CITAC: Electrical Steel Trade Case Threatens Supply Shortage and Prohibitive Cost Increases for U.S. Manufacturers

Washington, DC (December 13, 2013):  The Consuming Industry Trade Action Coalition (CITAC), a coalition of U.S. companies representing consuming industries, highlighted concern today that recent trade remedy cases on electrical steel products could lead to severe supply shortages and prohibitive cost increases for U.S. manufacturers who purchase these products on global markets.

The antidumping and countervailing duty cases, filed with the U.S. Department of Commerce and U.S. International Trade Commission (USITC), charge that low-priced imports of non-oriented electrical steel from six countries and grain-oriented electrical steel from seven countries cause or threaten “material injury” to U.S. petitioners.

Electrical steel is used by a wide variety of U.S. manufacturers, including automotive, appliance, electric motor, electric generation and equipment manufacturers.  The electrical steel is used for parts of many products, such as household transformers, fans, power tools, welding equipment, magnets, compressors and pumps.

“Important specifications for electrical steel used by U.S. manufacturers are not produced in the United States, but they were included by the petitioners in this case,” said CITAC Counsel Lewis Leibowitz, a partner at HoganLovells.  “Potentially prohibitive duties could be imposed on these imports, meaning that many U.S. purchasers of electrical steel could find themselves unable to buy electrical steel that meets their needs.  U.S. steel users would be unable to compete with foreign producers of these downstream products, which are not subject to the antidumping and countervailing duties.  In some cases, 80% of the sale price of these products consist of the cost of materials.  The result will be the loss of business to overseas competitors who can purchase these steel products at globally competitive prices.  The law ignores these competitive problems.”

“We are hearing reports from our members, particularly those involved in manufacturing parts for generators and motors, that this trade case is already having a severe impact on their ability to source the electrical steel they need to meet their customers’ specifications,” said William E. Gaskin, President of the Precision Metalforming Association.  “If this material is not available in the U.S., the result is obvious:  the trade case will cause our members’ customers to source the parts currently made by our members from our competitors in Mexico or other countries.  We hope that the USITC and Commerce Department consider the needs of U.S. manufacturers, who provide good jobs at good wages to tens of thousands of Americans across the country, when considering the merits of this trade case.”

The trade cases now go to the Commerce Department which will continue the investigation, and calculate preliminary antidumping duties and countervailing duty determinations.  The petitioners are asking for duties in the non-oriented steel case ranging from 51% to 397% and grain-oriented steel case ranging from 39% top258%.  Duties of 100% are generally considered to be “prohibitive,” making it impractical to import.

“It simply makes no economic sense to impose duties on imports of steel products that are not available for purchase by U.S. steel consuming manufacturers in the U.S.,” continued Leibowitz.  “CITAC will be closely monitoring these cases.  The law and the agencies that enforce it should pay attention to the needs of consuming industries for globally competitive inputs.”

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The Consuming Industries Trade Action Coalition (CITAC) is a Washington, DC-based trade organization with one primary objective: to ensure that consuming industries and manufacturers in the United States have access to reliable supplies of globally-priced materials necessary for those industries to produce their products.   For additional information, visit www.citac.info or contact Caitlin Andrews at (202) 828-7637 or caitlin.andrews@bgllp.com.

TARGETING TARGETED DUMPING

An interesting op-ed was published yesterday on Forbes.com by Dan Ikenson, Director of the Herbert A. Stiefel Center for Trade Policy Analysis at The CATO Institute about the U.S. Commerce Department's use of the targeted dumping methodology in anti-dumping cases.

In his piece Protectionist Antidumping Regime is A Pox on America's Glass House, Ikenson writes that the U.S. makes a strong case for itself as the worst international trade scofflaw.  He points to the current anti-dumping case on large residential washers that pits Whirlpool against Samsung and other foreign competitors as evidence "that the United States is actively seeking that ignominious distinction."

Ikenson explains that U.S. anti-dumping rules have been found to violate U.S. obligations under the WTO Antidumping Agreement dozens of times. "In 12 of the 45 cases in which ADA violations were alleged by U.S. trading partners, the methodological trick know as 'zeroing' was at least one of the subjects of controversy." 

'Zeroing' refers to the treatment of export sales to the U.S. when they are compared to “normal value” -- or the foreign value -- of similar goods in antidumping proceedings.  Goods that are sold for less than their normal value have “positive” comparisons.  However, when the Commerce Department finds transactions in the U.S. that occur at prices higher than normal value, it chooses to ignore those sales (“zeroing” them) rather than averaging them into the final calculations as the WTO requires.  By reducing the impact of those transactions on the final calculations, Commerce’s zeroing practice leads to artificially inflated dumping margins.  (For more, check out the CITAC press releases on zeroing here, here and here.) An analysis by the Cato Institute found that in a sample of 18 actual antidumping case records reviewed, zeroing artificially inflated antidumping duties by 44 percent.

The WTO ruled the practice of zeroing illegal with one possible tiny exception - if "targeted dumping” is found.  Targeted dumping is found when Commerce looks back at the prices that a foreign producer charged in a particular period and then concludes, in retrospect, that it charged lower prices than it should have to certain customers, or in certain months, or in certain regions of the country.

To no one’s surprise, petitioners are now including allegations of targeted dumping in most trade petitions. Ikenson writes that "the Commerce Department is ...making this tiny, rarely-ever-used exception the new rule so that it has license to engage in zeroing and inflate antidumping duty rates on behalf of certain domestic producers."  Ikenson continues "Ultimately, this issue is the motivation behind the Commerce Department’s shenanigans in the case involving imported washing machines, targeted dumping, and Black Friday sales.

In the Whirlpool case, to evaluate alleged dumping of washers, Commerce is using the Post-Thanksgiving holiday “Black Friday” sales prices to prove that the respondents “targeted” the this time period, even though -- surprise, surprise - lots of companies grant deeper discounts on selected models during these holiday promotion periods.   So is the message from Commerce to any non-U.S. company that if they participate in holiday sales they risk being accused of dumping?  How can they know what price is safe to sell their product to avoid such an accusation?  As you can see, it's a slippery slope.

Ikenson concludes:  “The United States is definitely one of the world’s biggest trade scofflaws and the antidumping regime remains fertile ground for more mischief.”

In the Whirlpool case, Commerce published final dumping margins in December.  The final action is with the ITC and a vote is expected on January 23.

 

LNG Exports and Consuming Industries in the United States

A Big Benefit for the US and Global Economy

Natural gas users have taken a keen interest in recent requests for authorization to export liquefied natural gas (LNG) from the U.S.  In December, the DOE released a long-awaited study on natural gas exports.  Under the Natural Gas Act, the Department of Energy is authorized to restrict exports of natural gas by time period or quantity, except to Free Trade Agreement countries that extend non-discriminatory treatment to US exports.  One LNG license has already been approved without volume restriction. 

Several large industrial users of natural gas have advocated limits on LNG exports to keep natural gas prices low in the US market.  Low prices, they claim, would make U.S. manufacturers more globally competitive.  However, the DOE-commissioned study found that increased exports of natural gas would benefit the U.S. economy as a whole, creating jobs in export-related industries as well as income from exports.  Who’s right?

Economic theory (and, to be fair, most observation) indicates that restrictions on exports create similar inefficiencies as import protectionism.  Export restrictions reduce the incentive to invest in production of products and services whose prices are held down, just as restrictions on import trade reduce the incentive to invest in the protected market in favor of other markets.  In time, the price of natural gas would approach world price levels, but at a higher price in the US than if production were not constrained. 

International trade agreements also discourage export restrictions, but allow them in certain circumstances.  The General Agreement on Tariffs and Trade (GATT) provides that a country may not restrict exports (with exceptions not relevant here) except by means of export duties and taxes, which are open and transparent.  Perhaps because the US always discouraged export restrictions for economic reasons, the US agreed to this condition. 

But the U.S. Constitution prohibits export duties and taxes.  So, any quantitative restrictions on LNG exports from the U.S. would face tough sledding and potential condemnation in the World Trade Organization. 

The Commerce Department examines alleged subsidies by foreign governments in countervailing duty cases.  Commerce has found that they amount to government subsidies to overseas producers, because they provide inputs at lower than commercial prices.  If other countries examined LNG export restrictions, they might well find that these restrictions provide subsidies to production of natural gas-intensive manufacturing. 

As advocates for consuming industries, CITAC believes that open access to raw materials creates the maximum benefit for all manufacturing.  While the export restraint picture is more complex than import restraints, economic freedom creates more winners than restrictions do.