TWN Info Service on WTO and Trade Issues (Apr17/13)
28 April 2017
Third World Network

US steel order on national security, and China's queries on subsidies
Published in SUNS #8448 dated 24 April 2017

Geneva, 21 Apr (D. Ravi Kanth) - As the United States prepares the ground for imposing tariffs on steel imports based on national security considerations, China has asked the US to provide information on the subsidies it provides to the steel sector, including information on specific government support measures such as financial contributions to steel enterprises.

The Chinese call at the World Trade Organization is in a document reviewed by SUNS.

On Thursday (20 April), President Donald Trump announced what is called a "steel order" under which the US is going to impose tariffs on steel imports on grounds that they would affect its national security. The US administration intends to use a 1962 law allowing the US government to limit imports that threaten its security readiness, in what is seen as a wave of protectionist measures being unleashed by Washington in global trade.

The proposed measures, according to the US Commerce Secretary Wilbur Ross, will curb the rising steel imports.

"We are groping here to see whether the facts warrant a comprehensive solution to deal with a very wide range of products from a very wide range of countries," said Ross, according to a news report in The New York Times.

The US Commerce Department is tasked with a major investigation into steel imports. "Mr. Trump's steel investigation is much broader than dozens of anti-dumping cases against China and other exporters filed by the Obama administration and predecessors.... It invokes a somewhat novel principle of using national security as the criterion for whether the imports are damaging the United States."

The US administration also announced the restrictions it would impose on the H-1B visa program ostensibly to scale down the entry for skilled short-term services providers in IT and other sectors. It has also announced the "Buy American" program for restricting the imports under the government procurement program.

In effect, the proliferation of protectionist measures which are yet to be implemented, are already having a chilling effect on governments in developing countries, according to trade envoys who asked not to be quoted.

Christian Lagarde, the head of the International Monetary Fund, has already expressed sharp concerns over the proposed protectionist measures, saying they violate global trade rules, according to the Financial Times on 20 April.

Against this backdrop, the meeting of the WTO's Committee on Subsidies and Countervailing Measures on 25 April assumes importance as the US and the European Union on the one side, and China on the other, have upped the ante on the specific subsidies provided by the two sides.

In a three-page document - G/SCM/Q2/USA/70 - circulated to WTO members on 13 April, China asked several pertinent questions to the US about various subsidy programs "granted or maintained by the United States for the benefit of its steel sector."

China sought information from the US on its "Federal Steel Subsidy Policies" such as pension provided for steel enterprises by the Pension Benefit Guaranty Group (PBGC) under the Department of Labour.

China said the Group currently provides 29,000 pension guarantee schemes for 47 million workers and retirees in several steel enterprises. "From the operation and actual payment of PBGC's insurance program, the main beneficiaries of the program are primary metal manufacturing (mainly steel) and air transport sectors."

"According to the law, PBGC currently provides 29,000 pension guarantee schemes for 47 million workers and retirees," China said.

"Seen from individual enterprises, 4 of the 10 enterprises that received the most pension payments from PBGC were steel enterprises, namely Bethlehem Steel, LTV Steel, National Steel and Weirton Steel. PBGC paid US$3.7 billion, US$2.1 billion, US$1.3 billion and US$600 million respectively or a total of US$7.7 billion to the 15 single employer pension insurance programs of the above four enterprises, and the above insurance schemes have remained valid since 2003," China argued.

China stated that "from the operation and actual payment of PBGC's insurance program, the main beneficiaries of the program are primary metal manufacturing (mainly steel) and air transport sectors."

"Of the 10 enterprises that received the most pension payments, 5 were from the air transport sector, and 4 were from the steel sector," China maintained.

"Therefore, the application of the program in steel and air transport sectors was suspected to constitute de facto specificity," China emphasized.

Further, China also highlighted the subsidies provided by the US Department of Homeland Security since 2008 through "the anti-dumping and countervailing duties levied to eligible steel enterprises in the form of compensation in accordance with the Continued Dumping and Subsidy Offset Act of 2000 (the Byrd amendment)."

Despite abolishing the Byrd amendment in 2007, the Customs and Border Protection during 2008-2015 paid US$29.089 million, US$23.625 million, US$14.6 million and US$9.083 million of compensation to ArcelorMittal US Steel, AK Steel and Nucor Steel respectively, China maintained.

The US was asked to provide information on state and local subsidies such as subsidy provided by the Government of Kentucky to Gallatin Steel, and the subsidy provided by the state of North Carolina to Nucor Steel. China also mentioned about subsidy provided by the State of Louisiana and the State of Virginia.

In a separate development, the US and the European Union on 12 April sought information from China to provide clarifications on a range of subsidy programs and financial grants provided to various companies, particularly state-owned assets.

The US, the European Union, and Canada have also raised issues concerning the "role of subsidies in creating overcapacity" in several sectors such as steel, aluminium, and solar panels which are identified as national strategic industries with continuous infusion of public funds.

"The relevance of market forces diminishes when the state - functioning as the leading economic actor - owns, controls, or influences large number of important industrial enterprises and banking entities, and generally retains a significant role in resource allocation," the three countries maintained.

Without naming China, the three countries argued that "in the pursuit of strategic industry objectives, governments can create overcapacity by providing concessional loans or equity to newly established companies without due consideration of market conditions, such as projected future demand and profitability."

The US, the EU, and Canada said "if members are to address effectively those subsidies that contribute to the excess capacity currently plaguing a number of industrial sectors," then more information is needed for tackling harmful subsidies and other types of support from governments or government-sponsored institutions.

In short, it remains to be seen how China and developing countries would expose the pervasive subsidy programs in some cases, and insidious programs in other areas, as pursued by the US and other major industrialized countries at the WTO, said a trade envoy, who asked not to be quoted.

[On the steel order, while citing "national security", President Trump has in fact identified the US action as arising out of "dumping".

[On this, Prof Simon Lester, a US trade law academic, in a post at the IELP blog, ( es-on -steel-violate-the-ad-agreement.html), notes that in announcing a Section 232 investigation on steel, President Trump said: "This investigation will look at how steel imports are impacting the United States national security, taking into account foreign practices such as steel dumping. Dumping is a tremendous problem in this country. They're dumping vast amounts of steel in our country, and they're really hurting not only our country, but our companies. Their targeting of American industry and other foreign strategies (is) designed to undermine American industry as a whole."

[In questions and answers that followed, Trump was asked: "Mr. President, how will this affect your dealing with China on North Korea? Are you concerned that this will affect that at all?". President Trump responded: "This has nothing to do with China. This has to do with worldwide, what's happening. The dumping problem is a worldwide problem."

[In this connection, Prof Lester points to a WTO Appellate Body ruling of 2000, in disputes raised separately by the EU and Japan against the US (WT/DS136/AB/R & WT/DS162/AB/R), on a 1916 law enabling certain civil and criminal actions against importers of dumped goods. In that ruling, the AB had said in para 124 of its report: "Article 18.1 of the Anti-Dumping Agreement contains a prohibition on the taking of any "specific action against dumping" of exports when such specific action is not "in accordance with the provisions of GATT 1994, as interpreted by this Agreement." Since the only provisions of the GATT 1994 "interpreted" by the Anti-Dumping Agreement are those provisions of Article VI concerning dumping, Article 18.1 should be read as requiring that any "specific action against dumping" of exports from another Member be in accordance with the relevant provisions of Article VI of the GATT 1994, as interpreted by the Anti-Dumping Agreement."

[Prof Lester raises the question, whether there is an argument based on Trump's remarks that this Section 232 investigation is, in part, a "specific action against dumping," and one that is not consistent with GATT Article VI?. SUNS]