equal to 100% of their 2017 exports to the United States, or
• A quota on all imports from all countries equal to a maximum of 86.7% of their 2017 exports to the United States.

See: https://www.commerce.gov/sites/commerce.gov/files/the_effect_of_imports_of_aluminum_on_the_national_security_-_with_redactions_-_20180117.pdf