Steel makers' win on import fees may be a hollow victory

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Cheap foreign imports have long been the bane of U.S. steel producers, whose lawyers routinely file trade cases seeking duties on the imports that will punish the offenders and level the playing field.

The well-worn ritual was renewed again this summer, when U.S. Steel and eight other domestic producers lodged complaints about tubes used in the oil and natural gas business that are being imported from nine countries, including South Korea, India and the Philippines.

Last month, the domestic producers won the first round of that skirmish. The U.S. International Trade Commission ruled there was reason to believe that the U.S. producers were being hurt by the imports and sent the case to the U.S. Department of Commerce. That agency will determine whether duties are justified and, if they are, will establish preliminary duties. A final decision is expected sometime next year.

Those familiar with the process, in the steel industry as well as in other import-sensitive businesses, say filing a complaint is expensive and that winning sometimes brings only limited relief.

The U.S. General Accountability Office estimated in 2011 that the Commerce Department had failed to collect more than $1 billion in duties on goods subject to the import penalties. U.S. manufacturers charge that importers avoid the duties by shipping goods through a third country that was not cited in the trade case, then labeling that country as the country where the product was produced. Importers also mislabel products subject to the penalties or make minor modifications to them so they are exempt from the duties, critics charge.

"The value of uncollected duties is astronomical," said Tim Selhorst, CEO of American Spring Wire, a Bedford Heights, Ohio, auto and construction industry supplier.

"Countries have figured out ways to evade or circumvent those duties. They either manipulate the paperwork or transship to other countries. There's all kinds of ways to evade the duties," Mr. Selhorst said.

U.S. Sen. Ron Wyden, D-Ore., confirmed that three years ago when members of his staff set up a fictitious import company to test how willing importers were to bend the rules. He found several of them offered to falsify documents to ship imports through third countries to avoid the duties.

Roger Schagrin, a veteran trade attorney who has represented the steel industry in numerous cases, told a Senate Finance Committee hearing the following year that "customs fraud is at least a hundred, or maybe even a thousand times greater than at the beginning of my career."

Despite the enforcement problems, U.S. companies continue filing import complaints.

Steel producers and other U.S. companies lodge complaints when they believe foreign competitors are dumping goods, selling products in foreign markets for less than they cost to produce or for less than they sell them in their home market. They also file complaints if they believe foreign governments are subsidizing the exports to prevent unemployment. That is a charge frequently leveled at China, which was the target of more than half of the cases investigated by the ITC in the fiscal year that ended Sept. 30.

"You're not supposed to ship your unemployment someplace else," said University of Maryland economist Peter Morici, a former director of economics at the ITC.

U.S. steel producers, labor unions and others argue the unfair imports violate trade laws, eliminate U.S. jobs and increase the already bloated U.S. trade deficit.

In the current case against imports of so-called oil country tubular goods, U.S. producers are seeking anti-dumping duties as well as countervailing duties, which are imposed when the ITC determines the imports benefit from government subsidies.

The complaint comes three years after U.S. producers won a similar case against Chinese tubular goods producers.

A former steel company CEO said the problem with the laws governing the cases is that they were written years ago, when unfair imports were not as big of a problem.

"The people who drafted the rules were dealing with a modest problem. It has grown to a humongous problem. We're talking about 25 percent of the market now," said Thomas Graham, whose credentials include holding the top jobs at U.S. Steel and AK Steel.

Mr. Graham said initiating trade cases is expensive, which sometimes deters U.S. companies. But winning a case hasn't deterred the targeted importers, he said.

Winning "it seems to me, has had a 'de minimus' deterrent effect," Mr. Graham said. "The defendants in those cases go right on doing it."

The tube case renews tensions between the U.S. steel industry, which is currently operating at about 75 percent of its capacity, those who rely on the imports, which have captured about 23 percent of the U.S. market for finished steel.

That market share figure excludes slabs and other semifinished steel some U.S. producers import, then convert into finished products. Those imports totaled 6.9 million tons last year, according to the Commerce Department.

The American Iron and Steel Institute, which represents domestic producers, hailed the ITC's decision in the tube case.

"U.S. companies and their workers deserve to have a fair shake," AISI president Thomas J. Gibson said in a prepared statement.

But a group representing traders who import steel and companies that use it to make steel products used in the automotive, oil and gas, and other industries blasted the decision. They question why U.S. producers that are earning money selling their tubes should qualify for import relief.

"This is not an industry that needs trade protection," David Phelps, president of the American Institute for International Steel, said in a statement.

Mr. Selhorst said legislation making its way through Congress would address some of the loopholes identified by U.S. manufacturers who have been harmed by dumped imports. That could help the U.S. steelmakers crying foul over unfair tube imports.

"If the win, they're going to want it enforced," he said.

businessnews

Len Boselovic: lboselovic@post-gazette.com or 412-263-1941.


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