OVERVIEW OF STEEL TRADE REGULATION IN THE UNITED

OVERVIEW OF STEEL TRADE REGULATION IN THE UNITED STATES Houston, Texas 11 January 2001 Daniel M. Price Peter O. Suchman Elizabeth C. Hafner POWELL, GOLDSTEIN, FRAZER & MURPHY LLP

The Politics of Steel in the United States POWELL, GOLDSTEIN, FRAZER & MURPHY LLP

Historical Experience Overview Ø A long history of efforts by U. S. government and industry to control steel imports, dating back to 1960’s. Ø Periodic swings in governmental responses from VRAs, TPM, MSA to industry selfhelp (AD/CVD cases). 3 POWELL, GOLDSTEIN, FRAZER & MURPHY LLP

Historical Experience Trade Cases in the 1990’s Ø In 1992, new round of AD/CVD cases filed, targeting imports of hot-rolled, cold-rolled, galvanized and heavy mill plate steel products from most major steel exporting countries. Ø Resulting in AD duty orders against imports of (a) cold-rolled steel from Germany, Korea and the Netherlands, (b) galvanized steel from Australia, Canada and Korea, and (c) heavy mill plate products from Canada, Germany and Sweden. Ø CVD duty orders against imports of (a) heavy mill plate products from Belgium, Germany, Spain, Sweden and Mexico and (b) galvanized steel from France. Ø AD/CVD order on cut-to-length carbon steel plate from India. 4 POWELL, GOLDSTEIN, FRAZER & MURPHY LLP

U. S. Political Context Role of Steel Industry Ø Traditionally one of most important and politically influential industries in U. S. – U. S. producers concentrated in key electoral states, particularly industrial mid-west (Ohio, Indiana, Michigan, Illinois, Pennsylvania). – Organized labor a core Democratic constituency and source of campaign manpower and financial support. 5 POWELL, GOLDSTEIN, FRAZER & MURPHY LLP

U. S. Political Context Mini-Mills Shift Ø Non-union mini-mills fastest growing segment of U. S. industry in early 1990’s and an effective political counterweight to “Old Steel. ” Ø Now moving to protectionist side, putting more politically sympathetic face on U. S. steel. – Nucor: from free trade activism in 1994 to petitioner status in recent AD/CVD filing. 6 POWELL, GOLDSTEIN, FRAZER & MURPHY LLP

U. S. Political Context Congressional Caucuses Ø Steel industry support in Congress organized through large steel "caucuses" in House and Senate. – Informal groups of Senators and Representatives from steel-producing states, who generally support industry. – Largely bipartisan, with geography counting more than political party or ideology. – Key players: Regula (R-Ohio) and Murtha (D-Pa. ) chair 108 -strong House caucus, Specter (R-Pa. ) and Rockefeller (D-W. Va. ) Senate counterpart. 7 POWELL, GOLDSTEIN, FRAZER & MURPHY LLP

U. S. Political Context Executive Branch Ø Executive branch agencies often divided on AD/CVD policy questions. – Commerce sees U. S. industry as principal constituency. – Treasury, USTR, State, White House (OMB/CEA) more open-minded. Ø Party control of White House matters. 8 POWELL, GOLDSTEIN, FRAZER & MURPHY LLP

U. S. Political Context Recent Initiatives Ø Major industry initiative launched in two years ago: – Steel quota bill (narrowly defeated). – Clinton steel program (monitoring, negotiations, possible 201). – Byrd Amendment (enacted). – Trade Deficit Commission report (priority). 9 POWELL, GOLDSTEIN, FRAZER & MURPHY LLP

U. S. Political Context International Reaction Ø U. S. government/industry actions sparking international backlash: – Successful WTO challenges (e. g. , 1916 Antidumping Act), more threatened. – More aggressive use of national AD/CVD laws. – Pressure for new global disciplines. 10 POWELL, GOLDSTEIN, FRAZER & MURPHY LLP

Overview of U. S. Trade Remedy Proceedings POWELL, GOLDSTEIN, FRAZER & MURPHY LLP

Trade Law Overview Primary Remedies Ø Two basic remedies for “unfairly” traded imports: – Countervailing duty (CVD) law protects U. S. industry against actual or threatened injury from subsidized imports. – Antidumping (AD) law protects against actual or threatened injury from "dumped" imports. 12 POWELL, GOLDSTEIN, FRAZER & MURPHY LLP

Trade Law Overview Responsible Agencies Ø CVD and AD laws administered by two U. S. government agencies: – International Trade Commission (ITC), an independent agency with 6 commissioners appointed by the President for 9 -year terms. – U. S. Department of Commerce (DOC), through International Trade Admin. (ITA). 13 POWELL, GOLDSTEIN, FRAZER & MURPHY LLP

Trade Law Overview ITC Basics Ø ITC determines whether imports are causing or threaten to cause injury to U. S. industry. Ø Politics an important but indirect factor. – ITC evenly divided between Democrats and Republicans, but ties favor petitioners. 14 POWELL, GOLDSTEIN, FRAZER & MURPHY LLP

Trade Law Overview DOC Basics Ø DOC determines whether “dumping” has occurred in AD cases and countervailable subsidies exist in CVD cases and, if so, at what levels. Ø The DOC also negotiates “suspension agreements. ” 15 POWELL, GOLDSTEIN, FRAZER & MURPHY LLP

Antidumping Proceedings POWELL, GOLDSTEIN, FRAZER & MURPHY LLP

The ABC’s Of Antidumping Basic Elements of U. S. Law Ø Two separate findings required: – “Dumping” of imported goods. – Causing “material injury” to domestic industry. Ø Results in additional duty equal to amount of dumping “margin. ” 17 POWELL, GOLDSTEIN, FRAZER & MURPHY LLP

The ABC's Of Antidumping Initiation of an Investigation Ø Process begins with “petition” by private interests or government. Ø Followed by “initiation” of formal investigation, and extensive questionnaires to “respondents. ” – By country and individual company. Ø Initiation triggers very strict statutory deadlines. 18 POWELL, GOLDSTEIN, FRAZER & MURPHY LLP

The ABC's Of Antidumping “Dumping” Phase Ø DOC makes “dumping” determination. Ø Basic test – are imported goods sold at “less than fair value. ” Ø Has little to do with “predatory” pricing or other “unfair” trade practices. 19 POWELL, GOLDSTEIN, FRAZER & MURPHY LLP

The ABC's Of Antidumping Numbers Game Ø Compares “export price” (i. e. , U. S. price) with “normal value” (i. e. , home market price or cost of production). Ø Numerous adjustments made for selling, movement and general expenses – have a substantial bottom-line impact. 20 POWELL, GOLDSTEIN, FRAZER & MURPHY LLP

The ABC's Of Antidumping Common Concerns Ø Technical rules often favor petitioners and have become a major political battleground. Ø “Facts Available” - used if responses inadequate. Ø Mandatory respondents: at least 60% of exports to U. S. Ø Non-participants subject to weighted average “all others rate” by country. 21 POWELL, GOLDSTEIN, FRAZER & MURPHY LLP

The ABC's Of Antidumping Calculating Margins Ø DOC compares U. S. sales price with “normal value” of subject merchandise. Ø “Normal value” is home market price, unless: – home market prices below cost of production; – no contemporaneous home market sales; – home market not deemed “viable. ” 22 POWELL, GOLDSTEIN, FRAZER & MURPHY LLP

The ABC's Of Antidumping Third Country Option Ø If home market not deemed “viable, ” DOC may use sales prices in third country as surrogate for normal value. Ø To be viable, home market sales must represent at least 5% of U. S. sales of subject merchandise. 23 POWELL, GOLDSTEIN, FRAZER & MURPHY LLP

The ABC's Of Antidumping Constructed Value Ø DOC will use “constructed value” if no home market sales or home market prices below cost of production. Ø “Constructed value” is cost of production plus selling expenses and profit. Ø Calculated in arbitrary ways that may ignore respondent’s accounting procedures. 24 POWELL, GOLDSTEIN, FRAZER & MURPHY LLP

The ABC's Of Antidumping Price Adjustments Ø DOC subtracts specified expenses from U. S. invoice price (e. g. , selling expenses, shipping) to determine “adjusted” export price. Ø This figure is then compared to adjusted normal value to determine “margin of dumping. ” Ø Comparison is made on sale-specific basis, but then converted to weighted-average margin for all sales. 25 POWELL, GOLDSTEIN, FRAZER & MURPHY LLP

The ABC's Of Antidumping Injury Analysis Ø Basic test – has dumping caused or threatened “material injury” to domestic industry? Ø Complex, highly discretionary analysis involving import trends, price effects, impact on domestic industry, etc. Ø Import effects “cumulated” – encouraging widenet petitions. 26 POWELL, GOLDSTEIN, FRAZER & MURPHY LLP

The ABC's Of Antidumping Imposition of Duties Ø Dollar for dollar – U. S. importers pay cash deposits at ad valorem rate of dumping margin. Ø Applied retroactively – so that mere initiation can seriously “chill” market demand. Ø Margins in effect indefinitely, subject to annual “administrative reviews, ” and “sunset review” after 5 years. 27 POWELL, GOLDSTEIN, FRAZER & MURPHY LLP

A Closer Look at ITC Proceedings POWELL, GOLDSTEIN, FRAZER & MURPHY LLP

ITC Proceedings Basic Requirement Ø ITC must make “material injury” determination before AD order can be issued. – Injury may be actual or only threatened. – Must be to U. S. industry, not just petitioner(s). – Must be caused by subject imports. 29 POWELL, GOLDSTEIN, FRAZER & MURPHY LLP

ITC Proceedings Material Injury Factors Ø Factors used to determine whether U. S. industry has been “materially injured” include: – Volume of imports (increase may be in absolute terms or relative to U. S. production or consumption). – Effect of imports on prices in U. S. (including evidence of underselling, or price "depression" or "suppression”). – Impact of imports on domestic industry (e. g. , effects on output, market share, profits, employment, development and investment; and DOC dumping margin). 30 POWELL, GOLDSTEIN, FRAZER & MURPHY LLP

ITC Proceedings Threatened Injury Factors Ø Factors used to determine whether U. S. industry is threatened with “material injury” include: – Likelihood that existing, excess capacity in foreign country may lead to increase in exports to U. S. – Rate of increase in import volume or market penetration. – Whether imports likely to "suppress" or "depress" prices. – Level of inventories of the subject merchandise. – Potential for "product-shifting" in foreign country. – Actual and potential negative effects on development of domestic industry. 31 POWELL, GOLDSTEIN, FRAZER & MURPHY LLP

ITC Proceedings Cumulation Ø ITC generally “cumulates” imports from several countries simultaneously subject to investigation when examining effects of imports on the domestic industry. 32 POWELL, GOLDSTEIN, FRAZER & MURPHY LLP

Historical Experience POWELL, GOLDSTEIN, FRAZER & MURPHY LLP

Historical Experience U. S. Antidumping Law Ø “Dumping” found by DOC in more than 90% of all cases. Ø “Material injury” found in 35% of all cases decided by ITC. Ø Average margin for 1993 -95 period was 61%, with margins of several hundred percent or higher not uncommon. Ø Average duration of AD measures as of 1995 was 7. 29 years, with one in five U. S. measures in effect for 10 or more years. 34 POWELL, GOLDSTEIN, FRAZER & MURPHY LLP

Suspension Agreements POWELL, GOLDSTEIN, FRAZER & MURPHY LLP

Suspension Agreements Basic Authority Ø DOC can suspend AD and CVD investigations pursuant to “suspension agreement” with foreign producers. – A rarely used option. – Only 8 currently active suspension agreements in AD cases and only 3 in CVD cases, plus former Soviet Union and China. 36 POWELL, GOLDSTEIN, FRAZER & MURPHY LLP

Suspension Agreements CVD Cases Ø Three suspension methods for CVD investigation. Ø One type of agreement ends the subsidized exports, through – foreign government agreement to eliminate subsidy program or offset subsidy for U. S. exports, or – foreign exporters agreement to cease exporting subject merchandise to U. S. 37 POWELL, GOLDSTEIN, FRAZER & MURPHY LLP

Suspension Agreements Injurious Effects Ø A second option is for the foreign government or exporters to agree to eliminate the “injurious effect” of the exports. – Agreement must offset at least 85% of subsidy value and prevent price suppression or undercutting by subsidized exports. – Under this type of agreement, foreign government -- but not exporters -- may agree to limit volume of exports – DOC must determine that agreement “more beneficial” for U. S. industry than continuing investigation. 38 POWELL, GOLDSTEIN, FRAZER & MURPHY LLP

Suspension Agreements Petitioner Withdrawal Ø A third option is for U. S. petitioners to withdraw petition in return foreign government agreement to limit volume of exports to the U. S. – DOC must first determine that agreement is in the “public interest. ” – This option extremely unlikely in hot-rolled carbon steel investigation, given general hostility of petitioners to suspension agreements. 39 POWELL, GOLDSTEIN, FRAZER & MURPHY LLP

Suspension Agreements AD Cases Ø Similar suspension methods for AD investigations. Ø Foreign exporters can agree to cease exporting subject merchandise to the U. S. or revise their prices to eliminate the dumping. 40 POWELL, GOLDSTEIN, FRAZER & MURPHY LLP

Suspension Agreements Injurious Effects Ø A second option is foreign exporters to agree to eliminate the “injurious effect” of the exports. – Agreement must offset at least 85% of subsidy value and prevent price suppression or undercutting by subsidized exports. – DOC may enter into this type of agreement only if it concludes that this would be “more beneficial” for U. S. industry than continuing the investigation. 41 POWELL, GOLDSTEIN, FRAZER & MURPHY LLP

Suspension Agreements Petitioner Withdrawal Ø A third option is for U. S. petitioners to agree to withdraw petition in return for agreement by foreign exporters to limit volume of exports to the U. S. – DOC must first determine that agreement is in the “public interest. ” – As in CVD context, hostility of the petitioners to suspension agreements makes this extremely unlikely in the hot-rolled carbon steel investigation. 42 POWELL, GOLDSTEIN, FRAZER & MURPHY LLP

Suspension Agreements Strict Time Limits Ø Suspension agreement negotiations are subject to strict time constraints: – Foreign government (or exporters) must submit proposed agreement to DOC within 15 days after preliminary determination (PD) in AD investigation and 7 days in CVD investigation. 43 POWELL, GOLDSTEIN, FRAZER & MURPHY LLP

Suspension Agreements Procedures Ø If DOC “preliminarily” accepts proposed agreement, parties must be notified and petitioners provided with copy within 30 days of PD (15 in CVD case). Ø Parties have up to 50 days from PD (35 in CVD case) to provide DOC with comments. Ø DOC may accept agreement within 60 days of PD (45 in CVD case). 44 POWELL, GOLDSTEIN, FRAZER & MURPHY LLP

Suspension Agreements Final Determination Deadline Ø Many of these deadlines are “waivable. " Ø As practical matter, key deadline is requirement that agreement be accepted by date of DOC’s final AD or CVD determination. – No agreement may be accepted after that date. 45 POWELL, GOLDSTEIN, FRAZER & MURPHY LLP

Suspension Agreements Reopening Investigations Ø Parties have 20 days following publication of suspension agreement to request continuation of suspended investigation. – If investigation continued, and either DOC or ITC reaches a negative determination, the agreement (as well as investigation) is terminated. – If investigation is continued, and both DOC and ITC reach affirmative determinations, the agreement remains in effect and no AD/CVD order is issued. 46 POWELL, GOLDSTEIN, FRAZER & MURPHY LLP

Timeline POWELL, GOLDSTEIN, FRAZER & MURPHY LLP

Timeline 25 days before DOC/ITC initiate CVD case. Earliest possible date on which imports may be retroactively subjected to CVD liability. Only arises if the DOC finds “critical circumstances. ” 48 POWELL, GOLDSTEIN, FRAZER & MURPHY LLP

Timeline Representatives of domestic industry file petition with the DOC and ITC for both AD and CVD cases. 49 POWELL, GOLDSTEIN, FRAZER & MURPHY LLP

Timeline Day 0 DOC/ITC initiate investigation of both AD and CVD cases. 50 POWELL, GOLDSTEIN, FRAZER & MURPHY LLP

Timeline Day 25 Deadline for ITC preliminary injury determination for both AD and CVD cases. 51 POWELL, GOLDSTEIN, FRAZER & MURPHY LLP

Timeline Day 50 Earliest possible date on which imports may be retroactively subject to AD liability. Only arises if the DOC finds “critical circumstances. ” 52 POWELL, GOLDSTEIN, FRAZER & MURPHY LLP

Timeline Day 65 Deadline for DOC preliminary determination in CVD case. Day 72 Deadline foreign government to submit proposed suspension agreement in CVD case. 53 POWELL, GOLDSTEIN, FRAZER & MURPHY LLP

Timeline Day 140 Deadline for DOC final determination in CVD case. Day 140 Deadline for DOC preliminary determination in AD case. 54 POWELL, GOLDSTEIN, FRAZER & MURPHY LLP

Timeline Day 155 Deadline for respondents to submit proposed suspension agreement in AD case. Day 185 Deadline for ITC final injury determination in CVD case (unless aligned to AD schedule). 55 POWELL, GOLDSTEIN, FRAZER & MURPHY LLP

Timeline Day 192 Deadline for publication of final countervailing order in Federal Register (unless aligned to AD schedule). Day 215 Deadline for DOC final determination in AD case. 56 POWELL, GOLDSTEIN, FRAZER & MURPHY LLP

Timeline Day 260 Deadline for ITC final injury determination in AD case. Day 267 Deadline for publication of final antidumping order in Federal Register. 57 POWELL, GOLDSTEIN, FRAZER & MURPHY LLP