american institute for international steel, inc. june 2015 ... · recounting of the history of...

STEEL NEWS | JUNE 2015 1

Richard Chriss, Esq. EXECUTIVE DIRECTOR OF AIIS

[email protected]

Alexandra JoppASSISTANT DIRECTOR

[email protected]

701 West Broad Street, Suite 301 | Falls Church, VA 22046 | Tel: 703.245.8075 | Fax: 703.610.0215 | www.aiis.org

STEEL NEWSE-NEWSLETTER FOR AIIS MEMBERS AND THE STEEL COMMUNITY

American Institute For International Steel, Inc. JUNE 2015

CONTENTS1 Executive Director’s Report4 Market Update8 Steel Shorts

12 Customs Corner13 Guest Commentary16 Calendar of Events

EXECUTIVE DIRECTOR’S REPORTNothing I say in this forum, or anywhere else, can or should supersede recognition of our singular national holiday, Independence Day. George Washington was, in the words of his great biographer James Thomas Flexner, the “indispensable man” for his role in winning our liberty from a foreign power. Independence Day reminds us that we are all indispensable to remaining a free people.

The phenomenon of modern day interconnectedness we call globalization, a consequence of a process that began thousands of years ago, is increasingly the target of politically and ideologically driven critiques that are often long on rhetoric and short on fair-minded analysis. In his captivating recounting of the history of globalization (Bound Together: How Traders, Preachers, Adventurers, and Warriors Shaped Globalization), Nayan Chanda, Director of Publications at Yale University’s Center for the Study of Globalization, notes that “Leaving aside ideological arguments, at its core, criticism of globalization is aimed at the ‘other’—namely, foreign actions and foreign goods, ideas, and institutions.” Too often, even among people of good will, this focus on the foreign “other” can be blurred so that an even-handed appreciation of the role that international trade plays in our economy, and the contributions that it makes to our individual and collective prosperity, is difficult to achieve. In our hyper-connected, media-centric age, it has become easy to caricature globalization’s so-called “winners” as rich, out-of-touch business owners. Similarly, globalization’s so-called “losers” are too-often falsely portrayed as a vast group of hapless victims. This zero-sum, “I win, you lose” view is especially prevalent in discussions regarding the steel industry. Standing in sharp contrast to this zero-sum view of trade is the example of one of our great AIIS members, the Port of Milwaukee.Specialty steel from Europe that is shipped to the Port of Milwaukee is used in the manufacture of massive, high-end electric mining shovels by Joy Global, Inc., a 100-plus year old, Milwaukee-based company, and Caterpillar Global Mining, another outstanding Milwaukee-based company.In this job-creating marriage of foreign steel and United States manufacturing prowess, overseas steel inputs are shipped to the Port of Milwaukee, off-loaded by U.S. dock workers, transported by American workers to American manufacturing plants, made into high-end mining components by American workers, and then sold and exported from the Port of Milwaukee to foreign buyers in Asia, Europe, and Africa. Some of the electric mining shovels built in Milwaukee end up about 12 time zones away, literally on the other side of the planet.

(continued on page 2)


You can see striking examples of these made-in-America shovels in the photos accompanying this report.Some critics of globalization would say that as far as jobs go, it is only the country where all the inputs are sourced from that counts. They would ignore or downplay the many American jobs created and sustained in other elements of the steel supply chain related to these sophisticated, steel-made mining components.However, this type of often-repeated American manufacturing and supply chain story shows dramatically that international trade in steel

is not a zero-sum enterprise. Rather, it is an example of why Mike Moore, New Zealand’s Ambassador to the United States, and a self-described, dyed-in-the-wool, lifelong labor activist who says that “I didn’t join the Labour Party, I was born into it”, and who once served as the Vice President of the International Union of Socialist Youth, states in his book A World Without Walls, that “There is no contradiction between a lifelong adherence to the principles of internationalism and worker solidarity.”This story also highlights the vital role of the Port of Milwaukee and our other great Port members, such as the Ports of Tampa Bay, Houston, New Orleans, and others, in America’s steel supply chain success story, and why we are so dedicated to our core mission of advancing free and responsible trade in steel.Finally, in this month’s newsletter I am pleased to present a Guest Commentary by Mr. Tadaaki Yamaguichi, Chairman, Japan Steel Information Center (JSIC). Mr. Yamaguichi’s Commentary is the first of a series of occasional guest commentaries that will appear in these pages.

Executive Director’s Report (continued from page 1)


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MARKET UPDATEThe economy was not quite as bad in the first quarter as had been thought, but the country’s gross domestic product was still in the red. This, though, might not be the last word on the matter.GDP shrank by 0.2 percent during the January-to-March period, according to the Bureau of Economic Analysis. A month earlier, the BEA had announced a 0.7 percent contraction during the first quarter, and this followed initial calculations of 0.2 percent growth.The GDP shrinkage follows quarterly growth of 4.6 percent, 5 percent and 2.2 percent in the last three quarters of 2014. Explanations for the economic retreat continue to focus on four factors: harsh winter weather that clobbered

the northeast; the labor dispute that slowed shipments through West Coast ports until being resolved in late February; low oil prices that have stalled energy exploration projects; and the strong dollar.First quarter growth has been negative in three of the past five years, and those quarters have been the only negative ones since mid-2009, which has led to criticisms of the way the Commerce Department applies seasonal adjustments to its GDP calculations. In response, the agency is expected to announce a new seasonal adjustment methodology in July. “The Bureau of Economic Analysis (BEA) is working on a multi-pronged action plan to improve its estimates of gross domestic product (GDP) by identifying and mitigating


potential sources of residual seasonality,” BEA stated in a blog post. “That’s when seasonal patterns remain in data even after they are adjusted for seasonal variations. … As a result of this ongoing work, BEA is aware of the potential for residual seasonality in GDP and its components, and the agency is looking for ways to minimize this phenomenon.”So, while the latest revision would typically be the last from BEA, the new methodology, when applied retroactively, could put first quarter growth back into positive territory.With the bad weather and the ports dispute in the past, economists are generally predicting growth of 2-3 percent for the rest of the year. The Federal Reserve expects that “economic activity will expand at a moderate pace,” and it predicts that 2015 growth – including the first quarter – will come in at 1.8 to 2 percent. (This is down from a March projection of 2.3-2.7 percent.) The agency does not expect things to dramatically improve in coming years, with forecasts of 2.4-2.7 percent growth in 2016 and

2.1-2.5 percent growth in 2017.Nonetheless, the Fed appears intent on raising interest rates this year, with September now thought to be the most likely time when it will happen.“It’s not an ironclad guarantee, but we anticipate that that’s something that will be appropriate later this year,” Federal Reserve Chairman Janet Yellen said of a potential rate hike.The Fed’s benchmark federal funds rate has been at 0-0.25 percent since December 2008, and the central bank has not raised rates since June 2006. Members of the Federal Open Market Committee reportedly expect rates to reach 1.75 percent by the end of 2016.If there is a specific trigger for an interest rate increase, it appears to be inflation cracking the Fed’s target of 2 percent. From May 2014 to May 2015, core inflation, which excludes food and energy costs – which tend to be more volatile than other prices – was 1.7 percent. This, though, was the consumer price index measure, and the Federal Reserve uses a different gauge


Market Update (continued from page 4)

Mining shovel being loaded at the Port of Milwaukee April 2015.


that has been showing even slower inflation than the CPI.The monthly increase in prices in May was 0.4 percent, the sharpest increase since February 2013. However, core CPI rose by just 0.1 percent, the slowest rate in five months.One of the drivers of inflation is consumer spending, which, itself, accounts for two-thirds of the nation’s economic activity, and it rose by 0.9 percent in May, the largest monthly increase since August 2009. This was aided by a 0.5 percent increase in personal income. While Americans have generally had more money in their pockets recently because of dramatically lower gas prices, the savings rate for after-tax income has been high – in May, it dipped from 5.4 percent to 5.1 percent – which, while it makes good financial sense, has dampened GDP calculations.

In addition to inflation, the other major factor the Federal Reserve examines when timing interest rates is the labor market. While the economy added 280,000 jobs in May, the unemployment rate ticked up 0.1 percentage points to 5.5 percent. Some positive factors appear to have contributed to the increase: The number of people who are “marginally attached to the labor force” has dropped by 268,000 in the past year to 1.9 million, and, included within this total, the number of “discouraged workers” – people who have given up trying to find a job – has decreased 134,000 to 563,000. All of this has increased the size of the labor market.Manufacturers provided some economic optimism in May, as the Institute for Supply Management’s Purchasing Managers Index rose for the first time since October, coming in at 52.8. Any rating over 50 is associated with expansion in the manufacturing sector. The PMI, which is based on a survey of the nation’s supply executives, was as high as 58.1 in August. Out of 18 manufacturing sectors surveyed, 14

reported growth in May. The institute noted that, “Comments from the [survey] panel carry a positive tone in terms of an improving economy, increasing demand, and improving flow of goods through the West Coast ports. Also noted, however, are continuing concerns over the price of the U.S. dollar and challenges affecting markets related to oil and gas industries.”The dollar remains very strong and, as of June 26, was trading at 0.9 euros, 0.64 pounds, 123.92 yen and 6.2 yuan.The Dow Jones Industrial Average closed at 17,890.36 on June 25, more than 400 points off the record high set on May 19. The S&P 500 closed at 2,102.57 on that day, almost 30 points off its May 21 record high.Existing home sales increased 5.1 percent in May, reaching their highest level in nearly six years, a seasonally adjusted annual rate of 5.35 million, according to the National Association of Realtors. May sales were 9.2 percent higher than they were a year earlier. The median existing home price in May was $228,700, 7.9 percent higher than in May 2014.“Overall supply still remains tight, homes are selling fast and price growth in many markets continues to teeter at or near double-digit appreciation,” association Chief Economist Lawrence Yun said. “Without solid gains in new home construction, prices will likely stay elevated, even with higher mortgage rates above 4 percent.”Housing starts in May dropped 11.1 percent from April, but were 5.1 percent above the May 2014 level, according to the U.S. Census Bureau. Housing completions in May increased 4.7 percent from the previous month and 14.5 percent from a year earlier.The National Association of Home Builders Housing Market Index, which is based on a monthly survey of association members, reached 59 – on a 100-point scale – in June, its highest level since September 2014.Light vehicle sales in May were 6.2 percent higher than they were the previous May, with


Existing home sales increased 5.1 percent in May, reaching their highest

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light truck sales up 11.7 percent and car sales inching up 0.3 percent, according to the National Automobile Dealers Association. Year-to-date light vehicle sales are 5.3 percent higher than the January-to-May 2014 period.Nobody is expecting a “breakout” quarter or year from the economy, but the data appear to indicate at least reasonably good health. If the seasonal adjustment calculations truly are responsible for the negative Q1 trend of late, then a 0.2 percent contraction does not seem that bad, especially when compared to the 2.1 percent decline in the first quarter of 2014. In addition, a strong dollar is often viewed too negatively. Since it hurts exports and helps imports, it pushes down GDP. For average American families, however, a strong dollar can mean that many goods cost less, which effectively increases their wealth and quality of life. Plus, the sound financial decisions that many people are making by saving the money gained from lower prices – resulting both from imports and less expensive fuel – are not reflected in the GDP numbers, but are certainly positives in the long-term. A broader view of the economy, then, suggests a more positive assessment than is provided by a single calculation.

STEEL SHORTSCongress Sends Trade Promotion Authority Bill to PresidentCongress sent to the president legislation that would ease approval of what would be the world’s largest free trade agreement.The United States and 11 other nations are negotiating the Trans-Pacific Partnership, and President Obama and many lawmakers, mostly Republicans, had been seeking agreement on Trade Promotion Authority legislation, an expedited (“fast track”) process for approving the deal once negotiations are complete. This would mean that lawmakers must simply vote yes or no on the pact, without re-writing the agreement.The House on June 18, by a 218-208 vote, passed the “Bipartisan Congressional Trade Priorities

and Accountability Act” (H.R. 2146), which would establish the fast-track approval process formally known as “trade promotion authority.” The Senate voted 60-38 to pass the bill on June 24. With President Obama’s signature, the legislation will become law.After the Senate vote, Obama applauded “the Democrats and Republicans in Congress who came together to give the United States the chance to negotiate strong, high-standard agreements for free and fair trade that protect American workers and give our businesses the opportunity to compete.” He also said that he will “continue to encourage Congress to pass robust trade enforcement legislation that will help us crack down on countries that break the rules.”Once signed into law, the legislation will be in effect for six years, so it could affect other trade pacts now being negotiated, most notably the Transatlantic Trade and Investment Partnership between the United States and the European Union.If approved by all of the nations now negotiating the agreement, the Trans-Pacific Partnership could affect as much as 40 percent of global trade. Besides the United States, participating countries include Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam.

Legislation to Ease Trade Challenges Passed by CongressLegislation passed by Congress as part of the maneuvering to push through Trade Promotion Authority includes provisions that would make it easier for domestic manufacturers to pursue trade complaints.In order to secure enough Democratic support to pass Trade Promotion Authority legislation, Republican leaders in Congress agreed to ensure passage of trade adjustment assistance (TAA) legislation (H.R. 1295). The Senate passed TAA by a voice vote on June 24, immediately after voting to send the Trade Promotion Authority bill to the president. The House passed TAA the next day, 286-138. With a signature from President Obama, it will become law.



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TAA is primarily focused on providing aid to workers who are displaced by the effects of global trade. In addition, though, it includes several revisions to trade laws supported by domestic steel companies under the heading, “Improvements to Antidumping and Countervailing Duty Laws.” U.S. Steel President and CEO Mario Longhi said the changes are needed to “level the playing field with countries who have taken advantage of our nation’s trade laws for far too long.”“The TAA legislation clarifies the injury standard in dumping and countervailing duties cases, the interpretation and enforcement of which have been weakened and become a less effective tool to counter 21st century trade practices mastered by foreign companies and governments,” Longhi said. “By the time ‘injury’ has occurred and can be demonstrated, our markets have already been flooded with unfairly traded goods leading to suppressed prices, plant closures and layoffs. This legislation allows American manufacturers to seek adequate and timely relief under U.S. trade laws.”Among other provisions, the legislation states that officials “may not determine that there is no material injury or threat of material injury to an industry in the United States merely because that industry is profitable or because the performance of that industry has recently improved.”

6 Domestic Steel Companies File Trade Complaints Against 5 NationsSix domestic steel manufacturers on June 3 filed antidumping and countervailing duty petitions against five countries with the U.S. Department of Commerce.The companies charge that China, India, Italy, South Korea and Taiwan are selling corrosion-resistant steel in the United States that is subsidized by the governments of those countries, and that they are selling it below market price.The petitions were filed by AK Steel, Arcelor Mittal, California Steel Industries, Nucor, Steel Dynamics, and U.S. Steel.“These unfairly traded imports have seriously impacted pricing in the U.S. market, which has resulted in a significant negative effect on our production, sales and earnings,” AK Steel Chairman, President and CEO James Wainscott said.The Department of Commerce initiated an investigation into the complaints on June 23. The U.S. International Trade Commission is expected to make a preliminary determination in the case by July 20.

China Urges ‘Countersuits’ Against Trade ComplaintsThe Chinese government is urging that nation’s steel companies to aggressively defend themselves against trade complaints.With the pace of growth in China slowing recently, the country exported a record-high amount of steel in 2014, and this year’s numbers have been increasing.Steel from China has been the target of multiple trade complaints in the United States, the European Union and elsewhere, and the nation’s Commerce Ministry wants manufacturers and others to go on the legal offensive.“We encourage Chinese steelmakers and related businesses to actively participate in countersuits and protect their legitimate interests according to World Trade Organization rules,” the Commerce Ministry stated.In May, a Commerce Ministry spokesman defended the country’s steel shipments, saying they have been increasing because of “higher demand in the global market,” and adding, “I feel that it’s quite normal for Chinese steel exports to these countries to be rising, and it’s quite justifiable.”

Steel Shorts (continued from page 8)

http://enforcement.trade.gov/download/factsheets/factsheet-multiple-corrosion-resistant-steel-products-ad-cvd-init-062415.pdf


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Broker – Known Importer Program (BKIP)CBP implemented the Broker – Known Importer Program (BKIP) on May 13, 2015, deploying the BKIP indicator in ACE. Developed in concert with the National Customs Brokers and Forwarders Association of America, BKIP provides a mechanism through which licensed customs brokers can alert CBP that the entry is filed by an importer known to the broker and that the broker has advised and consulted with the importer regarding the importer’s compliance responsibilities pertaining to Customs regulations. The BKIP indicator on an entry will factor into CBP’s determination of risk for an entry. It should result in improved cargo targeting by CBP and a possible reduction in examinations. The increased interaction between the broker and importer required to meet the BKIP requirements should add to the importer’s knowledge and understanding of its reasonable care obligations while enhancing the broker’s understanding of the importer’s operations. It will also allow for better collaboration between CBP and the trade with regard to trade intelligence. BKIP is intended to identify importers that exercise reasonable care with regard to import obligations but may not qualify for or choose to participate in Trusted Trader or Importer Self Assessment (ISA) programs. BKIP does not require the same level of commitment and formal procedures as are involved in those programs, nor does it provide the same level of benefits from CBP to the importer. It applies only to a specific broker – importer pairing, and importers using more than one broker or importing through different legal entities may have to go through the process multiple times.CBP continues to push for participation in the more rigorous Trusted Trader and ISA programs, and is working to make them more accessible. It appears to have recognized, however, that a number of firms that are committed to and have generally met reasonable care obligations have found, due to size, cost, operations formats, product mix, and other reasons that ISA and Trusted Trader does not work for them. BKIP seems to allow for those importers to be identified and receive a truncated set of benefits, with CBP able to tailor its enforcement efforts as appropriate.It remains to be seen whether importers will choose to work with their brokers to develop the relationship necessary to support BKIP notifications, and whether the program will provide either the importers or CBP with the envisioned benefits. The BKIP Questionnaire prepared by NCBFAA is available at: http://www.ncbfaa.org/Scripts/4Disapi.dll/userfiles/uploads/bkip_questionaire.pdf.

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GUEST COMMENTARYAre Steel Anti-Dumping, CVD Sunset Reviews Real or Imagined?

By Tadaaki Yamaguichi, Chairman, Japan Steel Information Center (JSIC)

There is little question that antidumping (AD) and countervailing duty (CVD) cases are the weapon of choice for American producers, in general, and U.S. steel mills in particular, to use to limit import competition. Over the past 35 years the U.S. producers have filed 1,791 AD-CVD cases. And imported steel has been one of the primary targets of these AD-CVD cases.

That trade battles are a fact of life for imports in the U.S. market is understood. What is less understood, however, is that U.S. AD duties tend to last much longer than they are supposed to. The intended temporary nature of AD duties can be seen from adoption of the WTO Antidumping Agreement.As has been noted by trade law scholars,1 before the adoption of the WTO AD Agreement, some countries with antidumping laws had no formal procedures for terminating the restraints on imports imposed pursuant to those laws. There were no mechanisms to determine whether they were still warranted. The problem was particularly acute in the United States. At the end of 1994, there were 32 U.S. antidumping measures which had originally been imposed before 1980 that were still in effect without any intervening assessments of the conditions of the domestic industries involved. What were originally justified as temporary measures to counter the injurious effects of dumping had morphed into permanent fixtures that distorted trade for the benefit of U.S. producers.The WTO AD Agreement sought to correct this problem. Article 11.1 of the WTO AD Agreement provides:“An antidumping duty shall remain in force only as long as and to the extent necessary to counteract dumping which is causing injury.”And to ensure that there was no misunderstanding as to what was meant by “as long as necessary,” Article 11.3 of the WTO AD Agreement made clear that:“any definitive antidumping duty shall be terminated on a date not later than five years from its imposition … unless the authorities determine … that the expiry of the duty would be likely to lead to continuation or recurrence of dumping and injury.”This formal time limitation for AD duties was adopted when U.S. AD legislation was changed to reflect implementation of the WTO AD Agreement. Under U.S. AD law it is required that, after five years, both the Commerce Department and the International Trade Commission (ITC) undertake a review to determine whether the AD duties should be terminated. In the United States such reviews are known as “sunset reviews.”However, notwithstanding the apt nickname, in reality U.S. AD duties are rarely terminated after five years. Excluding those cases in which U.S. producers do not even show up for the sunset review, the data demonstrate that, contrary to the obvious intent of the WTO AD Agreement, very few AD duties are terminated after five years. And this is particularly so for AD duties against imported steel products.This can be seen by analyzing U.S. sunset review results starting from January 1, 2000, five years after the WTO AD Agreement was adopted in U.S. law. In the 15 year period from 2000 – 2014, the ITC undertook sunset reviews of 409 AD-CVD orders in which both sides (petitioners and respondents) participated. Of these 409 sunset reviews, the ITC determined to continue the AD-CVD orders in 290, or 71.1% of the time. And for first time sunset reviews, the result was even more pronounced – the ITC determined to continue the AD-CVD orders in 78% of the sunset reviews.



Therefore, the hard data seems to suggest that in the United States the likelihood of having AD-CVD orders terminated after five years is only 22 percent.We submit that such result appears to contravene the intended purpose of the Article 11 of the WTO Antidumping Agreement. The United States approach does not appear to conform to the intent of the WTO Antidumping Agreement. This conclusion is based on the fact that other countries appear to have much different results for their sunset reviews. For example, based on statistics for the same 2000 – 2014 time period, the data suggest that the European Union decides to terminate its AD-CVD orders after five years about 44 percent of the time. And Canada decides to terminate its AD-CVD orders after five years about 49 percent of the time. Both of these major trading partners have results that are twice the U.S. rate.We hope that the U.S. ITC will change its approach to sunset reviews to be more consistent with other WTO Members.

1 See Ikenson, Daniel, Shell Games and Fortune Tellers: The Sun Doesn’t Set At the Antidumping Circus, Cato Free Trade Bulletin No. 18 (June 2005) and Abhijit Das and Meghana Sharafudeen, Sunset Reviews: Important Provisions Made Irrelevant?, 5 Jindal Global Law Review, Issue 1 (April 2014).

Guest Commentary (continued from page 13)


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CALENDAR OF EVENTSAIIS Annual Gulf Region Christmas DinnerThe Houstonian Houston HotelDecember 15, 2015

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65th AIIS Annual DinnerManhattan Penthouse, New York, NYDecember 3, 2015

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