Stainless Steel
Friday | 09 December, 2016 | 1:04 pm

Changing patterns

Written by By Corinna Petry

Above: Outokumpu USA LLC, whose melt shop in Calvert, Alabama, is shown above, is among the domestic producers fighting unfairly traded stainless imports.

Advocates for U.S. stainless steel producers lay out the monitoring, evidence gathering and market reactions amidst import probes

December 2016 - Domestic industry has a big problem when a foreign steelmaker suddenly exports a product to the United States, at many times the normal volume over many months, while charging well below home or export market prices. U.S.-based companies are severely undercut and made uncompetitive, which means they must sometimes shut down production and lay off American workers. 

David “Skip” Hartquist and Laurence “Larry” Lasoff, partners at Kelley Drye in Washington, D.C., are part of a team of lawyers that monitor import selling prices and the impact on their clients; follow pathways from the country of origin; dig out who the real owners of foreign mills are and how they conduct business; and make cogent and convincing arguments about real harm to their clients and how duties would help alleviate that harm.

In July, the Commerce Department found that imports of stainless steel sheet and strip from China benefit from government subsidies, and applied duty margins of between 67.3 and 193.1 percent of the value of the imported product. In September, Commerce said these products were sold at less than fair value—that is, dumped—into the U.S.

“I am handling flat-rolled and Larry is handling long products,” Hartquist says. “On the flat rolled side, our case against China is moving along nicely. We are about halfway through.”

Represented in the sheet and strip trade petition are AK Steel Corp., ATI Flat Rolled Products, North American Stainless and Outokumpu USA LLC.

“The next stage is to move to final determinations of the anti-dumping and countervailing duties by Commerce, and simultaneously the International Trade Commission will enter the final investigation on whether the domestic industry has been injured or not by the Chinese imports,” says Hartquist. “The injury case has been strong. All of this will be concluded by March 2017.”

MM 1216 stainless image1

In sheet and strip, Chinese material surged in and took market share from U.S. producers, according to attorneys with Kelley Drye in Washington, D.C.

Circumvention concerns

But not so fast... “It often happens that when you win or even during an investigation, foreign companies look for ways to circumvent the duties,” Hartquist says, “so we are watching trade patterns around the world: Where China is trading and possibly shipping to other countries that are not subject to investigations.” Often, the product will merely be relabeled as coming from the host country, or a small change will be made to redefine the product as one that won’t have tariffs assessed on it by U.S. Customs.

There are many ways to circumvent, he notes. “We are conducting research on our own to determine whether this is already beginning. We will take action against circumvention by reporting it to Commerce and Customs.”

Kelley Drye is monitoring Vietnam for stainless sheet imports. “Since the case begun, there has been a significant increase of imports from Vietnam and we never noticed their volume before this case. So we are watching that very carefully,” says Lasoff. 

“One of the recent legislative changes, a new law—the ENFORCE Act—allows a formal procedure to bring a petition of circumvention at Customs.”

Beat the clock

There isn’t a single pattern for how exporters and the domestic producers respond to trade investigations or for how and where injury manifests. 

“In sheet and strip,” says Hartquist. “Chinese material surged in and took market share from U.S. producers. There was a lot of evidence of underselling and domestic mills lost sales to Chinese producers.”

Then, after a case is filed, exporters “may react in different ways. Sometimes they will ship like crazy to bring as much material in as possible before the preliminary Commerce decision is made, because that’s when they have to start paying duties. So there are about five months to beat the clock before paying duties.”

That practice might create a situation “where we can appeal to Commerce and the ITC under a critical circumstances petition.” If exports surge further, “it injures the U.S. industry more, so instead of duties in effect at the time of a preliminary decision, they would begin 90 days retroactively.”

Chinese producers, says Hartquist, “did ship a lot of material in the early part of investigation and, more recently, their exports dropped off fairly significantly.” The reduction can be used to “lay the foundation to argue before the ITC that they have cut back and are no longer hurting U.S. industry,” hoping to persuade the ITC to decide negatively on final injury. 

“We will argue that this is a carefully designed strategy to time the market in order to have an impact on the case. A lot of damage was done already, and we will argue that if an order is not imposed, the Chinese will go back to their old tricks and ship substantial quantities again.”

MM 1216 stainless image2

Initial margins on Chinese product begin at 67.3 percent.

The broader view

Steel producers in the European Union often bring similar cases, and against the same actors, as the United States does. When that happens, does it bolster efforts at home? “When evaluating whether a country’s exports threaten to cause injury to the U.S. market, one of the elements the ITC will look at is import restrictions imposed by third countries,” replies Lasoff. 

“For example, the Europeans imposed restrictions on stainless flat-rolled imports from China, and then you saw stainless sheet imports surge into the United States, which demonstrates the industry is not only injured, but is also threatened with injury under the law.”

This can be seen even in North America because exporters may view that as one market, not three, and when Canada brings a case, the product is frequently diverted to the United States.

“We certainly follow cases brought in Europe, and if there is a World Trade Organization dimension in that case, and whether the country appeals,” he continues. All the trade laws employed by individual WTO member countries are required to adhere to broader WTO rules.

Right now, says Lasoff, “There is a very important decision forthcoming on China. The Chinese believe that they should be treated as a market economy.” (See “Washington Watch” column, October 2016 issue.) “One aspect [we will monitor] is what the Europeans are going to do as a response. It goes back and forth. A lot of our clients have European parents. There is an overlapping effect.”

Kelley Drye follows case development “not just in terms of diversion and how that affects clients generally and the application of antidumping laws globally,” but especially as nations are granted market economy status. 

“Our industry and others have done extensive research on the structure of Chinese steel companies and are comfortable demonstrating that China has not evolved into a market economy and is not entitled to that treatment,” Lasoff says.

Hartquist credits the Obama administration with being “very strong about this. They will not give China market economy status. And it is highly unlikely that the Trump administration would do so either.”

Just the same, if the EU or U.S. or others do not grant market economy status as of Dec. 11—a date cited in WTO accession protocol language and highly subject to interpretation—“it’s dead certain the Chinese will appeal to the WTO through a dispute settlement process. We will then see two to three years of litigation to determine who wins. We probably won’t know the outcome until 2019,” says Hartquist. MM


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