U.S. cranks up antidumping machine

April 9, 2009

John Kemp Great Debate– John Kemp is a Reuters columnist. The views expressed are his own –

Right on cue, U.S. steel producers have filed antidumping and anti-subsidy (countervailing duty) complaints against imports of high-quality steel pipe from China.

The core of the dumping and subsidization accusations is not new. It centers on alleged benefits China’s steel producers derive from a legacy of state ownership and aid, as well as their willingness to continue exporting surplus product that cannot be absorbed into the domestic market. But until recently the industry was hampered in bringing a case because of high levels of profitability.

To succeed, the petitioner for antidumping relief must prove (1) that goods have been dumped at below the cost of production, the selling price in the home country or in comparable third countries; and (2) that the dumping caused or threatened “material injury” to producers of the “like product” in the United States.

Because steel producers had been making record profits until last summer, it would have been impossible to prove “material injury.” But industry lawyers believe six months of lower prices will be enough to convince officials the industry is suffering real hardship.

In reality, the industry’s problems have been caused by the global downturn rather than dumping and subsidization. But U.S. producers will point to the combination of slumping demand at home and continued strong imports from China to make the case that dumped and subsidized Chinese pipe are causing real harm to American competitors.

U.S. producers are complaining because China’s steelmakers have not cooperated in their efforts to support prices by closing capacity and preventing a build up of inventory.

RISKS RISE FOR IMPORTERS

The case now moves to the United States International Trade Commission (USITC), which will make a determination about “material injury,” and the US Department of Commerce (USDOC), which will determine whether the goods are being dumped below cost or comparable home or third-country prices, and if so by how much.

In the parallel countervailing duty case, USDOC will determine whether the goods have benefited from subsidies that are not consistent with the World Trade Organization (WTO) agreement.

Preliminary determinations are due within the next couple of months, definitive ones later in the year.

But if USDOC and USITC reach preliminary decisions pipe is being dumped or subsidized and causing material injury, U.S. Customs will begin assessing antidumping and countervailing duties on a provisional basis.

From that moment, importers of Chinese steel will be liable to the full (as yet undetermined) duties if the preliminary findings are confirmed later in the year and made definitive.

Given pressure on domestic steel producers, the petitioners may also ask for a “critical circumstances” ruling that could allow antidumping and countervailing duties to be imposed retroactively on imports at any time.

From now on importers of Chinese steel pipe face an uncertain and potentially punitive tariff liability for any pipe entering the country. It will make imports prohibitively risky and is likely to choke off the flow almost immediately — whatever the eventual outcome of the case.

POLITICS WEIGHS HEAVILY

In theory, antidumping and countervailing duty investigations are a quasi-judicial process governed by statue and the WTO agreements. In practice, the process is at least partly political.

USDOC is an agency of the executive branch. USITC is an independent regulatory agency, but the six commissioners (three from each party) are nominated by the president and confirmed by the Senate.

Senators from states with producers bringing antidumping actions have been known to turn up, sometimes en masse, at Commission hearings to support material injury claims, and make sure commissioners understand what is at stake.

The final stage of the antidumping and countervailing duty process is for the president to “proclaim” the duties and make them active. In theory, the president could decline to make a proclamation and end the process. But it would be exceptionally rare, and even less likely in the current environment.

Despite bold rhetoric from US and European leaders about the need to reaffirm commitment to the open trading system, antidumping and countervailing duty actions in sensitive sectors are gearing up, and G20 leaders are unlikely to risk unpopularity by blocking them.

It would be a mistake, however, to see this as a return to the tariff wars of the 1930s. WTO disciplines on antidumping and countervailing duties actions have tightened the rules for member countries significantly.

U.S. and European officials will argue that they need flexibility to provide exceptional protection for sensitive sectors facing sudden stress, and defuse political opposition, to sustain broader support for an open multilateral trading system.

It may not be pretty, but appeasing protectionist sentiment by permitting controversial antidumping and countervailing duties actions in steel and other basic industries is, unfortunately, the price for protecting the wider WTO-based trading system.

27 comments

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John Kemp should get the award for first-class economic journalism. This kind of work has been missing for a long time in the media. Perhaps that is why, in part, the newspapers are dropping like flies. When sycophants call themselves journalists, it is sign of underlying systemic rot. When one sees work of the caliber of John Kemp, it shows that there is a correction going on, however tentative. Thanks to John and thanks to Reuters. Could virtue be in the ascendancy?

Posted by Jonathan Cole | Report as abusive

Your use of the term “high-quality” is flat wrong. If you would have really studied the situation you would have called it “OCTG” and included more information about the real story. I am guessing you had a deadline to meet.

Posted by insider | Report as abusive

I’m wondering when accusations of dumping will be levied against Japanese auto and electronics manufacturers, since the fact that their companies have booked significant losses in the past year would seem to be proof-positive that they’ve been selling into the American market at below cost.

Unfortunately the tendency of the US is to exercise protectionism at the demand of the lobbyist in Washington and criticize any other country that does the same thing…the rest of the world are tired of this…

Posted by Jeffrey | Report as abusive

with our economy the way it is I think we should stop most imports until our economy gets better.many countries do not play fare and america suffers.

I’m not for stopping imports. I’m for stopping unbearable, unreasonable restraints on local industry so that they can compete with China.
There are great technological advances that make certain industries such as refineries, plastics and steel mills produce with less environmental impact than what is traditionally perceived. I’d rather have the industries back to producing in the USA to good standards, where the pollution created can be effectively controlled (very important) than to let China produce the same good for an exponentially greater environmental damage, with no possibility of control, and having to rely heavily on international agreements that may or may not be worth the paper they’re written on.

Posted by Dan | Report as abusive

I have to agree with the earlier poster the use of “high quality steel” is quite inaccurate I am a commercial general contractor in Florida and I have experienced a lot of problems with pinholes in steel pipe that was manufactured in China as a opposed to not having hardly any of the same problems with pipe manufactured elsewhere.

Posted by constructuion | Report as abusive

A nation cannot engage in deficit trade and remain healthy, no more than a family can! The current economic meltdown is but a symptom of an emaciated manufacturing sector. There are so few good investments in U.S. corporations producing goods domestically that bubbles have to be created to lure foreign and domestic investors. Without the feds pumping out the money for bankers to loan and deregulation of the money lending system, there would be little investment in U.S. stocks. China, Japan, Brazil do not engage in unfettered capitalism. They protect their markets while we dismantle our own industries. The United States is a debtor nation and with that comes a poverty. Do we all not remember Joe Kennedy begging for oil and groveling to Chavez after he mocked the United States. This is unfettered capitalism at its worse. It enriches the few and impoverishes and humiliates the many. How do we tell Americans to live within their means when there is daily reinforcement that the nation is okay with growing deficits!

Posted by amtr | Report as abusive

And yet I doubt China will argue how bad thier product is as a defence.

Posted by ZT | Report as abusive

perhaps we should begin to use our grain as a way of evening the playing field. The arabs want an oil based currency, the russians a gold standard, why not an american grain backed currency? This would go a long way to smoothing the finacial troubles of the world, by putting the absolute value on commodities rather than allowing disounted steel and such…I think the US would quickly regain the top spot in the world under these circumstances…

Posted by Michael | Report as abusive

I would like to point out that we dump food, in the name of humanitarian aid, to other countries. This seems like a vary charitable transaction but really, we’re dumping our surplus crops in order to protect our farm economy. When its dumped on the foreign country (usually an African nation), it hurts their farm economy. Then we praise ourselves as being such good people and we support the world. HA! If we REALLY cared about these poor nations we would do much more than dump surplus grain in their laps. We would help them to grow their own food and produce their own goods. NOT COOL.

Posted by Joel | Report as abusive

As long as a US company, or goverment official (through lobbiest) are making money on the imports……nothing is going to change. If China can send us poisoned goods and get away with it, what do you think we’re going to do about a bunch of cheep iron pipe! Nothing!
Put that in your pipe and smoke it!

Posted by Tom | Report as abusive

I understand that Benson Industries who is constructing the “freedom towers” in NY are using Chinese steel and prefab’d aluminum fenestration (glass envelope).

How much other material is coming from China?

No one seems to give a rat’s but that they are eating our lunch, spying on us, and preparing to engage us on the high seas as well as on the information highway

Posted by chuckiechan | Report as abusive

In the early 80′s an MIT blue ribbon panel wrapped up and published it’s examination of America’s strained economic system. The report detailed how successive American administration had avoided tariff’s and “protectionism” and depended on devaluing the currency or borrowing heavily and running deficits to stimulate the economy. The result has been America is now the equivalent of a emaciated dead man without health insurance being pumped adrenalin. It is time to fully engage in the circuit buffers of full protectionism and tariff’s. If it is good enough and works for what was left of our wire hanger (e.g. clothes hanger industry) it will be good for our steel industry and all our other industries being torn apart in the sham of trade that is neither fair nor free with China, Russia, Japan and the majority of Europe.

What we need is a manpower minimum wage labor cost adjustment to all imported goods. We also need the environmental concerns met or no trade. The best way to spur American manufacture is to redistribute tax money directly back to Americans on a bank issued credit card that can only be used for U.S. made goods, education including parochial and medical expenses. Bringing back the Reagan investment tax credit for new American industries to produce these goods for the new market would spur job creation and consumption. The cost would be cheaper than the bank bailout and make them do better in the mortgage market.

Posted by James Chirico | Report as abusive

Free trade is trade among equals. When one country ignores environmental and safety cost that a local industry is forced to observe, the trade is not free or fair. We are turning into a country of extremes an extremely sophisticated high tech industry and low tech service. There will soon be nothing in the middle. If I was in charge of the United Stated security, I would be horrified by this development. A country that cannot produce steel,glass and screws is not a world power.

Posted by blogger | Report as abusive

Yet again, USA is the Hypocric… It produced heavily subsudised food, then bans imports etc of the same.. and then dumps her excess on the world either cheaply or for “free “…. at the expense of efficient growers , like Australia.

When the boot is on the other foot America whines and whinges.

You lot caused the recession that we are having.. so fix the root problem first.. Reel inyour greedy manufacturers.. like .. gee… your Steel makers..!!!

Posted by LaurieinAustralia | Report as abusive

The past experience with U.S “embargo” on Canadian lumber (which happened during healthy economic times) leads to believe that this might just be the beginning of something much bigger. Hopefully things like NAFTA will not be affected too drastically and we can all stick through these hard times together!

Wake up, Americans! UNIONS ARE HOLDING THIS COUNTRY HOSTAGE !!!

China has no unions. And union labor as a general rule does not produce quality for America. It’s all about the union bosses’ greed.

Inidividually, I believe there are some expert union-worker specialists, but the bosses make this type of organization a joke. They use their good workers for their own gain. This is true servitude. Clean it up, America! Demand right-to-work status from your Governors and Senators! Tell them to stop taking their unions lobby money!

USITC, USDOC, AND WTO are the worst! Find out, get involved!

Posted by alwayssomething | Report as abusive

Thanks, “insider,” for the explaination. You’re right, without your input I had no idea what in hell Kemp was talking about. “Construction’s” point needed to be made as well. Contrary to Jonathan Cole’s comment, these flaws in this story point to the deficiencies in modern journalism’s editorship. Even with a 24 hour news cycle a journalist should get the “what” and “why” correct. The original story before these two comments seemed to be of interest to economists and the steel industry only. Not only does China’s industry pollute China, its products and by-products pollute its foolish customers.

Posted by bubbajim | Report as abusive

US needs to protect it’s jobs. For China it is very simple it doesn’t produce a better quality steel or products it just produces them cheaper, you know why? Because it pays it’s steel workers a fraction of what US steel workers earn. The fact is if a certain lot of products have earned back their manufacturing cost the surplus goods are pure profit at any price. Retaining or gaining market share by underpricing it’s products is another tactic. Dump cheap product and put your local competitors out of business. Let’s protect our economy and hold on to our local jobs.

The chinese could import their wealthy individuals and over night fix the housing problem , further more the economics of population growth would give the U S a boom like never before. Detroit housing would be returned to viability. ect do the math . China could also , given the opportunity build clean profitable factories in Amerca to provide goods to china that are needed ,appliances ect. Cooperation , vast amounts open land and vision of the future would go along way to solving chinas population enourmity the chinese would be a strong alli against north korea as well, the housing disaster in new orleans would be happily populated by chinese who live in less accommidating homes as standard. China would be open to using its vast U S currecy reserves to solve their problems as well as the economic crisis in the U S . Think about it,

I want to respond to all the union bashing that is going on. The history of big business in the US is rife with terrible stories of labor abuse. All the rights we enjoy as laborers today were bitterly fought for and won by labor unions who have paid with their lives for these changes. Before unions thousands were maimed and killed at their jobs until common workers united and through many battles with the political establishment and big business changed the laws and created a better work environment. We have an eight hour day because of them. In fact most of the laws protecting workers were won by unions fighting and dying for these laws to be passed.

It is absolute nonsense what propaganda big business and the Republican parties have put out about Unions. Who do you think is in the Unions? Guys like you and me. The WTO was created to take advantage of cheap labor, materials and access to each others markets. The only ones paying a price for this change is the US worker. The corporations were happy with the savings they were enjoy “Outsourcing” our jobs. Look at the mess they have created with their stupidity and greed. How convenient lets blame the unions. All this in the name of creating cheaper goods for consumers, let’s see the consumers now are disappearing as fast as the useless wall street firms that were the tools of these greedy vultures.

What’s next? Blaming the consumers for the economic mess? That would be rich. Who is the consumers us the workers!

Sorry Joe, but I have to disagree with you on unions. My mother was hard-core union and fought for women’s rights in the construction workplace. And they won their rights the hard way. But unions have outlived their usefulness, the same way many other activist groups like the NAACP have. The changes brought about by unions have been so completely absorbed into the American workplace that unions are no longer needed and end up being a hinderance more often than a benefit.

Just look at the UAW and its exorbitant legacy costs that are stifling automakers ability to compete. And if any politician said what I’m saying they’d be committing occupational suicide. But the truth is, the unions did what needed to be done, and now they’re dead weight on our economy and a corruption in our government by pushing their agendas down lawmakers’ throats.

I work for a company that’s protected by anti-dumping duties too. Four years ago the company had 200+ employees and life was good. If it weren’t for that anti-dumping protection the 20 or so of us left wouldn’t be there because China would be throwing so much product on the market it would be worth pennies on the dollar.

So I think a compromise could be met where the steel industry stopped being unionized, and where anti-dumping duties helped keep the prices from going through the floor. This way, US steel companies would run leaner and more competitively, yet still have protection against a ruthless and despicable competitor.

Posted by Jon | Report as abusive

Doesn’t admitting to selling at lower prices in other countries leave P&G open to dumping accusations?

http://blogs.reuters.com/great-debate/20 09/04/09/us-cranks-up-antidumping-machin e/comment-page-1/#comments

Posted by steven | Report as abusive

I don’t understand some posters limited view of the issue: it goes way beyond local union issues and is all about international trade agreements, dumping laws and unfair international competition. As John Kemp is saying: “U.S. producers are complaining because China’s steelmakers have not cooperated in their efforts to support prices by closing capacity and preventing a build up of inventory.”
To find fault with unions is limited thinking and totally missing the mark: whether the unions were around or not, the cost of Chinas’ exports to the USA would have created the same issue. Get on with the times!

What this not unique situation makes me think is that the United States is powerless to turn off the dumping simply by turning down the demand for the product at home. And if this is happening with a basic commodity like steel, imagine it happens with everything else that is imported from China or from countries in its direct sphere of influence. We’re learning the hard way that consumer demand isn’t all that is cracked up to be.
Because of horrendous debt to China, we are being force-fed its production.
What I see that helps produce some leverage is grain and beef production, an overblown military and some microchip manufacturing. I guess up until now it has been the pure financial sector (but it doesn’t produce anything real) propping the dollar up. I guess China has no use for phantom dollars but it does need a large market to dump its production on.
Good God, the USA is back to colonial status – just kidding.

Posted by Dan | Report as abusive

Allow me to continue the joke that the USA is back at being a colony. The following link is to answers.com and explains north american colonial economy pretty well.

http://www.answers.com/topic/colonial-ec onomy

Am I wrong in jokingly comparing the current economic situation with the one prior to the War of Independence?
Either Yes or No, Why?

Posted by Dan Continues Kidding | Report as abusive