Rumored Executive Investigation Coming on Trade Including Steel & Aluminum

Steel Market Update does not have any direct knowledge of exactly what would be included in any “trade investigation” and there is no official word out of Washington, DC as to exactly what is going to happen. Nonetheless the rumors are in the market and we feel that we need to make our readers aware of what we have heard and where things may go from here.

There are many rumors and suggestions as to what might happen and attorney Lewis Leibowitz reminded SMU what “investigations” means to attorneys, “You are right to put “investigation” in quotes.  When we lawyers think about “investigations,” we think of established investigations with evidence-gathering, hearings, briefing, etc.  We don’t know if that is what the President and his staff have in mind.  An Executive Order would likely look similar to the ones on March 31—a study would be ordered to determine the extent to which foreign unfair trade practices are aggravating the trade deficit.  This would not be an official “investigation” with a set of decisions, but a study that would lead to a discussion of options. Since Jan. 20, that is generally what the President has done on trade (Buy America Pipelines, collection of AD/CVD duties, causes of the trade deficit).”

He then made a suggestion of an option open to the government through the Department of Commerce or Congress, “One possibility is a request for a study by the International Trade Commission under Section 332 of the Tariff Act of 1930.  The USTR and the trade-related committees of the Congress (Ways and Means and Finance) have the authority to request studies of issues such as this.  They would take several months and, after the Commission issues its report, Congress and the Administration would have some evidence to go on concerning what approaches might help achieve their stated objectives.“

We have heard through various press reports that the President may use a Section 301 of the Trade Act of 1974, Section 301 is a broad statute that authorizes the President to take all appropriate action, including retaliation, to get the removal of any act, policy or practice of a foreign government that violates an international trade agreement. A Section 301 permits the President of the United States to “impose duties or other imports restrictions” or to “suspend” the benefits of trade agreement concessions. Section 301 was used by the government as a trade tool several times during the 1980’s but it has been many years since we have seen the initiation of the Section 301 mechanism has been used.

Attorney Leibowitz provided some legal insights based on his history and experience with Section 301, “Section 301 would be focused on either violation of trade agreements or on “unreasonable” restrictions on US trading opportunities.  The latter ground has not really been used since 1995 and would be difficult.  But it could happen.  The former ground should be preceded by a finding (usually by the WTO) that an agreement has been violated.  So an investigation under Section 301 should be started with a complaint in the WTO.  Starting a 301 without the prerequisite could start a trade conflict, and possibly would not be the first move.”

Press reports are reporting another possibility is for the President to use Section 201 of the Trade Act of 1974. This is also known as a “safeguard” action. Section 201 permits the President to grant temporary relief against imports of particular types of goods with respect to imports from all countries.  What is interesting is the Section 201 does not require the showing of an unfair trade act. It requires the U.S. International Trade Commission (ITC) to determine if specific imported goods are increasing in increased quantities as to suggest there will be serious injury or a threat of serious injury to the U.S. industry. In a Section 201 case remedies include temporary increased tariffs, quotas or tariff-rate quotas. President Bush used the Section 201 mechanism against imported steel in 2001. In that particular case, the manufacturing companies affected fought against the Section 201 decision and, ultimately, the restrictions against foreign steel imports were removed.

One of the important pieces of a Section 201 case is that it requires an “import surge.”  Leibowitz reminded SMU, “A Section 201 case requires an ‘import surge.’ I don’t think that is going to work.  As I’ve said before, even if there were a “surge” in imports of certain products, the US statute is extremely vulnerable to attack in the WTO.  Retaliation against US exports could be swift and certain.”

What will be interesting is where the study originates and does it begin as a study of the causes of a trade deficit, what part does “dumping” and “subsidization” play in the trade deficit, and then what remedies are available to correct the conclusions of the report.

Steel Market Update has been watching the political developments regarding trade for some time now and we have put together an exceptionally strong program at this year’s SMU Steel Summit Conference. We will have a 4-person panel that will discuss the topic of “fair trade” from various perspectives. Attorney Lewis Leibowitz will be there joining Daniel Pearson of the Cato Institute (former ITC chairman) and Philip Bell, President of the Steel Manufacturers Association. We said there will be four on this panel and we are negotiating to have the fourth person represent the interests of manufacturers (and possibly consumers). On top of this, we will have another panel made up of the heads of three manufacturing companies: Barry Zekelman, Chairman and CEO of Zekelman Industries;  Philip Raimondo, President & CEO of Behlen Manufacturing and Paul Ginter, President of BTD Manufacturing. We believe our conference will be short on “fluff” and long on provocative content.