Leibowitz: SMU Community Chat Follow-up

We didn’t get to all the questions, so SMU asked me to pick a few and write about them, as a kind of supplement to the Community Chat. I may have missed some, so please keep them coming to SMU and I’ll get to as many as I can.

1. Explain the implications of the “melted and poured” provisions of the U.S.-EU agreement.

The concept of “melted and poured” in steel content goes back to the 1980s for federally supported transit projects. In order to count as domestic, steel delivered to a job site is, for these projects, required to be “melted and poured” in the United States. The concept was incorporated for the first time in a trade agreement last month. In order to qualify for tariff-free entry into the U.S., the semifinished steel needs to be made in the EU from its molten state. This prevents slabs, for example, from being cast in Russia or China and sent to the EU to be further processed and then exported to the U.S. free of Section 232 tariffs.

2. Steel imports from the EU account for roughly 10% of total steel imports into the U.S. Imports from Canada and Mexico make up about 40%, and this number has shown a substantial surge over this past year. Are these two countries going to be addressed by the U.S. government bringing them to their historical export numbers?

First, there is the matter of statistics. I don’t see Canadian and Mexican imports in 2021 as approaching 40% of total U.S. imports.

The official U.S. import statistics show that, in 2015-17, average imports from the EU (not counting the UK) were about $7.9 billion, or 12% of U.S. imports (Chapters 72 and 73 of the Harmonized Tariff Schedules). In 2021 through September, EU imports had fallen to $5.8 billion, a little under 9% of imports. Total imports in 2021 are much higher than 2020, of course, due to recovery of demand following the pandemic lockdowns.

Canada and Mexico in 2021 (through September) captured about 27% of total imports into the U.S. (a bit under $18 billion). Compare that to the 2015-17 average of $13 billion and 22% of imports.

The import percentages from 2015-17 do not reflect the market in 2021, of course. The U.S.-EU agreement does not call for a “return” to historical import levels. The market will determine how imports from Europe compete with imports from other countries.

Canadian and Mexican imports are up substantially from 2020 levels—but this is consistent with import levels generally, which were deeply depressed by the pandemic. Canadian and Mexican imports in 2021 through September are up about 60% from 2020 levels, while total imports are up about 50%. There are no stated limits on imports from Canada or Mexico, although the two countries have agreed to monitor imports transiting those countries. There have been no significant public complaints about imports dodging the tariffs by mis-designating them as Canadian or Mexican to escape the Section 232 tariffs. As noted, imports from Canada and Mexico are up from 2015-17 levels.

3. Based on the lack of real impact on volume from the change in S232 for the EU, it’s hard to see that the president is attentive to reducing steel prices in the U.S. to aid the manufacturing sector. Can you comment?

The impact on prices is hard to predict. Every year (and even every quarter) is a new picture. Clearly, the U.S. expects imports from the EU to rise from their current levels (about 9% of imports in 2021 through September, the latest numbers available now). That will have a moderating impact on prices, but the changes in supply and demand will have a much greater impact.

The statistics on U.S. market share for imports are more speculative than the reports on imports. How much is the “import penetration” of foreign steel in the U.S. market? We don’t know in real time, because the domestic production figures in the U.S. and the import figures are not synched up. Steel prices remain almost at record highs, although signs of softening are now appearing for the first time in a year.

The U.S.-EU agreement will, based on market economics, help reduce U.S. prices from where they would otherwise be. And EU steel users are complaining that the “giant sucking sound” of EU exports heading to the U.S. will increase prices in Europe. Attributing these trends solely to the U.S.-EU agreement is highly speculative. Other factors will likely be more important in any trends.

The U.S. government is reportedly focusing on inflation more closely; any efforts to moderate inflation also will have an effect on steel and aluminum markets.

4. As an American company, we import material and pay a tariff of 25%. After we further process the material, we export it to (i.e., Canada/Mexico). Once we export that tariff material out of the USA, is there a mechanism by which we can claim duty drawback based on the tariffs paid?

Proclamation 9740 (April 30, 2018) stated that Section 232 duties were not eligible for duty drawback, meaning that the duties could not be refunded on U.S. exports. For Canada and Mexico, there are additional considerations under the USMCA (the new NAFTA). The basis in logic for the prohibition on duty drawback is not clear; but a change in the Proclamations would be required to accomplish it—and that will take Washington advocacy.

The Section 201 (Safeguards) and 301 tariffs (China) are, by contrast, eligible for duty drawback. Consistency is not apparent.

5. Will antidumping and countervailing duties be applicable to 3.3 million metric tonnes from the EU, or is it free from antidumping duty as well as Section 232 tariff?

The U.S.-EU agreement does not limit the U.S. from imposing antidumping or countervailing duties on EU steel products. Existing orders on EU member states will remain in effect.

AD/CVD orders are applied on a country-by-country basis. There are no orders on the EU as a whole. New petitions are also possible.

Please keep the questions coming. The application of the new rules (and other countries’ situations may change shortly) will be complex, probably leading to new questions.

Lewis Leibowitz

The Law Office of Lewis E. Leibowitz
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