This announcement was issued just days after the trilateral trade agreement, the U.S.-Mexico-Canada Agreement (“USMCA”) was reached among the United States, Canada, and Mexico. Notably, the Section 232 tariffs, imposed in June on the basis of national security pursuant to the Trade Expansion Act of 1962, remain in place for both Mexico and Canada despite the USMCA agreement being finalized.

As of June 1, 2018, imports of Mexican steel became subject to a 25 percent duty, while aluminum shipments are subject to a 10 percent duty. Certain countries, including Argentina, Brazil and South Korea, have already negotiated export quotas to nullify the Section 232 duties. For example, South Korean officials agreed in March to cut steel exports by 30 percent of the 2015-2017 average.

Mexico is also facing potential Section 232 tariffs and export quotas imposed by the U.S. regarding certain Mexican-origin autos and auto parts. The U.S. is currently investigating whether it will impose such tariffs, and results are expected in the coming months. If such duties are imposed, a side-letter to the USMCA states that Mexico and Canada will be subject to a 2.6 million annual passenger vehicle quota each, while also being subject to auto parts quotas of $108 billion and $32.4 billion annually, respectively.

Next Steps

Mexican officials indicate that an agreement on export quotas for steel should be reached in the next few weeks. Separately, the finalized USMCA is expected to be signed at the end of November 2018. Pursuant to the Congressional trade agreement authority, the Bipartisan Congressional Trade Priorities and Accountability Act of 2015 or Trade Promotion Authority, a list of required changes to the U.S. law is due to Congress within 60 days of signing. In addition, the U.S. Department of Commerce is expected to release its recommendations regarding Section 232 automobiles and auto parts imports in mid-February 2019.

The Secretary’s press release presents the agency’s key findings and lists the agency’s various recommended remedies. With respect to steel imports, the Department of Commerce recommends three alternative options to the President:

1. A global tariff of at least 24% on all steel imports from all countries, or
2. A tariff of at least 53% on all steel imports from 12 countries (Brazil, China, Costa Rica, Egypt, India, Malaysia, Republic of Korea, Russia, South Africa, Thailand, Turkey and Vietnam) with a quota by product on steel imports from all other countries equal to 100% of their 2017 exports to the United States, or
3. A quota on all steel products from all countries equal to 63% of each country’s 2017 exports to the United States.

1. A tariff of at least 7.7% on all aluminum exports from all countries, or
2. A tariff of 23.6% on all products from China, Hong Kong, Russia, Venezuela and Vietnam. All the other countries would be subject to quotas equal to 100% of their 2017 exports to the United States, or
3. A quota on all imports from all countries equal to a maximum of 86.7% of their 2017 exports to the United States.

The Commerce Department’s reports also recommend that a process be set up to allow Secretary Ross to grant requests by U.S. companies to exclude certain products from whatever remedy President Trump ultimately imposes.

The Kelley Drye International Trade team is closely reviewing these reports and monitoring any further developments.

Low-priced Chinese steel has long been the target of antidumping and countervailing duty trade actions in numerous countries that have seen their domestic steel industries hammered by surging imports, including the United States, the European Union, Canada, Mexico, Australia, and several of China’s neighboring Asian countries. According to the OECD, global steel capacity reached 2.38 billion metric tons in 2016, with China alone accounting for more than half of that capacity. Another nearly 40 million metric tons of worldwide capacity additions are under way and expected to come online by 2019. An estimated 53 million metric tons of capacity expansions are also in the planning stages over the next few years. The modest improvements in global steel demand in 2017 and 2018 are insufficient to combat the overcapacity crisis. As the Chairman of the OECD Steel Committee stated in September 2017, “Forecasts by external experts suggest that steel demand could reach only 1.87 billion metric tonnes in 2035, which would be 0.49 billion metric tonnes or 20.1% below the latest steelmaking capacity level expected for 2017.”

In the past year or so, a groundswell for collective, international action in response to the glut of Chinese steel has resulted in important statements made at the G-20 (establishing a Global Forum on Steel Excess Capacity), the OECD, and the WTO, but with little more than non-binding commitments from China. Ironically, China announced that it was relieving taxes on Chinese steel exporters just days after the United States, the European Union, and Japan issued a statement on global trade crises in the wings of the WTO’s ministerial summit in Buenos Aires. The members agreed to “enhance trilateral cooperation in the WTO and other forums” to address, among other things, “severe excess capacity in key sectors exacerbated by government-financed and supported capacity expansion, {and} unfair competitive conditions caused by large market-distorting subsidies and state owned enterprises.” The mention of “excess capacity in key sectors” did not need to directly mention China or steel to reach the right audience, but will likely continue to fall on deaf ears.

The exclusion order covers stainless steel products manufactured by or on behalf of Viraj, including semi-finished steel, wire rod, bars, angles, wire, flanges and fasteners. The order also applies to stainless steel produced by Viraj that may be sold by other parties, as well as products produced by Viraj made from stainless steel billets and ingots that are melted, refined, and cast by an unrelated third-party.

With respect to the countervailing duty investigation on wire rod from Turkey, Commerce calculated an overall subsidy rate of 2.27 percent ad valorem for Turkish producer Habas Sinai ve Tibbi Gazlar Istih (Habas), but a de minimis subsidy rate for Turkish producer Icdas Celik Enerji Tersane ve Ulasim San (Icdas). Wire rod imports from Turkey from all other producers and exporters will require a cash deposit at a rate of 2.27 percent ad valorem.

Commerce will next instruct Customs and Border Protection to begin collecting cash deposits as of the date of publication of Commerce’s determination in the Federal Register. Entries of wire rod going back 90 days prior to the publication of the preliminary determination from all other Turkish exporters, other than Habas and Icdas, will also be subject to a cash deposit requirement due to an affirmative “critical circumstances” finding by Commerce.

Commerce is currently conducting companion antidumping duty investigations on wire rod from Italy and Turkey, as well as from Belarus, Korea, Russia, South Africa, Spain, Ukraine, United Arab Emirates, and the United Kingdom. The preliminary antidumping duty determinations on wire rod from Belarus, Russia, and the UAE are expected to be reached on September 5, 2017 and announced the next day.

Kelley Drye & Warren LLP represents Gerdau Ameristeel US Inc., Keystone Consolidated Industries, and Charter Steel, which, in addition to Nucor Corporation, are petitioners in these investigations.

Cold-drawn mechanical tubing is a tubular product that is used by a number of industries, including for automotive, agricultural, industrial, and oil and gas applications. Kelley Drye & Warren LLP represents the domestic petitioning industry in this case, which includes ArcelorMittal Tubular Products, Michigan Seamless Tube, LLC, Plymouth Tube Co. USA, PTC Alliance Corp., Webco Industries, Inc., and Zekelman Industries.

The Commerce Department initiated the Section 232 investigations on steel and aluminum at the end of April. Normally, the agency may take up to 270 days to conduct its investigation and issue findings to the President. In this unique situation, however, the agency is conducting expedited investigations which is why its findings will be issued much more quickly than in past Section 232 investigations.

In the course of a Section 232 investigation, the Commerce Department examines a number of factors to determine whether imports of particular merchandise threaten the national security. These include, but are not limited to: requirements of the defense and essential civilian sectors; growth requirements of the domestic industry(ies) to meet national defense requirements; quantity, availability, character, and use of a particular imported article, or other circumstances related to its importation, and their effect on the national security; the impact of foreign competition on the economic welfare of the essential domestic industry; the loss of skills and investment in government revenue; and the displacement of any domestic products causing substantial unemployment, decrease in the revenues of government, loss of investment or specialized skills and productive capacity.

Indications are the Commerce Department will recommend to the President that some form of action be taken with respect to imports of steel and aluminum. What remains to be answered is the specific type of action recommended to the President, including, the particular steel and aluminum imports subject to action, the foreign countries from which imports are affected, and the length of time or duration of any recommended action in each investigation.