Leibowitz on Trade: The Fabricated Structural Steel Cases

On Thursday last week, the Commerce Department announced preliminary determinations on the antidumping investigations in these cases. The documents were supposed to have been released to the public on Sept. 4, but were only posted on the 5th. The parties received notice on the 4th. Canada received good news—negative preliminary antidumping determinations. This means no current import restrictions on Canadian-origin FSS. Mexico and China, however, got affirmative determinations. Their imports will be subject to potential antidumping duties and cash deposits as soon as the Federal Register notices are published, which will take place within a few days.

These preliminary antidumping determinations followed countervailing duty preliminary determinations last July. As with the antidumping investigations, Canada received a negative preliminary subsidy determination. Mexican producers were found to be subsidized as were Chinese producers. A couple of producers in each country received preliminary zero margins, but the vast majority did not.

It is not easy to summarize the preliminary results for Mexico or China. Dumping and subsidy margins are often company-specific, and are commonly based on “adverse facts available,” which means that Commerce imposes potential duties based on incomplete information, with an “adverse inference” to punish companies that did not provide all the information requested in a timely manner. The “AFA” margins are often so high that trade is effectively shut off. While domestic industry partisans blame the foreign producers and exporters for this, the reality is quite a bit more complicated. If the department’s goal is to stop trade in goods subject to these cases (rather than eliminate the effect of dumping and subsidies), it is very effective. Preliminary AFA countervailing duty margins for Chinese exporters are 177 percent, while antidumping margins are 130 percent. Some firms have considerably lower margins; these numbers are for the AFA companies.  In Mexico, the countervailing duty AFA margins are 74 percent and the AFA antidumping margins are 17 percent.

While margins are complex, the most complex feature of the FSS cases is the products that are subject to duties. What exactly is “fabricated structural steel”? In July, the Commerce Department examined some preliminary “scope” issues, and last week the agency examined a lot more. Even after all the analysis, there is a great deal of uncertainty that will need to be addressed.

In these cases, Commerce candidly admitted that it will “provide ample deference to petitioner” when it comes to defining the products for which it seeks antidumping and countervailing duty remedies. A petitioner need not demonstrate, for example, that it actually makes products that compete with the imports.

The definition of “fabricated structural steel” in these investigations is very broad. The basic definition: “Fabricated structural steel products are steel products that have been fabricated for erection or assembly into structures, including, but not limited to, buildings (commercial, office, institutional, and multi-family residential); industrial and utility projects; parking decks; arenas and convention centers; medical facilities; and ports, transportation and infrastructure facilities.

“Fabricated structural steel is manufactured from carbon and alloy (including stainless) steel products such as angles, columns, beams, girders, plates, flange shapes (including manufactured structural shapes utilizing welded plates as a substitute for rolled wide flange sections), channels, hollow structural section (HSS) shapes, base plates, and plate-work components. Fabrication includes, but is not limited to cutting, drilling, welding, joining, bolting, bending, punching, pressure fitting, molding, grooving, adhesion, beveling, and riveting and may include items such as fasteners, nuts, bolts, rivets, screws, hinges, or joints.”

The quoted definition violates a key rule of the art and practice of defining terms by using those terms in the definition. Fabricated structural steel is “steel” that has been “fabricated” and incorporated into “structures.” As far as it goes, this is not very helpful. “Steel” includes carbon, alloy and stainless steel. The covered steel includes shapes “such as” angles, etc. Clearly, other shapes may be covered. “Fabrication” includes, “but is not limited to” cutting, drilling, etc. The limits of this case are very vague.

As part of the preliminary investigation, the Commerce Department asked for comments about the scope of the investigations. The Commerce Department responded in July and again last week to arguments about more than two dozen particular products. In almost all cases, the department deferred (see above for the deferential language) to petitioners’ wishes. In a few instances the department excluded products from the scope, but in none did Commerce determine to exclude products from the scope that the petitioners sought to retain within the scope.

One of the key points of uncertainty is the definition of “structure.” The department urged, but did not require, the petitioners to clarify what they meant by “structure.” The terms could mean, for example, FSS that is incorporated to parts of a building (for example, elevators) or it could be limited to parts that are incorporated into the building itself (e.g., girders).

For the next few weeks, parties to the case will be able to submit “case briefs” on issues that concern them, including comments on the scope of the investigation. The exact dates on which case briefs are due is still uncertain, because Commerce must verify data submitted in the investigation and issue a report on these verifications before the case briefs are due.

After the Commerce Department issues its final determinations (including final refinements of the scope) and the International Trade Commission conducts its final injury investigation, assuming, as is usual, that both Commerce and the ITC make affirmative final determinations, the scope of the case will become final. After that, parties may request that Commerce make a “scope determination” on specific products. In this case, with so much uncertainty, the prospect is that many such requests will be submitted. Commerce quite rarely finds a product to be outside the scope of orders, but importers need to know. U.S. Customs and Border Protection, which enforces these orders at the border, will also be involved.

Traders, exporters and foreign producers have an intense interest in knowing whether the products they sell and import are subject to antidumping or countervailing duties. Petitioners are less concerned about the precise limits of the scope and often prefer the limits to be unclear. Imports will be sharply reduced, but U.S. consumers of these products are not considered by the Department of Commerce in these cases. The law does not clearly require that Commerce ignore the interests of consumers, including businesses, but that is the interpretation Commerce has chosen.

In the meantime, imports of FSS will be subject to potentially ruinous duty requirements. The antidumping and countervailing duty laws also make imports subject to duties that may be more, or less, than the cash deposit requirements at the time of entry. Importers should know that the deposit they make at entry is not necessarily the final duty. The final number may not be known until two years or more after entry. Many companies will stop importing FSS. They need to figure out what is in and what is out.

Given the recent spate of anticircumvention inquiries on steel products, including cold rolled and corrosion-resistant products, a circumvention investigation may be a risk for importers of products fabricated outside of China or Mexico (assuming Canada escapes liability in the final determinations in this case). For example, products made from Chinese steel could be fabricated (see above definition) in a third country. A circumvention investigation could find that the fabrication only adds a small amount to the value of the Chinese steel product. I anticipate circumvention petitions after these investigations become orders. This is the next chapter in this complex and suspenseful drama.

For any company that deals in FSS products, it is prudent to consider the risks of continuing to rely on imported FSS from anywhere in the world.

Lewis Leibowitz

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