Leibowitz on Trade: Buckle Up for a Big Week on Tariff Reform

First, four summit meetings are going on in Europe over the next few days—the G7 summit in Cornwall, England; the NATO Summit in Brussels, Belgium; followed by the U.S.-EU Summit, also in Brussels; and, finally, the Biden-Putin Summit in Geneva, Switzerland, on Wednesday.

Second, trade and tariff decisions – and lawsuits – continue in the U.S. They involve the China tariffs (Section 301), the steel and aluminum tariffs (Section 232), and international retaliation against the U.S.-imposed tariffs.

Third, Congress is actively considering (and the Senate recently passed) legislation dealing with U.S.-China relations and economic competition.

Fourth, the Biden administration just released a report on supply chain issues affecting the U.S. economy and national security.

Fifth, there were some interesting administrative and court decisions involving Section 232, Section 301 and antidumping/countervailing duty issues.

Sixth, JSW filed a major antitrust lawsuit against the domestic steel industry alleging a “concerted refusal to deal”. That one related to domestic mills’ opposition to efforts by JSW to obtain Section 232 product exclusions.

That’s enough for now—let’s dive in.

The G7 Summit is concluding today. A communiqué was issued Sunday morning (U.S. time) that contained a few specific statements and many general ones. The G7 includes the largest industrial democracies (United States, Canada, Japan, UK, France, Germany, Italy). It is the first G7 meeting that sees the UK not a member of the European Union. The U.S. tried, largely without success, to specifically call out China for unfair competition and human rights violations. The EU countries, who now trade with China more than any other nation, including the United States, were reluctant to get bellicose with China. The communiqué does not say much about China’s abuses. But it has some language regarding China’s “non-market policies and practices which undermine the fair and transparent operation of the global economy.” As multilateral communiqués go, that is reasonably strong language, but it will strike many as too vague and general. Keep in mind that these communiqués do not announce concrete steps but instead state general principles. The United States wanted stronger language but failed to get it. 

The NATO Summit in Brussels will concentrate on the joint defense agenda tying the 30 NATO member countries together. After President Trump’s disruption of previous summits, President Biden will set a more conciliatory tone. But there is considerable overlap in membership between NATO and the G7, and it will be interesting to gauge the U.S. attitude toward defense cooperation after being unable to recruit the EU and the UK to deal more firmly with China.

On the trade and economic front, all eyes will be on the EU-U.S. Summit, also in Brussels. This meeting sparked news that (1) the U.S. and EU would strive to end trade disputes pitting Boeing against Airbus (those disputes have been going on for two decades), that (2) the two sides would seek to end tariffs against EU exports of steel and aluminum as well as retaliatory tariffs imposed by the EU (and others) against those U.S. tariffs, and that (3) the U.S. and EU would discuss reform of the WTO and related issues. Last week’s statement set a goal to resolve all these disputes by December 1 of this year. Whether that happens is, of course, open to speculation. The steel and aluminum tariffs are clearly on the table; the EU (and the UK) postponed a doubling of retaliatory tariffs previously set for June 1. US Trade Representative Katherine Tai went to Brussels late last week to negotiate with her European counterparts. An announcement is expected next Wednesday at the conclusion of the EU-U.S. Summit meeting.

One of the major issues in discussing the future of the steel and aluminum tariffs is global overcapacity (really oversupply) of both metals. China is a major player in both industries. A key motivation for the Section 232 tariffs on steel and aluminum was to coerce China into cutting production. Our global trading partners have not cooperated in encouraging China to cut production and are not likely to do so. They are pointing out now that the U.S. tariffs have done nothing to reduce Chinese overproduction of steel or aluminum. China accounts for about half of global steel production and well over half of aluminum production. Steel and aluminum from China are not entering the U.S. because of antidumping and countervailing duty cases, so Section 232 tariffs are not needed against Chinense material. Europe and Japan (among many other countries) are less competitive in the U.S. because of tariffs that have no discernible effect on China. Europe is arguing that it is time for them to go. Ms. Tai will try to refocus on strategies to cut Chinese overproduction—but details are not available yet. This will be an issue that will be around for several more months.

On the legal front, a group of importers of products from China lost in the Court of International Trade last Friday. This case dealt with imposing Section 301 tariffs on imports from China where U.S. Customs declared that the tariff classification numbers the importers used were incorrect. The importers sued the U.S., arguing that the numbers they used were correct. The Court of International Trade held that filing a protest with Customs over the correct tariff classification number was the only way to deal with that issue. Because the importers failed to protest, the Court of International Trade did not have jurisdiction and dismissed the case. The plaintiffs announced that they intend to appeal.

In another case, the Commerce Department found “circumvention” of antidumping (AD) and countervailing duty (CVD) orders on Chinese hot- and cold-rolled steel that was processed into cold-rolled or “corrosion-resistant” (aka coated) steel in Malaysia. In other words, Malaysian product was determined to circumvent the AD/CVD orders on Chinese steel. Commerce had previously made affirmative circumvention decisions in similar cases. Namely, on hot- and cold-rolled steel processed in Vietnam, Costa Rica and the United Arab Emirates. Malaysia is now added to that list. In a departure from the norm, similar processing in South Africa was found not to be circumvention. Commerce also has a procedure in which importers that certify that no Chinese substrate was processed do not have to pay duty deposits. It is not clear how much these determinations will affect actual trade. But importers and U.S. manufacturers find themselves facing increased risk of Commerce questioning their certifications papers.

Finally, the antitrust action filed last week by JSW Steel will likely be around for a while. JSW accuses Cleveland-Cliffs, Nucor and U.S. Steel of violating antitrust laws by collectively refusing to sell semifinished steel to JSW – while also opposing the latter’s efforts to obtain product exclusions. This opens a new front in the fight to remove barriers to trade in vital commodities. Antitrust litigation usually takes a long time to be resolved. Perhaps JSW will settle this case in exchange for more domestic supply from domestic mills. Perhaps not.

The one common thread from all these developments is that additional pressure is being applied to the U.S. administration to rethink its policies in the light of the damage they have done to domestic commerce and international relations. In this, as in many other issues, principles run into practicality. Our tariffs clearly please some domestic sectors just as much as they displease other Americans and our allies abroad – and a rethinking of the restrictions is clearly happening. Will this pressure bring significant change? We should know soon.

Lewis Leibowitz

The Law Office of Lewis E. Leibowitz

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E-mail: lewis.leibowitz@lellawoffice.com