Leibowitz: AD/CVD Orders on Brazil HRC Nixed—What’s It Mean?

Why Brazil?

As of now, we only know the basics. We know the vote tally. And we know what the ITC determined. The opinions of the Commissioners will not be publicly available until late next month.

One theory leapt to my mind immediately. The imports from Brazil are not subject to Section 232 tariffs, but instead to Section 232 quotas. According to testimony before the ITC, imports of hot-rolled flat products from Brazil are subject to an absolute quota of about 130,000 metric tons, or about 0.2% of US consumption of hot-rolled steel coils.

And imports from Brazil, again according to ITC testimony, were basically nonexistent. Why? Because the major reason for large imports years ago was a steel rolling mill in Terre Haute, Ind. It was owned Brazilian steelmaker Companhia Siderúrgica Nacional (CSN) and processed hot-rolled steel imported from Brazil into cold-rolled and other value-added products. That mill was sold to Steel Dynamics Inc. (SDI) in 2018, less than two years after the orders were put in place. And the hot-rolled feedstock is now supplied by others.

It’s worth noting that imports from Korea, Japan, the Netherlands (a member of the European Union), and the UK are also subject to Section 232 quotas, not tariffs. And the quotas are pretty low compared to the size of the US market. Yet the ITC voted 5-0 to continue the orders on those countries as well as on Australia (exempt from both quotas and tariffs), Russia, and Turkey.

Clearly, therefore, a quota (even an absolute quota on South Korea) is not sufficient to negate the “likely” negative effect of imports on the US market. The unique situation prevailing in Brazil, which has a healthy domestic demand for hot-rolled steel, may have had an impact on the ITC’s reasoning. We’ll find out in November when the opinions come out.

The Impact

When orders are revoked, it is likely that importers paid AD or CVD duty deposits that will be eligible for refunds. The revocations are generally applicable to entries on or after the fifth anniversary of the entry of the orders. The orders on Brazil were put in place in 2016. Thus, any entries of Brazilian hot-rolled flat products after Oct. 3, 2021, could qualify for refunds. But, according to import statistics, there have been no imports from Brazil since that date.

The import statistics demonstrate the impact of AD and CVD proceedings on imports. The year 2016 was a big year for hot-rolled imports. The eight countries reviewed in Friday’s ITC vote sent almost two million metric tons to the United States. In 2021, imports from those countries declined to 1.4 million tons, a 30% reduction.

A Flawed Process

Sunset review revocations of AD and CVD orders do not happen often. Recall that duties are reviewed by Commerce Department’s International Trade Administration and the ITC. If either agency makes a negative determination on the continuation of orders, the orders are revoked. 

When duty orders are revoked, it is almost always the ITC, not the Commerce Department, that revokes them. In other words, the action is at the ITC.

Brazilian hot-rolled is only one of many AD and CVD orders that go through the “sunset review” process. One lesson is that the Commerce reviews are not worth participating in, because the result is typically a foregone conclusion.

That helps explain why foreign producers, or respondents, in these cases, only rarely participate in sunset reviews at the ITA. The problem: When there is not “adequate” participation by respondents, the agency makes an “expedited” investigation and almost always rules in favor of the domestic industry, which almost always argues that the orders should not be ended.

Perhaps the test for an affirmative determination is too stringent. Or perhaps everyone dumps, in which case duty orders should never sunset on the grounds that dumping and subsidies are constant – and so Commerce should never conclude that these “unfair trade” practices will stop if an order is revoked. If that’s true, these proceedings before Commerce should be dispensed with.

In the meantime, foreign companies will continue to mostly sit out the review process at Commerce to save on legal and consulting fees, allowing them to participate more effectively at the ITC.

That, for better or worse, is the system we have.

Lewis Leibowitz

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