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Trump risks blunder if 232 too blunt: attorney

Jul 05, 2017 | 03:50 PM | Michael Cowden

Tags  Section 232, David "Skip" Hartquist, Kelley Drye & Warren, SSINA, Commerce Department, Wilbur Ross, Donald Trump, imports steel

CHICAGO — A rift may have emerged between the US Commerce Department and the White House over which remedy to pursue in a Section 232 investigation into steel imports ahead of this week’s G20 summit, according to a trade attorney representing domestic mill interests.

President Trump before a Cabinet meeting last week expressed his preference for a 25-percent duty on foreign steel as opposed to a mix of tariff and quotas supported by Commerce Secretary Wilbur Ross, David A. “Skip” Hartquist, partner at New York-based law firm Kelley Drye & Warren LLP and counsel to the Specialty Steel Industry of North America (SSINA), told AMM in a recent phone interview.

The hybrid approach was supported by nearly all of Trump’s senior advisers, Hartquist said. “We’ll see how it all shakes out over time. But it’s a messy situation for sure.”

The Trump administration, which had pledged to complete its 232 report by June 30, is now not expected to roll out its 232 conclusions until after the G20.

SSINA has lobbied for a hybrid approach, Hartquist said. The group would like to see a quota based on 75 percent of average import volumes of past years with a 25-percent tariff kicking in after those quotas have been filled. It would also like to see the quotas opened up on a quarterly basis "so you don't have a big rush at the beginning of the year."

Domestic mill sources have voiced concern that a poorly implemented quota system could backfire because it would starve US mills of orders as consumers race to bring in foreign steel before the quotas are filled.

A Commerce spokesman did not return a request for comment on July 5. Earl W. Comstock, director of Commerce’s office of policy and strategic planning, did not say at Steel Survival Strategies XXXII last week which remedy Trump might favor but indicated that a broad solution was necessary because 161 anti-dumping (AD) and countervailing duty (CVD) orders—as well as 21 ongoing AD/CVD probes—have not succeeded in stemming steel imports.

“You can keep playing whack-a-mole. Or you can try to find a broader solution. And that’s clearly what we’re looking at in the context of the Section 232 proceeding,” Comstock said.

The situation surrounding the current 232 investigation is nonetheless unusual because it has not followed in the pattern of past probes, Hartquist said. Prior 232s, for example, have typically featured a 35-page questionnaire sent out from Commerce’s Bureau of Industry and Security.

Responses to those questions were used to develop a factual base to support Commerce’s recommendations to the president. “They’ve skipped that process completely,” Hartquist said. “I think they have been relying on the industry to report to them. But there hasn’t been a clear, consistent method in gathering data.”

Commerce might be able to find support for its conclusions in the current steel 232 in figures collected during past and pending AD/CVD investigations, Hartquist said. But that doesn’t change the fact that even basic questions regarding scope—does the investigation, for example, include fabricated parts—have been met with only vague answers, which raises the prospect of a blunt remedy helping mills at the expense of their consumers.

“If you give relief only to the mills … and you don’t consider the possibility that foreign producers will just move 1 to 2 steps downstream and really hit our customers hard. That’s not going to help the overall situation. That’s going to potentially drive companies out of business or offshore,” he said.

The question of scope is especially critical for the specialty steel industry, where approximately 10 percent of output goes to defense applications, as opposed to the carbon steel industry, where only about 1-3 percent of output is for defense purposes, Hartquist said. Products with high nickel content—such as material used to make aircraft engines—often don’t contain enough iron to technically qualify as steel even though they are made by steel mills. A loose definition of “steel” might thus inadvertently miss a portion of the steel industry directly linked to national security, he said.

And whatever the president decides to do, he’s likely to get an “earful” at the upcoming G20 meeting on July 7-8 in Germany, Hartquist said. “I would expect that countries will be playing other cards as well with the US on completely unrelated issues (to steel). That’s the way these things typically work. They are not viewed in isolation by foreign governments.” The administration is also likely to face challenges to the 232 both within the US judicial system and at the World Trade Organization, he said.

Comstock at SSS XXXII did not say whether the administration had plans to address potential blowback from the 232 on other industries, such as US agricultural or defense exports. “I’m sure there are contingency plans,” he said although he did not elaborate what they might be.

But he said the Trump administration was weighing the impact of the 232 on steel consumers such as appliance and furniture makers. “We are trying to avoid to the maximum extent possible, if action is taken, pushing the product and problem downstream and simply creating an issue for another industry.”

Comstock also indicated that Trump might consider an exemption mechanism for some items. "If he is looking across the entire steel industry, then I think it would be logical to conclude that you would probably have some kind of built in exemption process because there are different capacity utilizations (and because) there are some products that just aren't made in the United States."

But an exemption process might not be necessary if the president instead opted to focus the 232 on a particular steel product, he said. Some market participants have speculated that the 232 might initially focus on a single category, such as pipe and tube.

No matter the outcome, the steel 232 should be watched closely because steel provides a microcosm of one of the biggest challenges facing other manufacturers—overcapacity in China, Comstock said. “We are looking at steel right now and aluminum. And we’re also looking at quite a few other sectors.”

He did not say what those other sectors might be.

And Hartquist held out hope that the administration would deliver a 232 solution that the steel industry would applaud. “They are not going to want to have a bunch of steel companies griping about the inadequacy of the remedy.”

Michael Cowden

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