A veteran trade attorney tangles with alleged dumping of foreign electrical steel, a proposed trade agreement, conflict minerals and currency manipulation on the Hill
May 2014 - Seeking to remedy unfair trading practices throughout the world is a sort of David versus Goliath proposition, but the David in this instance––David A. “Skip” Hartquist, partner at Kelley Drye & Warren LLP, Washington, D.C., is up to the task.
An expert on international trade laws, Hartquist serves as counsel for the Specialty Steel Industry of North America, also based in Washington.
As Modern Metals was going to press, SSINA member Allegheny Technologies Inc., teamed up with AK Steel Corp., awaited a May 2 decision from the U.S. Department of Commerce on the size of anti-dumping margins against producers in seven countries accused of exporting grain oriented electrical steel at below cost into the U.S. market.
“GOES is a specialized steel used to make heavy-duty transformers primarily for utility and industrial applications. It has magnetic properties that help enhance the conductivity of electricity. It is used in huge power transformers and for smaller distribution transformers that you would see on a pole,” Hartquist explains.
The anti-dumping petition, filed last September, was prompted “by a surge in imports from the seven countries. The reason we filed it is that these imports were coming in at very low prices, below cost, and we believe they were being dumped. We also filed a countervailing duty case against China because the Chinese government is subsidizing production of GOES,” Hartquist says.
“The allegation is that the domestic industry lost sales to foreign producers, sustaining financial damage resulting from that competition.”
The U.S. International Trade Commission made a unanimous preliminary determination Nov. 19, 2013, that the named foreign mills are causing injury to the two U.S. producers and their workers.
“We succeeded with the preliminary injury finding. There was also a preliminary Commerce decision in the Chinese countervailing duty case, in which they determined there was sufficient evidence of subsidies to continue to a final investigation,” says Hartquist. “The preliminary subsidy margin was over 49 percent. Assuming we succeed and margins are imposed, Commerce will proceed with a final determination and the ITC will go to a final injury determination. Duties begin to be collected by Customs as soon as preliminary AD duties are found—after May 2 if the decision is affirmative.”
The U.S. already imposes anti-dumping and countervailing duties on stainless steel sheet and strip, plate and bar products, none of which face a sunset review anytime soon.
SSINA sent a letter April 15 to U.S. Trade Representative Michael B. Froman, urging him to swiftly conclude negotiations to establish the Trans-Pacific Partnership free-trade agreement without further participation by Japan.
This proposed trade pact, covering 12 Asian nations, “could be helpful in enhancing market access for U.S producers in Asian countries,” according to Hartquist. “However, the market in Japan is essentially closed to us. Our companies have tried to get in there for years. Our position is that Japan should be dropped out of TPP negotiations unless it is willing to come forth with substantial offers in the negotiations to allow competition in its own market.”
This is a matter of concern for such key manufacturing industries as automotive and agriculture as well as steelmakers, he says.
Froman met with Akira Amari, Japan’s minister of economic and fiscal policy, as recently as April 18. “We have spent the past several weeks working to narrow gaps with Japan,” Froman said in a statement. “The round we just completed was focused but difficult. After more than 20 hours of negotiations, we continue to make progress and we are now faced with a reasonable number of outstanding issues. These issues are important to both sides and considerable differences remain.”
The U.S. negotiating team has worked “to be as creative as possible to address Japan’s political sensitivities, while pursuing the overall objective of achieving meaningful access to its market—a goal that all TPP partners share. We look to Japan to make similar efforts,” stated Froman.
TPP’s detractors come from many sectors of the economy, including those who point to NAFTA as the flawed model of outsourcing American jobs and fostering income inequality in the United States. Industries, including steel, have sought certain provisos in any such trade pact to ensure a level playing field for domestic companies but free-trade proponents are seeking fast-track approval, which some observers argue prevents the public from getting a good look at the terms of the deal.
Conflict minerals rule
Also on Hartquist’s radar is an “issue front and center, due to the May 31 filing deadline: the reporting of conflict minerals.”
For the most part, he says, stainless steel producers can handle the reporting requirements because scrap was exempted from the rule.
“The reason for the exemption is that scrap is a hodgepodge of material and one cannot possibly track where all of the ingredients come from. But SSINA members still have to find the country of origin for tantalum and tungsten,” which they use in small amounts.
“We have to do our best to track whether or not the metal came from the Democratic Republic of the Congo or surrounding conflict areas. SSINA members are all working to figure out how to make the reports,” Hartquist says.
A new PwC survey of 700 companies across 15 industries finds one-quarter of respondents are still in the early stages of compliance and 11 percent were only just determining which of their products face material sourcing scrutiny.
“Let’s say you’re buying some tungsten. You have to go to your supplier and ask, ‘Where did you get it?’ He bought it in Germany. Where did the Germans get it? Trying to determine whether it came from a mine in Africa not involved in a conflict is very difficult and very expensive,” Hartquist notes.
A commercial airplane may have 30,000 separate parts and the manufacturer has to find the source for each material in those parts. “Trying to track the conflict minerals can be overwhelming.”
Compliance, says Hartquist, is difficult to carry out and, in the end, “Will it help the people it’s supposed to help? What companies are saying is we are not buying from anybody in that region because we cannot tell which mines are part of the conflict––where the money is going to fighters––and which mines are not.”
Even the U.S. State Department is not able to determine those facts, he says. Mining profits “are not always going to warring forces but the whole region is being hurt by this well-intentioned and difficult-to-comply-with law.”
Currency manipulation by U.S. trading partners persists as “a major problem” for U.S. steel producers, says Hartquist, who headed up the China Currency Coalition for 10 years.
“The Treasury Department will not make a finding that China or other countries manipulate their currency, even though it’s clear they do,” he asserts. “Congress passed legislation several times that provided an objective basis for establishing whether a country has manipulated currency, with criteria to measure it,” and whether any government unduly influences currency movements.
“The Bush and Obama administrations didn’t want the legislation. You can get it through Congress but you cannot get a presidential signature because the Treasury tells the White House to stay out of it,” Hartquist says.
Countries do act upon currencies to make adjustments—the United States included—and the question is how much government interference in the free market qualifies as manipulation, he continues. “We tried to make the legislation as clear and objective as possible but Treasury tells the administration, ‘This is complicated and we might get nailed by the World Trade Organization,’ and recommends the president oppose it.”
Proponents like SSINA, however, “think the safeguards in the legislation would prevent a finding being made without exceptional circumstances of government intervention. In other words,” says Hartquist, “the criteria make it clear that a government has to be doing something really bad” before being called out on it.
Asked about the decisions made by the WTO, Hartquist says the ones that affect the U.S. “are all over the place: some favorable, some not. But in terms of issues we worked on in recent years, the WTO is doing a reasonable job.”
This wasn’t always the case. In 2001, a dispute arose between the U.S. and European Union over U.S. methodology for calculating anti-dumping duties, and WTO ruled the method was unfair. That decision “gave rise to significant changes in procedures. We felt WTO was making law rather than interpreting existing rules. They were holding the U.S. and other countries to rules that were never negotiated. They made them up,” claims Hartquist. But by 2009, the dispute was settled, a WTO summary shows. MM