Interesting to note that higher volume of imports from Canada, Mexico (both are NAFTA members), Japan, Germany, Taiwan, Netherlands, Italy, UK and UAE do not figure in the group of injury-inflicting countries, may be on grounds of domestic non-availability of the imported items from these sources or on regional political considerations.
The US Department of Commerce has since submitted a much awaited investigation report on impact of imported steel on national security of USA under Section 232 of the Trade Expansion Act of 1962 as amended. The report makes a strong case against rising level of steel imports to USA, the largest importer of steel, on hurting the capability of domestic steel producers to serve the critical sectors which supply major components to US defence industry and also the welfare of certain industries critical to minimum operations of the economy and government. The rationale runs like this. First, unabated steel imports from a specified group of countries (Brazil, S Korea, Russia, China, S Africa, Malaysia, India, Vietnam, Turkey, Egypt and Costa Rica) has adversely affected the margin, profitability, capacity utilisation and capability for further capital expenditures of the domestic producers leading to increasing unemployment in the country and thereby weakening the US economy and this may impair the national security. These damages are irreparable and cannot be countered only by spate of trade measures imposed by USA (currently more than 150 number of AD and CVD measures against 25 countries) as these are time consuming and not falling under permanent redressal measures.
Interesting to note that higher volume of imports from Canada, Mexico (both are NAFTA members), Japan, Germany, Taiwan, Netherlands, Italy, UK and UAE do not figure in the group of injury-inflicting countries, may be on grounds of domestic non-availability of the imported items from these sources or on regional political considerations. It is also argued that while volume of imports from these 10 countries reached around 19 MT in 2017, the exports from USA to these countries is negligible. This is happening in many other steel producing countries as well and US is no exception.
Secondly, the national economy embraces 16 critical infrastructural sectors using steel for critical applications in defence and strategic sectors. A few examples are: chemical production, communications, dams, energy, critical manufacturing, nuclear reactors, transportation systems, water treatment and waste water systems, government facilities, health care infrastructure. Currently these sectors consume more than 50% of total steel consumption in US. It is not immediately known if sectors other than these 16 identified can be grouped under critical sectors serving any other economy, developed or developing in the global context and therefore covers the whole gamut of critical application for any other economy.
Third, import penetration ratio in USA is currently at around 30% of US domestic demand and capacity utilisation in the steel sector is 72.3%. An econometric model (Global Trade Analysis Project [GTAP Model]) was used to show that in order to achieve 80% capacity utilisation which would provide a comfortable operating margin to US steel producers so that US demand for steel can be catered to by higher supply from domestic sources for the defence and other strategic sectors, the volume of imports must come down from the current level of 36 MT to 22.7 MT (a 37% reduction and import penetration ratio at 22%).
Fourth, to achieve this goal, a Quota system (maximum level of imports from the designated source) or an enhanced tariff in addition to the prevailing AD and CVD on these 10 countries to bring down flow of imports from them while safeguarding 100% imports from other sources (at 2017 level) who are supposedly filling up the gaps in domestic availability in specific application areas. Thus a 63% quota on 2017 import level is proposed for the 10 major exporting countries to USA. Accordingly Indian steel exports that reached 0.854 MT in 2017 (estimated) to US would be pegged at 0.538 MT only in 2018 subject to the acceptance of the recommendations of US Department Of Commerce by the government. The Quota for other major exporters to US market is likely to be China: (0.5 MT from 0.784 MT), Brazil (2.95 MT from 4.7 MT), S Korea (2.3 MT from 3.7 MT) and Russia (1.97 MT from 3.1 MT). Another measure recommended to restrict imports by 37% to enable US steel industry to achieve 80% capacity utilisation is to impose a 24% tariff across the board on all steel imports (flats, long, semi-finished, pipes and tubes and stainless) from these 10 countries in addition to the prevailing AD and CVD rates applicable on them. It would also imply that 100% level of imports undertaken by all other countries to US in 2017 would be kept along with additional tariff imposed on others.
The investigation into steel import flows to USA and associating it to national security concerns by establishing indirect linkage of poor health of domestic industry to its inability to serve critical sectors of the economy for infrastructure build up of the country reflects an increasing distance of USA and its lack of trust in the effectiveness of WTO compliant measures of AD, CVD and safeguard in restricting cheap import flows. The same argument can easily be replicated by any other country suffering from increasing flow of steel imports. This proposal has been duly supported by the domestic steel producers and American Institute of Construction and opposed by the user segments (tyre manufacturers, cold heading wire manufacturers, eurofer, AIIS, Ministry of Commerce and China). It remains to be seen if the President gives consent to the findings and adopts quota or tariff measures on US steel imports having a far reaching implication for the global steel industry.
Author is the DG, Institute of Steel Growth and Development