(Bloomberg) -- The Trump administration began an investigation of steel imports as U.S. Steel Corp. asked a trade agency to investigate its claims that rival Chinese manufacturers colluded to fix prices and undercut American competitors.
President Donald Trump signed a memorandum Thursday encouraging the Commerce Department probe, which had already started and will explore whether steel imports hinder national security under section 232 of the Trade Expansion Act.
In an Oval Office ceremony, Trump declared the opening of the Commerce Department investigation ”a historic day for American steel and most importantly for American steel workers.”
Imports have risen "despite repeated Chinese claims that they were going to reduce their steel capacity,” Commerce Secretary Wilbur Ross said in a briefing for reporters at the White House. “It’s a very serious impact upon the domestic industry.”
Still, when a reporter asked Trump whether the investigation would raise tensions with China as he seeks that country’s help in slowing North Korea’s nuclear and missile programs, Trump said the trade investigation “has nothing to do with China” and addresses “a worldwide problem.”
The U.S. International Trade Commission in Washington heard U.S. Steel’s argument also on Thursday that a separate antitrust complaint it filed against Chinese manufacturers should be revived. A trade judge in November had thrown out the claim, saying the agency didn’t have the legal authority to hear the allegations.
From the beginning, the antitrust complaint has caught the attention of U.S. politicians, as members of Congress from both parties wrote to the commission, asking it to hear the case in full. Questions about the future of the American steel industry have became a hot political topic, with Trump signing a “Buy America” order to buoy American steel producers by forcing projects such as U.S. pipelines to use steel made in the country.
Steelmakers in the Americas just capped their best collective stock performance since 2003 following a raft of successful trade cases levying tariffs against foreign metal.
Matter of Jurisdiction
The key question before the commission is whether it has jurisdiction over the antitrust complaint. U.S. Steel and other American steel producers have traditionally filed cases with the commission under anti-dumping laws that bar sale of goods priced at less than fair value or that are subsidized by foreign governments. The remedy usually involves imposition of tariffs that raise the prices on foreign products.
The Commerce Department investigation is moving on a separate track. If the department finds evidence of a national security threat from steel imports, the president is authorized to unilaterally “adjust imports.” Only two presidents -- Richard Nixon and Gerald Ford -- have ever granted relief under Section 232, citing national security concerns stemming from the global oil crisis of the 1970s.
Since then the U.S. has launched only two such investigations, and in each the Commerce Department’s Bureau of Industry and Security declined to recommend action. Should Ross recommend action after the steel investigation, targeted countries would likely file a dispute with the World Trade Organization.
In an unusual move, U.S. Steel filed its complaint under a statute covering unfair trade practices, which most often is used to protect domestic companies from patent infringement and theft of intellectual property. Under this provision, the commission could block carbon and alloy steel produced in China from entering the U.S.
The case, however, has been an uphill slog for U.S. Steel.
The complaint filed in April 2016 made three allegations. One was theft of trade secrets in connection with Justice Department allegations that Chinese officials hacked the Pittsburgh-based steel company. A second involved claims the Chinese companies were rerouting their products through other countries to hide the country of origin. The third -- which is the one U.S. Steel is seeking to revive Thursday -- involves antitrust violations that the companies improperly conspired to fix prices and control export volume.
In February, U.S. Steel dropped the trade secrets claim related to hacking, citing “the inequities of the statutes that were enacted before the dawn of the internet age and the substantial threats posed by cyber espionage.”
Baoshan Iron & Steel Co., China’s second-largest steelmaker, accused its American competitor of seeking an unprecedented “total blockade of steel trade from an entire country.” The company, along with other Chinese steelmakers, argue the case should go through normal trade complaint channels, which American steel companies have used extensively.
“Imports from China have dropped to a trickle” because of U.S. Steel’s aggressive use of anti-dumping regulations,” Sturgis Sobin of the Covington firm, representing the Chinese manufacturers, told the commission Thursday. He said U.S. Steel is instead asking the commission to “make up your own set of antitrust laws” to block all imports.
U.S. Steel has the backing of the nation’s largest steel union and AK Steel Holding Corp.
Members of Congress have also sided with U.S. Steel. The 30-member Congressional Steel Caucus sent a letter saying “we assure you we will be carefully watching the progress of this case,” while a bipartisan letter from 47 members of Congress said they “strongly urge” the commission “to ensure that U.S. Steel is permitted to present its case in full.”
The Commerce Department investigation comes less than two weeks after U.S.-Sino trade tensions boiled over at an April 6 meeting of the WTO goods council in Geneva.
At the meeting, the U.S. delegation said its fight over China’s industrial overcapacity problems had “culminated to a critical point” and WTO members have “no choice” but to bolster their trade defenses against China.
The U.S. and other WTO members -- including the EU, Canada and Japan -- have long criticized Beijing’s domestic steel subsidies, which they said have led to massive overcapacity in global markets.
Despite China’s pledge to reduce the country’s annual steel capacity by as much as 150 million tons before 2020, the country remains the world’s largest steel producer and accounts for almost half of the globe’s total steel production. Beijing counters that its subsidies adhere to WTO rules and the growing overcapacity in steel markets is a global problem that must be solved in a collaborative effort in forums like the Organization for Economic Cooperation and Development and Group of 20 major economies.
U.S. Steel’s complaint is In the Matter of Certain Carbon and Alloy Steel Products, 337-1002, U.S. International Trade Commission (Washington).