The United States conducted two investigations under Section 232 of the Trade Expansion Act of 1962, as modified, in 2017 with findings that imports of steel and aluminum products were a threat to U.S. national security. Import relief (25% on covered steel products and 10% on covered aluminum products) was imposed by mid-2018. Retaliation by many trading partners followed without resort to WTO dispute settlement. Dispute settlement cases were also filed by a number of countries. The U.S. also filed disputes against those countries who had retaliated without obtaining final reports or decisions from the WTO panels or Appellate Body and authorization if the U.S. did not comply with any loss that might have happened. All the disputes that are ongoing are at the panel stage at the WTO.
A number of countries agreed to other arrangements with the U.S. or were excluded from coverage. These included Argentina, Australia, Canada and Mexico for aluminum products and those countries plus Brazil and South Korea for steel products.
On January 24, 2020, President Trump issued a Presidential Proclamation “on Adjusting Imports of Derivative Aluminum Articles and Derivative Steel Articles into the United States”. https://www.whitehouse.gov/presidential-actions/proclamation-adjusting-imports-derivative-aluminum-articles-derivative-steel-articles-united-states/. The Proclamation (No. 9980) will be published in the Federal Register on January 29, 2020 and will apply to imports from subject countries beginning on February 8 (25% on steel derivative products and 10% on aluminum derivative products listed in Annexes II and I respectively). The inspection version of the Federal Register for January 29 is available today and the document is attached below. In the Proclamation, the President lays out the history of the 232 investigations and actions previously taken as well as the President’s intention to have Commerce monitor developments in case other actions were warranted. The action laid out in Proclamation 9980 is responsive to information reportedly provided by Commerce of possible evasion/circumvention of the duties. Countries who are excluded or who have arrangements with the U.S. on the original 232 actions are also excluded subject to certain conditions being present suggesting a need to address imports from those countries as well.
1-29-2020-FR-of-presidential-proclamation-on-steel-and-aluminum-derivativesThe purpose of this note is not to review the legal basis for the U.S. action (there have been a number of judicial actions in the United States challenging various aspects of the steel and aluminum national security case), but rather to examine the U.S. trade data to understand the breadth of the term “derivatives” and which countries appear to be the main targets of the additional duties.
Prior Proclamations Sought Review by Commerce and Others of Developments in Case Additional Action Was Deemed Necessary
The President in Proclamation 9980 references the fact that the Secretary of Commerce was directed to monitor imports of aluminum and steel and identify any circumstances which might warrant additional action. For example, paragraph 5(b) of the Steel Proclamation (No. 9705) of March 8, 2018 contained the following language:
“(b) The Secretary shall continue to monitor imports of steel articles and shall, from time to time, in consultation with the Secretary of State, the Secretary of the Treasury, the Secretary of Defense, the USTR, the Assistant to the President for National Security Affairs, the Assistant to the President for Economic Policy, the Director of the Office of Management and Budget, and such other senior Executive Branch officials as the Secretary deems appropriate, review the status of such imports with respect to the national security. The Secretary shall inform the President of any circumstances that in the Secretary’s opinion might indicate the need for further action by the President under section 232 of the Trade Expansion Act of 1962, as amended. The Secretary shall also inform the President of any circumstance that in the Secretary’s opinion might indicate that the increase in duty rate provided for in this proclamation is no longer necessary.”
Similar language was in the aluminum proclamation.
How Broad is the Term Derivative Aluminum or Derivative Steel Product?
The aim of the Proclamation is to deal with products that undermine the purpose of the earlier proclamations. Proclamation 9980 reviews (paragraph 6) how the term “derivative” is used for purposes of the proclamation:
“For purposes of this proclamation, the Secretary determined that an article is ‘derivative’ of an aluminum article or steel article if all of the following conditions are present: (a) the aluminum article or steel article represents,
on average, two-thirds or more of the total cost of materials of the derivative article; (b) import volumes of such derivative article increased year-to-year since June 1, 2018, following the imposition of the tariffs in Proclamation 9704 and Proclamation 9705, as amended by Proclamation 9739 and Proclamation 9740, respectively, in comparison to import volumes of such derivative article during the 2 preceding years; and (c) import volumes of such derivative article following the imposition of the tariffs
exceeded the 4 percent average increase in the total volume of goods imported into the United States during the same period since June 1, 2018.”
What is the Volume of Imports Covered and Which are the Major Exporting Countries?
When one looks at the products that are covered by the two Annexes, one will see relatively few tariff categories covered by the new Proclamation. There are two HS categories that contain products that may be either steel or aluminum – bumper stampings and body stampings. There are significant imports of bumper stampings (though the data are not broken between steel, aluminum and other material). Imports from all counttries of bumper stampings in the first eleven months of 2019 were $394.3 million (of which $199.6 million are from countries not excluded for aluminum; $198.4 million if steel). Body stamps were significantly smaller, $5.2 million from all countries in Jan.-Nov. 2019 ($2.4 million covered if all are aluminum; $2.3 million covered if all are steel). The 8708 categories may have met the Commerce criteria but show a decline in 2019 vs. 2018 of 8.63% for the covered products/countries.
The other aluminum products identified — stranded wire, cables, plaited bands and the like (HS 7614.10.50, 7614.90.20, 7614.90.40, 7614.90.50) are relatively small in value – $43 million for all countries in 2019 (11 months)($26.9 million for countries subject to the additional 10% duties). The products/countries covered increased over the first 11 months of 2018 by 41.45%.
The other steel products identified – nails, tacks (other than thumb tacks), drawing pins, corrugated nails, staples and similar articles (HTS 7317.00.30.00, 7317.00.5503, 7317.005505, 7317.00.5507, 7317.00.5560, 7317.00.5580, 7317.00.6560) were $331.8 million in the first eleven months of 2019 for all countries ($276.9 million for countries covered by the new 25% duty). However, the rate of increase for covered products/countries was only 7.03% in 2019 versus 2018 (but had large increases vs. 2016 and 2017).
Countries with large exports in 2019 of the aluminum products (other than bumpers and body stampings) include Turkey at $7.4 million, India at $7 million, China at $5.0 million, Indonesia at $1.6 million, Italy at $1.35 million.
Countries with large exports in 2019 of the steel derivative products (other than bumpers and body stampings) include Oman at $59.5 million, Taiwan at $31 million, Turkey at $28.4 million, Thailand at $26.0 million, India at $25.3 million, Sri Lanka at $22.2 million, China at $20.4 million, Liechtenstein at $13.0 million, Malaysia at $12.5 million, Austria at $9.9 million and Saudi Arabia at $9.4 million.
On bumpers and body stampings, a number of the excluded countries are major suppliers — imports from Canada were $151.9 million in the first eleven months of 2019. Imports from Mexico were $44.6 million. For countries facing higher tariffs of 10% or 25% depending on whether the exported bumper stamping or body stamping is steel or aluminum, some of the large suppliers in 2019 were Taiwan at $87.4 million, Japan at $41.4 million, China at $39.4 million, Germany at $12.1 million, South Africa at $4.5 million, Italy at $3.8 million and Thailand at $3.6 million.
Conclusion
While any import measure by the President should be periodically reviewed for effectiveness and the need to maintain, the current action by the President in essence is a minor tweak with only $504 million of imports covered by the modified coverage of the Section 232 Proclamations — likely less than 1% of imports of steel and aluminum covered by the original proclamations.
It is true that the domestic steel and aluminum industries are not operating at the levels viewed as optimal and the problem of massive excess capacity in China and other countries is little changed in fact. But if a revision were needed, the level of ambition reflected in the Proclamation seems inadequate to the task.
So perhaps the way to read the proclamation is a recognition by the Administration that the existing relief hasn’t achieved the full measure of relief intended and to give trading partners warning that more is possible if the underlying problems aren’t addressed.
The Proclamation will certainly engender more disputes and increased tension with many of our trading partners. It is hard to understand the calculus (divorced from 2020 election posturing) of taking such a modest step, but time will tell if this is simply a prelude to a larger action in the coming months.