Publication of a Report on the Effect of Imports of Steel on the National Security: An Investigation Conducted Under Section 232 of the Trade Expansion Act of 1962, as Amended
| Published date | 06 July 2020 |
| Citation | 85 FR 40202 |
| Record Number | 2020-14359 |
| Section | Notices |
| Court | Industry And Security Bureau |
Federal Register, Volume 85 Issue 129 (Monday, July 6, 2020)
[Federal Register Volume 85, Number 129 (Monday, July 6, 2020)]
[Notices]
[Pages 40202-40226]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-14359]
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DEPARTMENT OF COMMERCE
Bureau of Industry and Security
RIN 0694-XC059
Publication of a Report on the Effect of Imports of Steel on the
National Security: An Investigation Conducted Under Section 232 of the
Trade Expansion Act of 1962, as Amended
AGENCY: Bureau of Industry and Security, Commerce.
ACTION: Publication of a report.
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SUMMARY: The Bureau of Industry and Security (BIS) in this notice is
publishing a report that summarizes the findings of an investigation
conducted by the U.S. Department of Commerce (the ``Department'')
pursuant to Section 232 of the Trade Expansion Act of 1962, as amended
(``Section 232''), into the effect of imports of steel mill products
(``steel'') on the national security of the United States. This report
was completed on January 11, 2018 and posted on the BIS website on
February 16, 2018. BIS has not published the appendices to the report
in this notification of report findings, but they are available online
at the BIS website, along with the rest of the report (see the
ADDRESSES section).
DATES: The report was completed on January 11, 2018. The report was
posted on the BIS website on February 16, 2018.
ADDRESSES: The full report, including the appendices to the report, are
available online athttps://www.commerce.gov/news/press-releases/2018/02/secretary-ross-releases-steel-and-aluminum-232-reports-coordination.
FOR FURTHER INFORMATION CONTACT: For further information about this
report contact Erika Maynard, Special Projects Manager, (202) 482-5572;
and David Boylan-Kolchin, Trade and Industry Analyst, (202) 482-7816.
For more information about the Office of Technology Evaluation and the
Section 232 Investigations, please visit: http://www.bis.doc.gov/232.
SUPPLEMENTARY INFORMATION:
[[Page 40203]]
THE EFFECT OF IMPORTS OF STEEL ON THE NATIONAL SECURITY--AN
INVESTIGATION CONDUCTED UNDER SECTION 232 OF THE TRADE EXPANSION ACT OF
1962, AS AMENDED
January 11, 2018
Prepared by U.S. Department of Commerce, Bureau of Industry and
Security, Office of Technology Evaluation
The Effect of Imports of Steel on the National Security
Table of Contents
I. Executive Summary
II. Legal Framework
III. Investigation Process
A. Initiation of Investigation
B. Public Hearing
C. Public Comments
D. Interagency Consultation
IV. Product Scope of the Investigation
V. Findings
A. Steel is Important to U.S. National Security
1. Steel is Needed for National Defense Requirements
2. Steel is Required for U.S. Critical Infrastructure
3. Domestic Steel Production is Essential for National Security
Applications
4. Domestic Steel Production Depends on a Healthy and Competitive U.S.
Industry
5. Steel Consumed in Critical Industries
B. Imports in Such Quantities as are Presently Found Adversely
Impact the Economic Welfare of the U.S. Steel Industry
1. Imports of Steel Products Continue to Increase
2. High Import Penetration
3. High Import to Export Ratio
4. Steel Prices
5. Steel Mill Closures
6. Declining Employment Trend Since 1998
7. Trade Actions--Antidumping and Countervailing Duties
8. Loss of Domestic Opportunities to Bidders Using Imported
Steel
9. Financial Distress
10. Capital Expenditures
C. Displacement of Domestic Steel by Excessive Quantities of
Imports has the Serious Effect of Weakening Our Internal Economy
1. Domestic Steel Production Capacity is Stagnant and
Concentrated
2. Production is Well Below Demand
3. Utilization Rates are Well Below Economically Viable Levels
4. Declining Steel Production Facilities Limits Capacity
Available for a National Emergency
D. Global Excess Steel Capacity is a Circumstance that
Contributes to the Weakening of the Domestic Economy
1. Free markets globally are adversely affected by substantial
chronic global excess steel production led by China
2. Increasing global excess steel capacity will further weaken
the internal economy as U.S. steel producers will face increasing
import competition
VI. CONCLUSION
VII. RECOMMENDATION
Prepared by Bureau of Industry and Security www.bis.doc.gov.
Appendices \i\
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\i\ BIS has not published the appendices, but they are available
online at https://www.commerce.gov/news/press-releases/2018/02/secretary-ross-releases-steel-and-aluminum-232-reports-coordination,
along with the rest of the report.
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Appendix A: Section 232 Investigation Notification Letter to
Secretary of Defense James Mattis (April 19, 2017); Department of
Defense Response to Notification (May 8, 2017)
Appendix B: Presidential Memorandum for the Secretary of
Commerce--Steel Imports and Threats to National Security (April 20,
2017)
Appendix C: Federal Register--Notice Request for Public Comments
and Public Hearing on Section 232 National Security Investigation of
Imports of Steel (April 21, 2017)
Appendix D: Federal Register--Notice on Procedures for Attending
or Viewing Remotely the Public Hearing on Section 232 National
Security Investigation of Imports of Steel (May 17, 2017)
Appendix E: Public Hearing Witnesses
Appendix F: Public Hearing Testimonies
Appendix G: Public Comments
Appendix H: Uses of Steel for National Defense
Appendix I: Uses of Steel for Critical Infrastructure
Appendix J: U.S. Government Steel Measures and Actions
Appendix K: Steel Orders in Effect as of January 11, 2018
Appendix L: Global Excess Capacity in Steel Production
I. Executive Summary
Overview
This report summarizes the findings of an investigation conducted
by the U.S. Department of Commerce (the ``Department'') pursuant to
Section 232 of the Trade Expansion Act of 1962, as amended (19 U.S.C.
1862 (``Section 232'')), into the effect of imports of steel mill
products (``steel'') on the national security of the United States.
In conducting this investigation, the Secretary of Commerce (the
``Secretary'') noted the Department's prior investigations under
Section 232. This report incorporates the statutory analysis from the
Department's 2001 Report \1\ with respect to applying the terms
``national defense'' and ``national security'' in a manner that is
consistent with the statute and legislative intent.\2\ As in the 2001
Report, the Secretary in this investigation determined that ``national
security'' for purposes of Section 232 includes the ``general security
and welfare of certain industries, beyond those necessary to satisfy
national defense requirements, which are critical to minimum operations
of the economy and government.'' \3\
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\1\ Department of Commerce, Bureau of Export Administration
``The Effect of Imports of Iron Ore and Semi-Finished Steel on the
National Security- Oct/2001'' (2001 Report).
\2\ Id. at 5.
\3\ Id.
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As required under Section 232, the Secretary examined the effect of
imports on national security requirements, including: domestic
production needed for projected national defense requirements; the
capacity of domestic industries to meet such requirements; existing and
anticipated availabilities of the human resources, products, raw
materials, and other supplies and services essential to the national
defense; the requirements of growth of such industries and such
supplies and services including the investment, exploration, and
development necessary to assure such growth; and the importation of
goods in terms of their quantities, availabilities, character, and use
as those affect such industries; and the capacity of the United States
to meet national security requirements.
The Secretary also recognized the close relation of the economic
welfare of the United States to its national security; the impact of
foreign competition on the economic welfare of individual domestic
industries; and any substantial unemployment, decrease in revenues of
government, loss of skills, or any other serious effects resulting from
the displacement of any domestic products by excessive imports, without
excluding other factors, in determining whether a weakening of the U.S.
economy by such imports may impair national security. In particular,
this report assesses whether steel is being imported ``in such
quantities'' and ``under such circumstances'' as to ``threaten to
impair the national security.'' \4\
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\4\ 19 U.S.C. 1862(b)(3)(A).
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Findings
In conducting the investigation, the Secretary found:
A. Steel Is Important to U.S. National Security
1. National security includes projected national defense
requirements for the U.S. Department of Defense.
2. National security also encompasses U.S. critical infrastructure
sectors including transportation systems, the
[[Page 40204]]
electric power grid, water systems, and energy generation systems.
3. Domestic steel production is essential for national security
applications. Statutory provisions illustrate that Congress believes
domestic production capability is essential for defense requirements
and critical infrastructure needs, and ultimately to the national
security of the United States.\5\ U.S. Government actions on steel
across earlier Administrations further demonstrate domestic steel
production is vital to national security.\6\
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\5\ See, e.g., 15 U.S.C. 271(a)(1)(The future well-being of the
United States economy depends on a strong manufacturing base. .
.''); 50 U.S.C. 4502(a)(``Congress finds that--(1) the security of
the United States is dependent on the ability of the domestic
industrial base to supply materials and services. . . (2)(C) to
provide for the protection and restoration of domestic critical
infrastructure operations under emergency conditions0. . .''; and
American Recovery and Reinvestment Act, Pub. L. 111-5, sec. 1605,
123 Stat. 303 (Feb. 17, 2009) (providing that none of the funds
appropriated or made available by the act may be used for the
construction, alteration, maintenance, or repair of a public
building or public work unless the iron, steel, and manufactured
goods are produced in the United States).
\6\ See infra, section V(A)(3) and Appendix J.
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4. Domestic steel production depends on a healthy and competitive
U.S. industry. The principal types of mills that produce steel are
integrated mills with basic oxygen furnaces (BOFs); mini-mills using
electric arc furnaces (EAFs); re-roller/converter; and metal coater
facilities. Basic oxygen furnaces convert raw materials into steel, and
remain critical for continued innovation in steel technology. Covered
in this report are five categories of steel products that are used for
national security applications: flat, long, semi-finished, pipe and
tube, and stainless.
5. The Department found that demand for steel in critical
industries has increased since the Department's last investigation in
2001. The 2001 Report determined that there was 33.68 million tons of
finished steel consumed in critical industries per year in the United
States based on 1997 data.\7\ The Department updated that analysis for
this report using 2007 data (the latest available) and determined that
domestic consumption in critical industries has increased
significantly, with 54 million metric tons of steel now being consumed
annually in critical industries.
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\7\ 2001 Report at 14. The 2001 Report is not clear whether it
used short tons or metric tons. If short tons were used then the
metric ton equivalent is 30.56 million metric tons.
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B. Imports in Such Quantities as Are Presently Found Adversely Impact
the Economic Welfare of the U.S. Steel Industry
1. The United States is the world's largest steel importer. In the
first ten months of 2017 steel imports have increased at a double-digit
rate over 2016, accounting for more than 30 percent of U.S.
consumption. Notwithstanding numerous anti-dumping and countervailing
duty orders, which are limited in scope, imports of most types of steel
continue to increase.
2. Import penetration levels for flat, semi-finished, stainless,
long, and pipe and tube products continue on an upward trend above 30
percent of domestic consumption.
3. Imports are nearly four times U.S. exports.
4. Imports are priced substantially lower than U.S. produced steel.
5. Excessive steel imports have adversely impacted the steel
industry. Numerous U.S. steel mill closures, a substantial decline in
employment, lost domestic sales and market share, and marginal annual
net income for U.S.-based steel companies illustrate the decline of the
U.S. steel industry.
C. Displacement of Domestic Steel by Excessive Quantities of Imports
Has the Serious Effect of Weakening our Internal Economy
1. As steel imports have increased, U.S. steel production capacity
has been stagnant and production has decreased.
2. Since 2000, foreign competition and the displacement of domestic
steel by excessive imports have resulted in the closure of six basic
oxygen furnace facilities and the idling of four more (which is more
than a 50 percent reduction in the number of such facilities), a 35
percent decrease in employment in the steel industry, and caused the
domestic steel industry as a whole to operate on average with negative
net income since 2009.
3. The declining steel capacity utilization rate is not
economically sustainable. Utilization rates of 80 percent or greater
are necessary to sustain adequate profitability and continued capital
investment, research and development, and workforce enhancement in the
steel sector.
D. Global Excess Steel Capacity Is a Circumstance That Contributes to
the Weakening of the Domestic Economy
1. In the steel sector, free markets globally are adversely
affected by substantial chronic global excess steel production led by
China. The world's nominal crude steelmaking capacity reached about 2.4
billion metric tons in 2016, an increase of 127 percent compared to the
capacity level in 2000, while steel demand grew at a much smaller rate.
In 2016 there was a 737 million metric ton global gap between
steelmaking capacity and steel crude demand, which means there is
unlikely to be any market-driven reduction in steel exports to the
United States in the near future.\8\
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\8\ Source: Global Forum report; http://www.bmwi.de/Redaktion/EN/Downloads/global-forum-on-steel-excess-capacity-report.pdf.
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2. While U.S. steel production capacity has remained flat since
2001, other steel producing nations have increased their production
capacity, with China alone able to produce as much steel as the rest of
the world combined. This overhang of excess capacity means that U.S.
steel producers, for the foreseeable future, will face increasing
competition from imported steel as other countries export more steel to
the United States to bolster their own economic objectives and offset
loss of markets to Chinese steel exports.
Conclusion
Based on these findings, the Secretary of Commerce concludes that
the present quantities and circumstance of steel imports are
``weakening our internal economy'' and threaten to impair the national
security as defined in Section 232. The Secretary considered the
Department's narrower investigation of iron ore and semi- finished
steel imports in 2001, which recommended no action be taken, and finds
that several important factors--the broader scope of the investigation,
the level of global excess capacity, the level of imports, the
reduction in basic oxygen furnace facilities since 2001, and the
potential impact of further plant closures on capacity needed in a
national emergency, support recommending action under Section 232. In
light of this conclusion, the Secretary has determined that the only
effective means of removing the threat of impairment is to reduce
imports to a level that should, in combination with good management,
enable U.S. steel mills to operate at 80 percent or more of their rated
production capacity.
Recommendation
Prior significant actions to address steel imports using quotas
and/or tariffs were taken under various statutory authorities by
President George W. Bush, President William J. Clinton (three times),
President George H.W.
[[Page 40205]]
Bush, President Ronald W. Reagan (three times), President James E.
Carter (twice), and President Richard M. Nixon, all at lower levels of
import penetration than the present level, which is greater than 30
percent.
Due to the threat, as defined in Section 232, to national security
from steel imports, the Secretary recommends that the President take
immediate action by adjusting the level of these imports through quotas
or tariffs. The quotas or tariffs imposed should be sufficient, even
after any exceptions (if granted), to enable U.S. steel producers to
operate at an 80 percent or better average capacity utilization rate
based on available capacity in 2017 (see Figure 1).
Figure 1--Import Levels and U.S. Steel Mill Capacity Utilization Rates *
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2011-2016 2017
average annualized
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Steel Market Snapshot (millions of
metric tons):
Total Demand for Steel in U.S. 105.5 107.3
(production + imports-exports).....
U.S. Annual Capacity................ 114.4 113.3
U.S. Annual Production (liquid)..... 84.6 81.9
Capacity Utilization Rate 74.0 72.3
(percentage).......................
Imports and Exports (miliions of metric
tons):
Imports of Steel to U.S. (including 31.8 36.0
semi-finished).....................
Exports of Steel from the U.S....... 10.8 10.1
Percent Import Penetration.......... 30.1 33.8
Production at Various Utilization Rates
(millions of metric tons):
Maximum Capacity.................... 114.4 113.3
Production at 75% Capacity 85.8 85.0
Utilization........................
Production att 80% Capacity 91.5 90.6
Utilization........................
Production att 85% Capacity 97.2 96.3
Utilization........................
Import Levels and Domestic Production
Targets Based on 80% Capacity
Utilization General Equilibrium (GTAP
Model--Includes Reduction in Exports
and Demand)
-------------------------------
Maximum Import Level (mmt).......... 22.7
Estimated Import Penetration........ 22%
Estimated Production (mmt).......... 90.6
Alternative 1A: Qouta Applied to
2017 Import Levels................. 63%
Alternative 1B: Tariff Rate Applied
to All Imports..................... 24%
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* Numbers may differ slightly due to rounding.
Sources: United States Department of Commerce, Bureau of the Census;
American Iron And Steel Institue. Calculations based on Industry and
trade data.
The Secretary recommends that the President impose a quota or
tariff on all steel products covered in this investigation imported
into the United States to remove the threatened impairment to national
security.
Alternative 1--Global Quota or Tariff
1A. Global Quota
Impose quotas on all imported steel products at a specified percent
of the 2017 import level, applied on a country and steel product basis.
According to the Global Trade Analysis Project (GTAP) Model,\9\
produced by Purdue University, a 63 percent quota would be expected to
reduce steel imports by about 37 percent (13.3 million metric tons)
from 2017 levels. Based on imports from January to October, import
levels for 2017 are projected to reach 36.0 million metric tons. This
action would result in imports equaling about 22.7 million metric tons,
which will enable an 80 percent capacity utilization rate at 2017
demand levels (including exports).
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\9\ The standard GTAP Model is a static multiregional,
multisector, computable general equilibrium model, with perfect
competition and constant returns to scale. The model is based on
optimizing behavior by economic agents. The standard GTAP closure
allows all prices and wages in the economy to adjust so as to ensure
supply equals demand in all markets including the labor market. The
estimates in this report were made using the GTAP 10 model which has
a 2014 base.
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1B. Global Tariff
Apply a tariff rate on all imported steel products, in addition to
any antidumping or countervailing duty collections applicable to any
imported steel product.
According to the Global Trade Analysis Project (GTAP) Model,
produced by Purdue University, a 24 percent tariff on all steel imports
would be expected to reduce imports by 37 percent (i.e., a reduction of
13.3 million metric tons from 2017 levels of 36.0 million metric tons).
This tariff rate would thus result in imports equaling about 22.7
million metric tons, which will enable an 80 percent capacity
utilization rate at 2017 demand levels (including exports).
Alternative 2--Tariffs on a Subset of Countries
Apply a tariff rate on all imported steel products from Brazil,
South Korea, Russia, Turkey, India, Vietnam, China, Thailand, South
Africa, Egypt, Malaysia and Costa Rica, in addition to any antidumping
or countervailing duty collections applicable to any steel products
from those countries. All other countries would be limited to 100
percent of their 2017 import level.
According to the Global Trade Analysis Project (GTAP) Model,
produced by Purdue University, a 53 percent tariff on all steel imports
from this subset of countries would be expected to reduce imports by
13.3 million metric tons from 2017 import levels from the targeted
countries. This action would enable an increase in domestic production
to achieve an 80 percent capacity utilization rate at 2017 demand
levels (including exports). The countries identified are projected to
account for less than 4 percent of U.S. steel exports in 2017.
Exemptions
In selecting an alternative, the President could determine that
specific countries should be exempted from the proposed 63 percent
quota or 24 percent tariff by granting those specific countries 100
percent of their prior imports in 2017, based on an overriding economic
or security interest of the United States. The Secretary recommends
that any such determination should be made at the
[[Page 40206]]
outset and a corresponding adjustment be made to the final quota or
tariff imposed on the remaining countries. This would ensure that
overall imports of steel to the United States remain at or below the
level needed to enable the domestic steel industry to operate as a
whole at an 80 percent or greater capacity utilization rate. The
limitation to 100 percent of each exempted country's 2017 imports is
necessary to prevent exempted countries from producing additional steel
for export to the United States or encouraging other countries to seek
to trans-ship steel to the United States through the exempted
countries.
It is possible to provide exemptions from either the quota or
tariff and still meet the necessary objective of increasing U.S. steel
capacity utilization to a financially viable target of 80 percent.
However, to do so would require a reduction in the quota or increase in
the tariff applied to the remaining countries to offset the effect of
the exempted import tonnage.
Exclusions
The Secretary recommends an appeal process by which affected U.S.
parties could seek an exclusion from the tariff or quota imposed. The
Secretary would grant exclusions based on a demonstrated: (1) lack of
sufficient U.S. production capacity of comparable products; or (2)
specific national security based considerations. This appeal process
would include a public comment period on each exclusion request, and in
general, would be completed within 90 days of a completed application
being filed with the Secretary.
An exclusion may be granted for a period to be determined by the
Secretary and may be terminated if the conditions that gave rise to the
exclusion change. The
U.S. Department of Commerce will lead the appeal process in
coordination with the Department of Defense and other agencies as
appropriate. Should exclusions be granted the Secretary would consider
at the time whether the quota or tariff for the remaining products
needs to be adjusted to increase U.S. steel capacity utilization to a
financially viable target of 80 percent.
II. Legal Framework
I. Section 232 Requirements
Section 232 provides the Secretary with the authority to conduct
investigations to determine the effect on the national security of the
United States of imports of any article. It authorizes the Secretary to
conduct an investigation if requested by the head of any department or
agency, upon application of an interested party, or upon his own
motion. See 19 U.S.C. 1862(b)(1)(A).
Section 232 directs the Secretary to submit to the President a
report with recommendations for ``action or inaction under this
section'' and requires the Secretary to advise the President if any
article ``is being imported into the United States in such quantities
or under such circumstances as to threaten to impair the national
security.'' See 19 U.S.C. 1862(b)(3)(A).
Section 232(d) directs the Secretary and the President to, in light
of the requirements of national security and without excluding other
relevant factors, give consideration to the domestic production needed
for projected national defense requirements and the capacity of the
United States to meet national security requirements. See 19 U.S.C.
1862(d).
Section 232(d) also directs the Secretary and the President to
``recognize the close relation of the economic welfare of the Nation to
our national security, and. . .take into consideration the impact of
foreign competition on the economic welfare of individual domestic
industries'' by examining whether any substantial unemployment,
decrease in revenues of government, loss of skills or investment, or
other serious effects resulting from the displacement of any domestic
products by excessive imports, or other factors, result in a
``weakening of our internal economy'' that may impair the national
security. See 19 U.S.C. 1862(d).
Once an investigation has been initiated, Section 232 mandates that
the Secretary provide notice to the Secretary of Defense that such an
investigation has been initiated. Section 232 also requires the
Secretary to do the following:
(1) ``Consult with the Secretary of Defense regarding the
methodological and policy questions raised in [the] investigation;''
(2) ``Seek information and advice from, and consult with,
appropriate officers of the United States;'' and
(3) ``If it is appropriate and after reasonable notice, hold public
hearings or otherwise afford interested parties an opportunity to
present information and advice relevant to such investigation.'' \10\
See 19 U.S.C. 1862(b)(2)(A)(i)-(iii).
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\10\ Department regulations (i) set forth additional authority
and specific procedures for such input from interested parties, see
15 CFR 705.7 and 705.8, and (ii) provide that the Secretary may vary
or dispense with those procedures ``in emergency situations, or when
in the judgment of the Department, national security interests
require it.'' Id., Sec. 705.9.
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As detailed in Parts III and V of this report, each of the legal
requirements set forth above has been satisfied.
In conducting the investigation, Section 232 permits the Secretary
to request that the Secretary of Defense provide an assessment of the
defense requirements of the article that is the subject of the
investigation. See 19 U.S.C. 1862(b)(2)(B).
Upon completion of a Section 232 investigation, the Secretary is
required to submit a report to the President no later than 270 days
after the date on which the investigation was initiated. See 19 U.S.C.
1862(b)(3)(A). The required report must:
(1) Set forth ``the findings of such investigation with respect to
the effect of the importation of such article in such quantities or
under such circumstances upon the national security;''
(2) Set forth, ``based on such findings, the recommendations of the
Secretary for action or inaction under this section;'' and
(3) ``If the Secretary finds that such article is being imported
into the United States in such quantities or under such circumstances
as to threaten to impair the national security . . . so advise the
President.'' See 19 U.S.C. 1862(b)(3)(A).
All unclassified and non-proprietary portions of the report
submitted by the Secretary to the President must be published.
Within 90 days after receiving a report in which the Secretary
finds that an article is being imported into the United States in such
quantities or under such circumstances as to threaten to impair the
national security, the President shall:
(1) ``Determine whether the President concurs with the finding of
the Secretary;'' and
(2) ``If the President concurs, determine the nature and duration
of the action that, in the judgment of the President, must be taken to
adjust the imports of the article and its derivatives so that such
imports will not threaten to impair the national security.'' See 19
U.S.C. 1862(c)(1)(A).
II. Discussion
While Section 232 does not contain a definition of ``national
security'', both Section 232, and its implementing regulations at 15
CFR part 705, contain non- exclusive lists of factors that Commerce
must consider in evaluating the effect of imports on the national
[[Page 40207]]
security. Congress in Section 232 explicitly determined that ``national
security'' includes, but is not limited to, ``national defense''
requirements. See 19 U.S.C. 1862(d). The Department in 2001 determined
that ``national defense'' includes both defense of the United States
directly and the ``ability to project military capabilities globally.''
\11\
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\11\ Department of Commerce, Bureau of Export Administration;
The Effect of Imports of Iron Ore and Semi-Finished Steel on the
National Security; Oct. 2001 (``2001 Report'').
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The Department also concluded in 2001 that ``in addition to the
satisfaction of national defense requirements, the term ``national
security'' can be interpreted more broadly to include the general
security and welfare of certain industries, beyond those necessary to
satisfy national defense requirements that are critical to the minimum
operations of the economy and government.'' The Department called these
``critical industries.'' \12\ This report once again uses these
reasonable interpretations of ``national defense'' and ``national
security.'' However, this report uses the more recent 16 critical
infrastructure sectors identified in Presidential Policy Directive 21
\13\ instead of the 28 critical industry sectors used by the Bureau of
Export Administration in the 2001 Report.\14\
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\12\ Id.
\13\ Presidential Policy Directive 21; Critical Infrastructure
Security and Resilience; February 12, 2013 (``PPD-21'').
\14\ See Op. Cit. at 16.
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Section 232 directs the Secretary to determine whether imports of
any article are being made ``in such quantities or under such
circumstances'' that those imports ``threaten to impair the national
security.'' See 19 U.S.C. 1862(b)(3)(A). The statutory construction
makes clear that either the quantities or the circumstances, standing
alone, may be sufficient to support an affirmative finding. They may
also be considered together, particularly where the circumstances act
to prolong or magnify the impact of the quantities being imported.
The statute does not define a threshold for when ``such
quantities'' of imports are sufficient to threaten to impair the
national security, nor does it define the ``circumstances'' that might
qualify.
Likewise, the statute does not require a finding that the
quantities or circumstances are impairing the national security.
Instead, the threshold question under Section 232 is whether those
quantities or circumstances ``threaten to impair the national
security.'' See 19 U.S.C. 1862(b)(3)(A). This formulation strongly
suggests that Congress expected an affirmative finding under Section
232 would occur before there is actual impairment of the national
security.\15\
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\15\ The 2001 Report used the phrase ``Fundamentally threaten to
impair'' when discussing how imports may threaten to impair national
security. See 2001 Report at 7 and 37. Because the term
``fundamentally'' is not included in the statutory text and could be
perceived as establishing a higher threshold, the Secretary
expressly does not use the qualifier in this report. The statutory
threshold in Section 232(b)(3)(A) is unambiguously ``threaten to
impair'' and the Secretary adopts that threshold without
qualification. 19 U.S.C. 1862(b)(3)(A). The statute also uses the
formulation ``may impair'' in Section 232(d). Id. at 1862(d).
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Section 232(d) contains a considerable list of factors for the
Secretary to consider in determining if imports ``threaten to impair
the national security'' \16\ of the United States, and this list is
mirrored in the implementing regulations. See 19 U.S.C. 1862(d) and 15
CFR 705.4. Congress was careful to note twice in Section 232(d) that
the list they provided, while mandatory, is not exclusive.\17\
Congress' illustrative list is focused on the ability of the United
States to maintain the domestic capacity to provide the articles in
question as needed to maintain the national security of the United
States.\18\ Congress broke the list of factors into two equal parts
using two separate sentences. The first sentence focuses directly on
``national defense'' requirements, thus making clear that ``national
defense'' is a subset of the broader term ``national security.'' The
second sentence focuses on the broader economy, and expressly directs
that the Secretary and the President ``shall recognize the close
relation of the economic welfare of the Nation to our national
security.'' \19\ See 19 U.S.C. 1862(d).
---------------------------------------------------------------------------
\16\ 19 U.S.C. 1862(b)(3)(A).
\17\ See 19 U.S.C. 1862(d) (``the Secretary and the President
shall, in light of the requirements of national security and without
excluding other relevant factors. . .'' and ``serious effects
resulting from the displacement of any domestic products by
excessive imports shall be considered, without excluding other
factors. . .'').
\18\ This reading is supported by Congressional findings in
other statutes. See, e.g., 15 U.S.C. 271(a)(1)(``The future well-
being of the United States economy depends on a strong manufacturing
base. . .'') and 50 U.S.C. 4502(a)(``Congress finds that--(1) the
security of the United States is dependent on the ability of the
domestic industrial base to supply materials and services. . .
(2)(C) to provide for the protection and restoration of domestic
critical infrastructure operations under emergency conditions. . .
(3). . . the national defense preparedness effort of the United
States Government requires--(C) the development of domestic
productive capacity to meet--(ii) unique technological requirements.
. . (7) much of the industrial capacity that is relied upon by the
United States Government for military production and other national
defense purposes is deeply and directly influenced by--(A) the
overall competitiveness of the industrial economy of the United
States- and (B) the ability of industries in the United States, in
general, to produce internationally competitive products and operate
profitably while maintaining adequate research and development to
preserve competitiveness with respect to military and civilian
production- and (8) the inability of industries in the United
States, especially smaller subcontractors and suppliers, to provide
vital parts and components and other materials would impair the
ability to sustain the Armed Forces of the United States in combat
for longer than a short period.'').
\19\ Accord 50 U.S.C. 4502(a).
---------------------------------------------------------------------------
Two of the factors listed in the second sentence of Section 232(d)
are most relevant in this investigation. Both are directed at how
``such quantities'' of imports threaten to impair national security.
See 19 U.S.C. 1862(b)(3)(A). In administering Section 232, the
Secretary and the President are required to ``take into consideration
the impact of foreign competition on the economic welfare of individual
domestic industries'' and any ``serious effects resulting from the
displacement of any domestic products by excessive imports'' in
``determining whether such weakening of our internal economy may impair
the national security.'' See 19 U.S.C. 1862(d). Since the 2001
investigation, foreign competition and the displacement of domestic
steel by excessive imports have resulted in the closure of six basic
oxygen furnace facilities and the idling of four more (which is more
than a 50 percent reduction in the number of such facilities), a 35
percent decrease in employment in the steel industry, and caused the
domestic steel industry as a whole to operate on average with negative
net income since 2009.
Another factor, not on the list, that the Secretary finds to be a
relevant is the presence of massive excess capacity for producing
steel. This excess capacity results in steel imports occurring ``under
such circumstances'' that they threaten to impair the national
security. See 19 U.S.C. 1862(b)(3)(A). The circumstance of excess
global steel production capacity is a factor because, while U.S.
production capacity has remained flat since 2001, other steel producing
nations have increased their production capacity, with China alone able
to produce as much as the rest of the world combined. This overhang of
global excess capacity means that U.S. steel producers, for the
foreseeable future, will continue to lose market share to imported
steel as other countries export more steel to the United States to
bolster their own economic objectives and offset loss of markets to
Chinese steel exports.
It is these three factors--displacement of domestic steel by
excessive imports and the consequent adverse impact on the economic
welfare of the domestic steel industry, along with global excess
[[Page 40208]]
capacity in steel--that the Secretary has concluded create a persistent
threat of further plant closures that could leave the United States
unable in a national emergency to produce sufficient steel to meet
national defense and critical industry needs. The Secretary finds this
``weakening of our internal economy may impair the national security''
as defined in Section 232. See 19 U.S.C. 1862(d).
The Secretary also considered whether the source of the imports
affects the analysis under Section 232. In the 2001 Report, ``the
Department found that iron ore and semi-finished steel are imported
from reliable foreign sources'' and concluded that ``even if the United
States were dependent on imports of iron ore and semi- finished steel,
imports would not threaten to impair national security.'' 2001 Report
at 27. However, because Congress in Section 232 chose to explicitly
direct the Secretary to consider whether the ``impact of foreign
competition'' and ``the displacement of any domestic products by
excessive imports'' are ``weakening our internal economy'' but made no
reference to an assessment of the sources of imports, it appears likely
that Congress recognized adverse impacts might be caused by imports
from allies or other reliable sources.\20\ As a result, the fact that
some or all of the imports causing the harm are from reliable sources
does not compel a finding that those imports do not threaten to impair
national security.\21\
---------------------------------------------------------------------------
\20\ When Congress adopted Section 232(d) in 1962 the
immediately preceding section was Section 231, 19 U.S.C. 1861, which
required the President, as soon as practicable, to suspend most-
favored-nation tariff treatment for imports from communist
countries. Given the bipolar nature of the world at the time, the
absence of a distinction between communist and non-communist
countries in Section 232 suggests that Congress expected Section 232
would be applied to imports from all countries--including allies and
other ``reliable'' sources.
\21\ To the extent that the 2001 Report or other prior
Department reports under Section 232 can be read to conclude that
imports from reliable sources cannot impair the national security
when the Secretary finds those imports are causing ``substantial
unemployment, decrease in revenues of government, loss of skills or
investment, or other serious effects resulting from the displacement
of any domestic products by excessive imports'', the Secretary
expressly rejects such a reading.
---------------------------------------------------------------------------
After careful examination of the facts in this investigation, the
Secretary has concluded that excessive imports of steel in the present
circumstances do threaten to impair national security under Section
232. Several important factors--the broader scope of the
investigation,\22\ the level of global excess capacity, the level of
imports, the reduction in basic oxygen furnace facilities since 2001,
and the potential impact of further plant closures on capacity needed
in a national emergency--support a recommendation different from the
one adopted in the 2001 Report.
---------------------------------------------------------------------------
\22\ This investigation examines the import of a broad range of
steel products--flat, long, pipe and tube, semi- finished, and
stainless--whereas the 2001 Report addressed only semi-finished
steel products and iron ore, which is not part of this
investigation. As the 2001 Report noted, at the time semi-finished
imports accounted for ``a small percentage (approximately 7 percent)
of total U.S. semi-finished steel consumption.'' 2001 Report at 31.
The 2001 Report also stated that ``whether imports have harmed or
threaten to harm U.S. producers writ large is beyond the scope of
the Department's inquiry, and need not be resolved here.'' Id. at
37. This investigation is focused on the larger inquiry that the
2001 Report expressly did not reach.
---------------------------------------------------------------------------
III. Investigation Process
A. Initiation of Investigation
On April 19, 2017, U.S. Secretary of Commerce Wilbur Ross initiated
an investigation to determine the effect of imported steel on national
security under Section 232 of the Trade Expansion Act of 1962, as
amended (19 U.S.C. 1862).
Pursuant to Section 232(b)(1)(B), the Department notified the U.S.
Department of Defense with an April 19, 2017 letter from Secretary Ross
to Secretary James Mattis.\23\
---------------------------------------------------------------------------
\23\ 19 U.S.C. 1862(b)(1)(B). See Appendix A. Section 232
Investigation Notification Letter to Secretary of Defense James
Mattis (April 19, 2017) ; Department of Defense Response to
Notification (May 8, 2017)
---------------------------------------------------------------------------
On April 20, 2017, President Donald Trump signed a Presidential
Memorandum directing Secretary Ross to proceed expeditiously in
conducting his investigation and submit a report on his findings to the
President.\24\
---------------------------------------------------------------------------
\24\ See Appendix B: Presidential Memorandum for the Secretary
of Commerce--Steel Imports and Threats to National Security (April
20, 2017)
---------------------------------------------------------------------------
On April 21, 2017, the Department published in the Federal Register
a notice about the initiation of this investigation to determine the
effect of imports of steel on the national security. The notice also
announced the opening of the public comment period as well as a public
hearing to be held on May 24, 2017.\25\
---------------------------------------------------------------------------
\25\ See Appendices C and D for Federal Register Notice Federal
Register, Vol. 82, No. 79, 19205-19207 and See Federal Register,
Vol. 82, No. 98, 23529-23530.
---------------------------------------------------------------------------
B. Public Hearing
The Department held a public hearing to elicit further information
concerning this investigation in Washington, DC, on May 24, 2017. The
Department heard testimony from 37 witnesses at the hearing. A full
list of witnesses and copies of their testimony are included in
Appendices E and F.
C. Public Comments
On April 21, 2017, the Department invited interested parties to
submit written comments, opinions, data, information, or advice
relevant to the criteria listed in Sec. 705.4 of the National Security
Industrial Base Regulations (15 CFR 705.4) as they affect the
requirements of national security, including the following:
(a) Quantity of the articles subject to the investigation and other
circumstances related to the importation of such articles; (b) Domestic
production capacity needed for these articles to meet projected
national defense requirements; (c) The capacity of domestic industries
to meet projected national defense requirements; (d) Existing and
anticipated availability of human resources, products, raw materials,
production equipment, facilities, and other supplies and services
essential to the national defense; (e) Growth requirements of domestic
industries needed to meet national defense requirements and the
supplies and services including the investment, exploration and
development necessary to assure such growth; (f) The impact of foreign
competition on the economic welfare of any domestic industry essential
to our national security; (g) The displacement of any domestic products
causing substantial unemployment, decrease in the revenues of
government, loss of investment or specialized skills and productive
capacity, or other serious effects; (h) Relevant factors that are
causing or will cause a weakening of our national economy; and (i) Any
other relevant factors. See Federal Register, Vol. 82, No. 79, 19205-
19207.
The public comment period ended on May 31, 2017. The Department
received 201 written public comment submissions concerning this
investigation. All public comments were carefully reviewed and factored
into the investigation process. For a listing of all public comments,
see Appendix G.
D. Interagency Consultation
In addition to the required notification provided by the April 19,
2017 letter from Secretary Ross to Secretary Mattis, Department staff
carried out the consultations required under Section 232(b)(2).\26\
Staff consulted with their counterparts in the Department of Defense
regarding any methodological and policy questions that arose during the
investigation.
[[Page 40209]]
Discussions were held with the U.S. Army Materiel Command, the Defense
Logistics Agency, the U.S. Navy/Naval Air Systems Command, and the
Under Secretary of Defense for Acquisitions & Logistics, Manufacturing
and Industrial Base Policy.
---------------------------------------------------------------------------
\26\ 19 U.S.C. 1862(b)(2)
---------------------------------------------------------------------------
Discussions were also held with ``appropriate officers of the
United States,'' including the Department of State, Department of the
Treasury, Department of the Interior/U.S. Geological Survey, the
Department of Homeland Security/U.S. Customs and Border Protection, the
International Trade Commission, and the Office of the United States
Trade Representative.\27\
---------------------------------------------------------------------------
\27\ Id.
---------------------------------------------------------------------------
IV. Product Scope of the Investigation \28\ \29\
---------------------------------------------------------------------------
\28\ The scope includes steel products.
\29\ Note that import data for steel products includes what are
believed to be very small amounts of iron as well as steel, both of
which are included in the HS codes covered in the scope.
---------------------------------------------------------------------------
For this report, the product scope covers steel mill products
(``steel'') which are defined at the Harmonized System (``HS'') 6-digit
level as: 720610 through 721650, 721699 through 730110, 730210, 730240
through 730290, and 730410 through 730690, including any subsequent
revisions to these HS codes. The following discontinued HS codes have
been included for purposes of reporting historical data (prior to
2007): 722520, 722693, 722694, 722910, 730410, 730421, 730610, 730620,
and 730660.
These steel products are all produced by U.S. steel companies and
support various applications across the defense, critical
infrastructure, and commercial sectors. Generally, these products fall
into one of the following five product categories (including but not
limited to):
(1) Carbon and Alloy Flat Product (Flat Products): Produced by
rolling semi- finished steel through varying sets of rolls. Includes
sheets, strips, and plates.
Flat products are covered under the following 6-digit HS codes:
720810, 720825, 720826, 720827, 720836, 720837, 720838, 720839, 720840,
720851, 720852, 720853, 720854, 720890, 720915, 720916, 720917, 720918,
720925, 720926, 720927, 720928, 720990, 721011, 721012, 721020, 721030,
721041, 721049, 721050, 721061, 721069, 721070, 721090, 721113, 721114,
721119, 721123, 721129, 721190, 721210, 721220, 721230, 721240, 721250,
721260, 722511, 722519, 722530, 722540, 722550, 722591, 722592, 722599,
722611, 722619, 722691, 722692, 722693, 722694, 722699
(2) Carbon and Alloy Long Products (Long Products): Steel products
that fall outside the flat products category. Includes bars, rails,
rods, and beams.
Long products are covered under the following 6-digit HS codes:
721310, 721320, 721391, 721399, 721410, 721420, 721430, 721491, 721499,
721510, 721550,721590, 721610, 721621, 721622, 721631, 721632, 721633,
721640, 721650, 721699, 721710, 721720, 721730, 721790, 722520,
722620,722710, 722720, 722790, 722810, 722820, 722830, 722840, 722850,
722860, 722870, 722880, 722910,722920, 722990, 730110, 730210, 730240,
730290
(3) Carbon and Alloy Pipe and Tube Products (Pipe and Tube
Products): Either seamless or welded pipe and tube products. Some of
these products may include stainless as well as alloy other than
stainless.
Pipe and Tube products are covered under the following 6-digit HS
codes: 730410, 730419, 730421, 730423, 730429, 730431, 730439, 730451,
730459, 730490, 730511, 730512, 730519, 730520, 730531, 730539, 730590,
730610, 730619, 730620, 730629, 730630, 730650, 730660, 730661, 730669,
730690
(4) Carbon and Alloy Semi-finished Products (Semi-finished
Products): The initial, intermediate solid forms of molten steel, to be
re-heated and further forged, rolled, shaped, or otherwise worked into
finished steel products. Includes blooms, billets, slabs, ingots, and
steel for castings.
Semi-finished products are covered under the following 6-digit HS
codes: 720610, 720690, 720711, 720712, 720719, 720720, 722410, 722490
(5) Stainless Products: Steel products, in flat-rolled, long, pipe
and tube, and semi-finished forms, containing at minimum 10.5 percent
chromium and, by weight, 1.2 percent or less of carbon, offering better
corrosion resistance than other steel.
Stainless steel products are covered under the following 6-digit HS
codes: 721810, 721891, 721899, 721911, 721912, 721913, 721914, 721921,
721922, 721923, 721924, 721931, 721932, 721933, 721934, 721935, 721990,
722011, 722012, 722020, 722090, 722100, 722211, 722219, 722220, 722230,
722240, 722300, 730411, 730422, 730424, 730441, 730449, 730611, 730621,
730640
V. Findings
A. Steel is Important to U.S. National Security
As discussed in Part II, ``national security'' under Section 232
includes both
(1) national defense, and (2) critical infrastructure needs.
1. Steel is Needed for National Defense Requirements
Steel articles are critical to the nation's overall defense
objectives.\30\ The U.S. Department of Defense (DoD) has a large and
ongoing need for a range of steel products that are used in fabricating
weapons and related systems for the nation's defense.\31\ DoD
requirements--which currently require about three percent of U.S. steel
production--are met by steel companies that also support the
requirements for critical infrastructure and commercial industries.
---------------------------------------------------------------------------
\30\ Accord, 2001 Report at 1, 12.
\31\ AISI 2017 public policy agenda, available from http://www/
steel/org/~/media/Files/AISI/Reports/AISI-2017-Public-Policy-Agenda/
pdf?la=en.
---------------------------------------------------------------------------
The free market system in the United States requires commercially
viable steel producers to meet defense needs. No company could afford
to construct and operate a modern steel mill solely to supply defense
needs because those needs are too diverse. In order to supply those
diverse national defense needs, U.S. steel mills must attract
sufficient commercial (i.e., non-defense) business. The commercial
revenue supports construction, operation, and maintenance of production
capacity as well as the upgrades, research and development required to
continue to supply defense needs in the future. See Appendix H for
examples.
2. Steel is Required for U.S. Critical Infrastructure
Steel also is needed to satisfy requirements for ``those industries
that the U.S. Government has determined are critical to minimum
operations of the economy and government.'' \32\ In the 2001 Report the
Department identified 28 ``critical industries.'' \33\ The Critical
Infrastructure Assurance Office that identified the ``critical
industries'' is no longer in existence, so for this investigation the
Department instead relied on the industries identified by the U.S.
Government in the 2013 Presidential Policy Directive 21 (PPD-21).\34\
The Secretary believes that the range of industries identified in PPD-
21 is comparable to the range of critical industries analyzed in the
2001 Report.
---------------------------------------------------------------------------
\32\ 2001 Report at 14. See also, 2001 Report at 16, Table 2,
for a listing of the 28 critical industries.
\33\ Id.
\34\ PPD-21 can be viewed at https://obamawhitehouse.archives.gov/the-press-office/2013/02/12/presidential-policy-directive-critical-infrastructure-security-and-resil.
---------------------------------------------------------------------------
Pursuant to PPD-21, there are 16 designated critical infrastructure
sectors in the United States, many of which use
[[Page 40210]]
high volumes of steel (see Appendix I).\35\ The 16 sectors include
chemical production, communications, dams, energy, food production,
nuclear reactors, transportation systems, water, and waste water
systems.
---------------------------------------------------------------------------
\35\ Department of Homeland Security, ``Critical Infrastructure
Sectors,'' https://www.dhs.gov/critical-infrastructure-sectors#
---------------------------------------------------------------------------
Increased quantities of steel will be needed for various critical
infrastructure applications in the coming years. The American Society
of Civil Engineers estimates that the United States needs to invest
$4.5 trillion in infrastructure by 2025, and a substantial portion of
these projects require steel content.\36\
---------------------------------------------------------------------------
\36\ 2017 Infrastructure Report Card, American Society of Civil
Engineers, https://www/infrastructurereportcard.org/wp-content/uploads/2016/10/2017-Infrastructure-Report-Card/pdf
---------------------------------------------------------------------------
3. Domestic Steel Production Is Essential for National Security
Applications
Domestic steel production is essential for national security.
Congress, in Section 232(d), directed the Secretary of Commerce and the
President to consider domestic production and the economic welfare of
the United States in determining whether imports threaten to impair
national security.
In the case of steel, the history of U.S. Government actions to
ensure the continued viability of the U.S. steel industry demonstrates
that, across decades and Administrations, there has been consensus that
domestic steel production is vital to national security.
Prior significant actions under various statutory authorities to
address steel imports using quotas or tariffs were taken by President
George W. Bush, President William J. Clinton (three times), President
George H. W. Bush, President Ronald W. Reagan (three times), President
James E. Carter (twice), and President Richard M. Nixon, all at lower
levels of import penetration than at present. In the 1970s, action was
taken to limit import penetration to approximately 19 percent. In the
1980s, import penetration had reached 21 percent and the U.S.
Government enacted correcting measures. In the 1990s and 2000s import
penetration again reached up to 23 percent, which prompted the U.S.
Government to take additional actions.\37\ In 2016, import penetration
averaged 30 percent and for the first nine months of 2017 imports have
consistently averaged over 30 percent of U.S. domestic demand.
---------------------------------------------------------------------------
\37\ See Appendix J for additional detail on U.S. Government
actions on steel in the past.
---------------------------------------------------------------------------
4. Domestic Steel Production Depends on a Healthy and Competitive U.S.
Industry
U.S. steel producers would be unable to survive purely on defense
or critical infrastructure steel needs. In the steel industry, it is
commercial and industrial customer sales that generate the relatively
steady production needed for manufacturing efficiency, and the revenue
volume needed to sustain the business. Sales for critical
infrastructure and defense applications are often less predictable,
cyclical, and limited in volume.
Steel manufacturers operating in the United States, however, have
seen their commercial and industrial business steadily eroded by a
growing influx of lower- priced imported product from countries where
steel manufacturing often is subsidized, directly or indirectly. The
Department of Commerce currently has 164 antidumping and countervailing
duty determinations in effect, and has 20 additional cases under
investigation, to address specific cases. See Appendix K.
5. Steel Consumed in Critical Industries
In this investigation, the issue before the Department is whether
steel imports ``threaten to impair'' national security. See 19 U.S.C.
1862. As discussed in Part II, the Secretary has determined that in the
present case the relevant factors are the ``serious effects resulting
from the displacement of . . . domestic [steel] products by excessive
imports'' and the ``impact of foreign competition on the economic
welfare of individual domestic [steel] industries'' that, when combined
with the circumstance of massive global excess capacity, causes a
``weakening of our internal economy'' that ``may impair the national
security.'' \38\
---------------------------------------------------------------------------
\38\ 19 U.S.C. 1862(d).
---------------------------------------------------------------------------
In a free market system, the ability of the domestic steel industry
to continue meeting national security needs depends on the continued
capability of the U.S. steel industry to compete fairly in the
commercial marketplace and maintain a financially viable domestic
manufacturing capability. This includes the need to have an adequately
skilled workforce for manufacturing as well as to conduct research and
development for future products.\39\ A continued loss of viable
commercial production capabilities and related skilled workforce will
jeopardize the U.S. steel industry's ability to meet the full spectrum
of national security requirements.
---------------------------------------------------------------------------
\39\ See 50 U.S.C. 4502(a)(``Congress finds that--. . . (7) much
of the industrial capacity that is relied upon by the United States
Government for military production and other national defense
purposes is deeply and directly influenced by--(A) the overall
competitiveness of the industrial economy of the United States- and
the ability of industries in the United States, in general, to
produce internationally competitive products and operate profitably
while maintaining adequate research and development to preserve
competitiveness with respect to military and civilian production. .
.'').
---------------------------------------------------------------------------
The Department in 2001 determined that the ``critical industries''
sector, which is analogous to the more robust critical infrastructure
sectors identified pursuant to PPD-21, would require ``no more than
33.68 million tons of finished steel per year,'' \40\ based on 30.88
percent of domestic consumption being used in industries related to
critical infrastructure. The Department has now updated the ``critical
industries'' calculation from the 2001 Report \41\ using Census Bureau
steel usage figures from 2007, which are the latest available. See
Appendix I for more detailed information on steel needs for critical
infrastructure.
---------------------------------------------------------------------------
\40\ 2001 Report at 14. The report is not clear whether it is
referring to short tons or metric tons. While not crucial to the
analysis, if the figure is in short tons then the equivalent amount
in metric tons would be 30.56 million metric tons.
\41\ 2001 Report at 16 (Table 2).
---------------------------------------------------------------------------
The updated analysis in Appendix I shows that 49.1 percent of
domestic steel consumption in 2007 was used in critical industries.
Domestic production in 2007 was 110 million metric tons. The 49.1
percent of domestic consumption used in critical industries equals 54
million metric tons, compared to 30.56 million metric tons (or 33.68
million short tons) used in critical industries in 1997. Thus in 10
years the demand for steel in critical industries increased by 63
percent.
B. Imports in Such Quantities as Are Presently Found Adversely Impact
the Economic Welfare of the U.S. Steel Industry
In the steel sector, foreign competition is characterized by
substantial and sustained global overcapacity and production in excess
of foreign domestic demand.
1. Imports of Steel Products Continue to Increase
The United States is the world's largest steel importer. The top 20
sources of U.S. imports of steel products accounted for approximately
91 percent of the roughly 36 million metric tons of steel the United
States is expected to import in 2017 (see Figure 2).
Total U.S. imports rose from 25.9 million metric tons in 2011,
peaking at 40.2 million metric tons in 2014 at the height of the shale
hydrocarbon drilling
[[Page 40211]]
boom. For 2017 (first ten months) imports are increasing at a double-
digit rate over 2016, pushing finished steel imports consistently over
30 percent of U.S. consumption.
[GRAPHIC] [TIFF OMITTED] TN06JY20.016
As shown in Appendix K, antidumping and countervailing duty actions
can address specific instances of unfairly traded steel products.
However, given the large number of countries from which the United
States imports steel and the myriad of different products involved, it
could take years to identify and investigate every instance of unfairly
traded steel, or attempts to transship or evade remedial duties.
Moreover, U.S. industry has already spent hundreds of millions of
dollars in recent years on AD/CVD cases, with seemingly no end in sight
to their outlays. Smaller steel manufacturers are financially unable to
afford these type of cases, or are hesitant to file cases in light of
possible market entry retaliation in foreign markets for finished steel
products.\42\
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\42\ Congress has specifically expressed concern about the need
to maintain small suppliers and the potential adverse impact on
military readiness caused by the loss of small suppliers. See 50
U.S.C. 4502(a)(8).
\43\ 2001 Report at 31.
\44\ AISI's statistical yearbook reports that about 8 percent of
U.S. shipments are made of imported substrate.
---------------------------------------------------------------------------
2. High Import Penetration
In contrast to the situation in the 2001 Report, where imports of
semi-finished steel represented approximately 7 percent of domestic
consumption,\43\ imports of finished steel products (i.e. not including
semi-finished steel) currently represent over 25 percent of U.S.
consumption (see Figure 3).\44\ If imports of semi-finished products
are included, the import penetration level has been above 30 percent
for the first
[[Page 40212]]
ten months of 2017. Import penetration of steel pipe and tube was 74
percent in 2016 and further increased in 2017.
[GRAPHIC] [TIFF OMITTED] TN06JY20.017
3. High Import to Export Ratio
U.S. imports of steel products, which displace demand for domestic
steel and lower production at U.S. plants, reached nearly four times
the level of exports of U.S. steel products in 2016 (see Figure 4). The
expansion of steel production capacity outside of the United States in
the last decade (Asia, the Middle East, and South America), much of it
subsidized by national governments, continues to depress world steel
prices while making it increasingly difficult for U.S. companies to
export their steel products. While U.S. steel producers saw a mild
increase in steel exports from 2005 to 2013, more recently sales to
foreign customers have been declining. Exports fell to nine million
metric tons in 2016 from a 20-year high of 12 million metric tons
annually from 2011 to 2013. Most U.S. steel exports are auto industry
related and are sent to Canada (50 percent by weight in 2016) and
Mexico (39 percent by weight in 2016). Flat products represent the
majority of these exports--57 percent of U.S. steel exports for Canada
and 64 percent of steel exports for Mexico.
[GRAPHIC] [TIFF OMITTED] TN06JY20.018
[[Page 40213]]
The same is true in the line pipe sector. The United States exports
a minimal amount of line pipe. Exports of line pipe reached a recent
peak of 525 thousand metric tons in 2013 before declining
significantly. Exports totaled just 60 thousand metric tons in 2016, a
decrease of 89 percent from 2013, and were less than one-twentieth of
the size of line pipe imports. Canada represents the largest
destination for U.S. line pipe exports, with 39 percent of 2016 exports
going to Canada, followed by Mexico with 13 percent.
4. Steel Prices
Hot-rolled coil prices are a benchmark price indicator for a common
type of steel (see Figure 5). Hot rolled coil is considered a
``benchmark'' because it is a commodity product with a fairly common
definition globally.
[GRAPHIC] [TIFF OMITTED] TN06JY20.019
U.S. prices for hot-rolled steel coil have been higher than in
other countries since 2010. U.S. domestic benchmark prices for this
product class dipped especially low in 2015 at $505.65/metric ton
before recovering in 2016 to $575.68/metric ton. In 2016, the price of
freight-on-board stowed China port steel hot-rolled coil was 14 percent
lower than U.S. domestic hot-rolled coil. In the case of ASEAN nations,
import prices for hot-rolled coil were 33 percent lower and North
Europe domestic hot-rolled coil was 21 percent lower. Each region saw a
price decline in 2015 (see Figure 6). U.S. prices remained higher than
other regions' prices for this commodity level product throughout the
period. Such higher prices are attributable to higher taxes,
healthcare, environmental standards, and other regulatory expenses.
Moreover, lower prices in steel producing regions backed by state-
subsidized enterprises adds pressure on U.S. competitors to export
their steel products to the U.S. Again in 2016, all categories of steel
in all countries continued to experience pressure to lower prices
compared to what could be charged in 2012.
[[Page 40214]]
[GRAPHIC] [TIFF OMITTED] TN06JY20.020
In 2015, steel prices fell globally. As the OECD noted, the
combined effect of weakening global steel demand, including in the
United States, growing exports in many economies, and decreases in
steelmaking costs led to a very sharp decline in steel prices in 2015.
Notwithstanding these effects, prices for steel in the U.S. remained
substantially higher than in any other area. However, relative to
prices between 2010 and 2013, prices are still relatively depressed.
Global excess steel production weakens the pricing power of U.S.
steel producers. U.S. steel producers' costs are higher than the costs
for producers in other regions due to higher taxes, healthcare,
environmental, and other regulatory expenses. Higher U.S. steel prices
incentivize importing lower-cost foreign steel. Moreover, excess
production and lower prices in regions proximate to state subsidized
enterprises displace purchases from market based steel exporters and
add pressure on those market based suppliers to export to the U.S. The
effect of global excess steel production on U.S. steel prices and
import levels is discussed in greater detail in Appendix L.
5. Steel Mill Closures
U.S. steel mill closures continue eroding overall U.S. steel mill
capacity and employment. Many U.S. steel mills have been driven out of
business due to declining steel prices, global overcapacity, and
unfairly traded steel. Since 2000, the United States has lost over 25
percent of its basic oxygen furnace facilities with the closure of six
facilities: RG Steel in Sparrows Point, Maryland; RG Steel in
Steubenville, Ohio; RG Steel in Warren, Ohio; ArcelorMittal in East
Chicago, Indiana; ArcelorMittal in Weirton, West Virginia; and U.S.
Steel in Fairfield, Alabama.
In addition, four electric arc furnace steel facilities have
closed: Evraz in Claymont, Delaware; ArcelorMittal in Georgetown, South
Carolina; Gerdau in Sand Springs, Oklahoma; and Republic Steel in
Lorain, Ohio. Most recently, ArcelorMittal has announced the closure of
its plate rolling mill in Conshohocken, Pennsylvania, because of
sagging commercial sales attributed to surging imports of low-cost
steel product and flat defense demand.\45\
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\45\ Cowden, M. ``Arcelor Mittal to Shut PA Plate Mill,''
American Metal market, September 18, 2017.
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The closures of these facilities have had a significant impact on
the U.S. industrial workforce and local economies. RG Steel suffered
three closures: Sparrows Point, Maryland; Steubenville, Ohio; and
Warren, Ohio. After filing for bankruptcy in 2012, more than 2,000
employees were displaced in Maryland alone and another 2,000 in the
Midwest. The
[[Page 40215]]
company cited weak demand in the steel industry as well as lack of
financing as key contributors to the closure.\46\
---------------------------------------------------------------------------
\46\ Business Journal, ``Unforeseen Conditions Closes Warren
Steel Holdings,'' January 12, 2016, http://businessjournaldaily.com/utilities-cut-to-warren-steel-holdings/; Baltimore Brew, ``Six
reasons why the Sparrows Point steel mill collapsed,'' May 25, 2012,
https://baltimorebrew.com/2012/05/25/six-reasons-why-the-sparrows-point-steel-mill-collapsed/.
---------------------------------------------------------------------------
Closures of smaller steel mills have had equally devastating
impacts on employment. Gerdau Sand Springs in Oklahoma lost 300
employees after closing in 2009 because of a long-term drop in demand
for steel.\47\ Sand Springs was the last remaining steel plant in
Oklahoma and had been in production since the 1920s.
---------------------------------------------------------------------------
\47\ News on 6, ``Sand Springs Steel Plant May Close,'' June 9,
2009, http://www.newson6.com/story/10500785/sand-springs-steel-plant-may-close.
---------------------------------------------------------------------------
In 2013, at least 345 employees were laid off in response to the
closure of the Claymont steel mill in Delaware. The Governor of
Delaware, Jack Markell, attributed the financial difficulties of the
facility to ``subdued market demand and the high volume of imports.''
\48\
---------------------------------------------------------------------------
\48\ Business Insider, ``Shutdown of Russian Steel Mill in
Delaware Could Send a Message About US Trade,'' October 17, 2013,
http://www.businessinsider.com/evraz-closes-claymont-steel-2013-10.
---------------------------------------------------------------------------
Similar difficulties were cited by the ArcelorMittal's Georgetown,
South Carolina facility and U.S. Steel's location in Fairfield,
Alabama, both of which closed in 2015. Layoffs for these two
corporations totaled 226 and more than 1,100 employees, respectively.
Both companies attributed the layoffs to financial losses and
ultimately, to facility closures due to the rise in competition from
inexpensive imports.\49\
---------------------------------------------------------------------------
\49\ AL.com, ``U.S. Steel lays off 200 more workers in
Fairfield,'' March 18, 2016, http://www.al.com/business/index/ssf/2016/03/us_steel_lays_off_200_more_wor/html.
---------------------------------------------------------------------------
Even temporary idling of steel plants threatens the U.S. steel
industry as there are significant financial costs with re-opening a
steel mill. Multiple U.S. facilities remain idled: there are four idled
basic oxygen furnace facilities, two each in Kentucky and Illinois,
representing almost one third of the remaining basic oxygen furnace
facilities in United States.\50\ In addition, there are idled pipe and
tube mills in Texas, Ohio, and Alabama. Once production is halted at
these facilities it is not always possible to bring back the highly
skilled workforce needed to operate them. When steel mill restarts do
occur, additional costs are often incurred for specialized worker
training and production ramp-up.
---------------------------------------------------------------------------
\50\ See Figure 13.
---------------------------------------------------------------------------
In addition, when a steel mill closes at a given location, the
workers find other occupations, move to other steel mills, or remain
indefinitely unemployed. After a significant period of unemployment,
much of the specialized skill required by steel mill workers is
forgotten. Furthermore, it is typically not easy to find and recruit
displaced workers who may live hundreds or thousands of miles away.
6. Declining Employment Trend Since 1998
U.S. steel industry employment has declined 35 percent (216,400 in
1998 to 139,800 in January 2016--December 2016), including 14,100 lost
jobs between 2015 and 2016. While employment numbers increased slightly
in certain years, the trend is dramatically downward (see Figure 7).
Layoffs defer formal plant closings but are an indication of financial
distress. Layoffs in the last two years have been particularly acute in
steel producers with pipe and tubular facilities. In addition to
layoffs, there are permanent closures and bankruptcies in the
industry.\51\
---------------------------------------------------------------------------
\51\ See infra, section V(C)(1).
---------------------------------------------------------------------------
The loss of skilled workers is especially detrimental to the long-
term health and competitiveness of the industry. The unstable and
declining employment outlook for the industry also dissuades younger
workers from wanting to participate in the future U.S. steel industry.
The inability to rapidly add skilled workers to the industry negatively
affects current manufacturing capabilities. This is especially
problematic in the event of a major production surge or mobilization.
[GRAPHIC] [TIFF OMITTED] TN06JY20.021
[[Page 40216]]
7. Trade Actions--Antidumping and Countervailing Duties
The number of U.S. antidumping and countervailing duty measures in
effect illustrates the scope of the problem confronting the U.S. steel
industry. In 1998, at the height of that periods steel crisis, there
were just over 100 antidumping and countervailing duty cases against
finished steel products.\52\ Today there are 164 antidumping and
countervailing duty orders in effect for steel, with another 20 steel
investigations currently ongoing and another waiting to take effect
through publication in the Federal Register (see Appendix K for a full
listing of Steel Antidumping and Countervailing Duty Orders in Effect).
This represents a 60 percent increase in cases since the last time the
Department investigated steel in 2001.
---------------------------------------------------------------------------
\52\ Global Steel Trade. Structural Problems and Future
Solutions; Department of Commerce; July, 2000.
---------------------------------------------------------------------------
8. Loss of Domestic Opportunities to Bidders Using Imported Steel
Despite efforts to level the playing field through AD/CVD orders,
there are numerous examples of U.S. steel producers being unable to
fairly compete with foreign suppliers, including the lack of ability to
bid on some critical U.S. infrastructure projects. Due to unfair
competition, particularly from foreign state-owned enterprises, U.S.
steel producers have lost out on U.S. business opportunities. Some
examples include Chinese companies providing steel for the eastern span
of the San Francisco-Oakland Bay Bridge as well as the Alexander
Hamilton Bridge over the Harlem River in New York.\53\
---------------------------------------------------------------------------
\53\ 53 New York Times, ``Bridge Comes to San Francisco With a
Made-in-China Label,'' June 25, 2011, http://www.nytimes.com/2011/06/26/business/global/26bridge.html.
---------------------------------------------------------------------------
The Alliance for American Manufacturing's statement before the
Congressional Steel Caucus (March 2017) identified three other recent
infrastructure projects in New York that have used or will use heavily
subsidized or possibly dumped foreign steel: the Verrazano-Narrows
Bridge, LaGuardia Airport, and the Holland Tunnel. Two major U.S.
cities--Boston and Chicago--have contracted with Chinese companies to
build new subway cars, primarily constructed with imported steel, for
their respective transportation systems.\54\
---------------------------------------------------------------------------
\54\ Reuters, ``China's CRRC lands $1.3 billion China rail car
project,'' March 10, 2016,
http://www.reuters.com/article/us-crrc-usa-idUSKCN0WC17I.
---------------------------------------------------------------------------
9. Financial Distress
Rising levels of imports of steel continue to weaken the U.S. steel
industry's financial health. Years of running on low-profit margins or
at a loss have weakened an industry that continues to face an ever-
increasing wave of steel imports. The U.S. industry, as a whole, has
operated on average with negative net income from 2009- 2016. Net
income for U.S.-owned steel companies has averaged only $162 million
annually since 2010, challenging the financial viability of this vital
industry (see Figure 8).
[GRAPHIC] [TIFF OMITTED] TN06JY20.022
The Stern School of Business at New York University calculates that
U.S. steel industry participants in the last five years experienced
negative net income of 17.8 percent. Compounded growth in revenue for
the past five years in the steel industry has been a negative 7
percent.\55\ The loss of revenue has caused U.S. steel manufacturers,
both large and small, to defer or eliminate production facility capital
investments and funding for research and development. Even though there
was a slight uptick in net income for the first quarter in 2017 over
the fourth quarter of 2016 margins remain poor compared to historic
levels.
---------------------------------------------------------------------------
\55\ ``Historical (Compounded Annual) Growth Rates by Sector,''
Aswath Damodaran, New York University Stern School of Business,
January 2017. (see http://pages.stern.nyu.edu/~adamodar/
New_Home_Page/datafile/histg.html)
---------------------------------------------------------------------------
Not only have earnings before interest, taxes, depreciation, and
amortization (EBITDA) been shallow for steel producers in the United
States, many of them are burdened with high levels of debt, as much as
11.9 times of earnings for one major producer (see
[[Page 40217]]
Figure 9).\56\ While some companies are starting to pay down debt,
others have not been able to do so primarily because of slack demand
for domestically produced steel in the face of competition from
imported products. Absent increases in steel production volume and
pricing, one leading law firm specializing in insolvency, White & Case,
observes that some steelmakers in the United States may soon have to
renegotiate loan agreements to extend maturities; those that are not
able to may have to consider Chapter 11 bankruptcy.\57\
---------------------------------------------------------------------------
\56\ Nucor operates mini-mills that use electric arc furnaces to
produce high demand steel products primarily with recycled steel
scrap. From a financial perspective, this business model allows
Nucor to be highly price competitive, but the company produces a
narrower range of flat steel products than integrated steel mills.
The mini-mills can weather bad economic times because they have
lower energy costs and can regulate production more easily. Basic
oxygen furnace plants have higher fixed operating costs because they
directly convert iron ore and other raw materials along with scrap
into steel using more energy-intensive processes.
\57\ ``Losing Strength. U.S. Steel Industry Analysis,'' Scott
Griesman, White & Case, April 16, 2016 (see https://www.whitecase.com/publications/article/losing-strength-us-steel-industry-analysis).
[GRAPHIC] [TIFF OMITTED] TN06JY20.023
No capital intensive industry can survive with such poor margins
over the longer term. The extensive leverage in the industry shown in
Figure 9 adds to the likelihood of further closures if the present high
level of imports continues to force U.S. steel mills to operate well
below profitable capacity utilization rates.
10. Capital Expenditures
The ability of U.S. manufacturers of iron and steel products to
fund capital expenditures for new production plants as well as facility
modernization and advanced manufacturing equipment has been limited by
falling revenue and reduced profits. As shown in Figure 10, annual
capital expenditures for companies making iron and steel ingot, bars,
rods, plate and other semi-finished products wavered from $5.7 billion
to $5.1 billion for 2010-2012, before ramping to $7.1 billion in 2013.
[[Page 40218]]
[GRAPHIC] [TIFF OMITTED] TN06JY20.024
Confronted with receding orders for products and declines in income
in 2013, iron and steel companies operating production facilities in
the United States started curtailing capital investments. Total capital
spending dropped to $3.87 billion in 2014 and slid further to $3.11
billion in 2015--32 percent below 2010 levels of $5.66 billion.
The decline in capital expenditures reflected similar drops in net
sales, which plummeted from $129.6 billion in 2014 to $102 billion in
2015. Income after taxes for U.S. iron and steel manufacturers fell
from $2.48 billion in the same two-year period to a massive loss of
$3.5 billion in 2015.
C. Displacement of Domestic Steel by Excessive Quantities of Imports
Has the Serious Effect of Weakening Our Internal Economy
1. Domestic Steel Production Capacity is Stagnant and Concentrated
According to the OECD, U.S. steel production capacity has remained
stagnant at an average of approximately 114.3 million metric tons for
more than a decade from 2006-2016 (see Figure 11). For 2016, the rated
maximum capacity was 113 million metric tons for existing basic oxygen
furnace and electric arc furnace facilities.
[GRAPHIC] [TIFF OMITTED] TN06JY20.025
[[Page 40219]]
[TEXT REDACTED] \58\
---------------------------------------------------------------------------
\58\ [TEXT REDACTED]
---------------------------------------------------------------------------
The present situation with respect to basic oxygen furnace
production is significantly worse than the situation assessed by the
Department in the 2001 Report. As shown in Figure 13 below, the number
of basic oxygen furnace facilities and units has declined precipitously
since 1995. In 2000, there were 105 companies that produced raw steel
at 144 locations,\59\ while today there are only 38 companies producing
steel at 93 locations, a 64 percent and 36 percent reduction,
respectively.
---------------------------------------------------------------------------
\59\ 2001 Report at 21.
---------------------------------------------------------------------------
Most importantly, in 2000 thirteen companies ``operated integrated
steel mills, with an average of 35 blast furnaces in continuous
operation during the year'' \60\ while today there are only three
companies operating 13 basic oxygen furnaces. These are 77 percent and
60 percent reductions, respectively. As a result, today only 26 percent
of domestic steel is produced from raw materials in the United States,
as compared to 53 percent in 2000.
---------------------------------------------------------------------------
\60\ Id.
---------------------------------------------------------------------------
As noted earlier, since 2000 there has been over a 25 percent
reduction in the number of basic oxygen furnaces operating in the
United States, and 33 percent of the remaining basic oxygen furnaces
are currently idled. In the Secretary's view, a further reduction in
basic oxygen furnace capacity, which is especially important to the
ability of domestic industry to meet national security needs, is
inevitable if the present imports continue or increase.
[TEXT REDACTED] This would be a serious ``weakening of our internal
economy'' and place the United States in a position where it is unable
to be certain it could meet demands for national defense and critical
industries in a national emergency.\61\
---------------------------------------------------------------------------
\61\ See infra, sections C4 and C5, for a further discussion of
the inability to meet surge requirements in an emergency.
[GRAPHIC] [TIFF OMITTED] TN06JY20.026
In contrast to the situation in the United States, the leading
global producers of steel (Brazil, South Korea, Japan, Russia, Germany,
and especially China) primarily rely on basic oxygen furnace capacity
rather than electric arc furnace capacity (see Figure 14). Each of
these economic competitors to the United States possess critical
research, development and production capabilities that the United
States is in danger of losing if imports continue to force U.S. steel
producers to operate at uneconomic capacity utilization levels.
[[Page 40220]]
A further reduction in domestic basic oxygen furnace capacity would
put the United States at serious risk of becoming dependent on foreign
steel to support its critical industries and defense needs. Allowing
this decline to continue represents a ``weakening of our internal
economy that may impair national security'' which the Congress has
directed the Secretary to advise the President of under the Section
232. See 19 U.S.C. 1862(d).
[GRAPHIC] [TIFF OMITTED] TN06JY20.027
This is not a hypothetical situation. The Department of Defense
already finds itself without domestic suppliers for some particular
types of steel used in defense products, including tire rod steel used
in military vehicles and trucks.\62\ While the United States has many
allies that produce steel, relying on foreign owned facilities located
outside the United States introduces significant risk and potential
delay for the development of new steel technologies and production of
needed steel products, particularly in times of emergency. The
Secretary notes that the authority for the Department of Defense to
place its order ahead of commercial orders on a mandatory basis does
not extend to foreign-owned facilities outside the United States.\63\
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\62\ Letter from Defense Logistics Agency, Columbus, OH to BIS/
OTE, August 1, 2017.
\63\ See Defense Priorities and Allocations System Program
(DPAS), www.dcma.mil/DPAS
---------------------------------------------------------------------------
In the case of critical infrastructure, the United States is down
to only one remaining producer of electrical steel in the United States
(AK Steel--which is highly leveraged). Electrical steel is necessary
for power distribution transformers for all types of energy--including
solar, nuclear, wind, coal, and natural gas--across the country. If
domestic electrical steel production, as well as transformer and
generator production, is not maintained in the U.S., the U.S. will
become entirely dependent on foreign producers to supply these critical
materials and products.\64\ Without an assured domestic supply of these
products, the United States cannot be certain that it can effectively
respond to large power disruptions affecting civilian populations,
critical infrastructure, and U.S. defense industrial production
capabilities in a timely manner.
---------------------------------------------------------------------------
\64\ United States Congress, Congressional Steel Caucus.
Statement of Roger Newport, CEO, AK Steel Corporation (on behalf of
the American Iron and Steel Institute). March 29, 2017.
---------------------------------------------------------------------------
2. Production Is Well Below Demand
Demand for steel products in the United States (see Figure 15),
increased from 100.1 million metric tons in 2011 to 117.5 million
metric tons in 2014, then declined to 99.8 million metric tons in 2016.
Demand in 2017 is projected to rebound to 107.7 million metric tons.
During the 2011 to 2016 period, U.S. production of steel products
dropped from 86.4 million metric tons in 2011 to 78.6 million metric
tons in 2016, with a four percent increase expected in 2017.
For the six-year period, U.S. domestic steel production supplied
only 70
[[Page 40221]]
percent of the average demand, even though available U.S. domestic
steel production capacity during that period could have, on average,
supplied up to 100 percent of demand (U.S. steel producers would be
running at 92 percent capacity utilization for this period) with
approximately 13 million metric tons of additional capacity remaining.
[GRAPHIC] [TIFF OMITTED] TN06JY20.028
3. Utilization Rates Are Well Below Economically Viable Levels
Overall, steel mill production capacity utilization has declined
from 87 percent in 1998, to 81.4 percent in 2008, to 69.4 percent in
2016 (see Figure 16). For the most recent six-year period (2011- 2016),
the average utilization rate was 74 percent.
Industry analysts note that utilization of 80 percent or more is
typically necessary for sustained profitability, among other
factors.\65\ For most capital and energy-intensive U.S. steel
producers, capacity levels of 80 percent or higher are required to
maintain facilities, carry out periodic modernization, service company
debt, and fund research and development.
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\65\ Market Realist, ``Why steel investors are mindful of
capacity utilization rates,'' October 2, 2014, http://marketrealist.com/2014/10/investors-mindful-capacity-utilization-rate/. See also http://marketrealist.com/2015/09/upstream-exposure-impact-steel-companies.
[GRAPHIC] [TIFF OMITTED] TN06JY20.029
When steel factory utilization falls, costs per unit of steel
product rises, reducing profit margins and product pricing flexibility.
Higher capacity utilization usually results in lower per-unit product
costs and higher overall profit.\66\ Over 80 percent is a healthy
capacity utilization rate and a rate at
[[Page 40222]]
which most companies would be profitable.
---------------------------------------------------------------------------
\66\ Houston Chronical, ``Capacity Utilization and Effects on
Product and Profit,'' http://smallbusiness.chron.com/capacity-utilization-effects-product-profit-67046/html; steel industry
sources.
---------------------------------------------------------------------------
The U.S. steel industry uses 80 percent as a benchmark for minimum
operational efficiency. Moreover, the steel industry is capable of
reaching and sustaining 80 percent capacity utilization or higher.
During the 2002-2008 period, U.S. steel companies operated at an
average 87.4 percent level.\67\
---------------------------------------------------------------------------
\67\ http://marketrealist.com/2015/09/upstream-exposure-impact-steel-companies.html (``It's important to note how changes in
capacity utilization rates impact a company's earnings. For example,
we see a big jump in earnings when utilization rates improve from 80
percent to 85 percent. However, incremental benefits are lower when
utilization rates increase from 90 percent to 95 percent.'').
---------------------------------------------------------------------------
These industry assessments are consistent with a 1983 report on
``Critical Materials Requirements in the U.S. Steel Industry'' in which
the Department explained that ``[c]apability utilization or capacity
use, which in effect describes the efficiency of an industry's use of
capital, is a prime determinant of profitability. Domestic steel
producers were operating at about 55 percent capability for the first
half of 1982. The comparable rate for the first half of 1981 was 85
percent. This current rate is probably well below a breakeven point for
most producers, whereas 1981 was profitable for nearly all producers.''
\68\
---------------------------------------------------------------------------
\68\ Department of Commerce, ``Critical Materials Requirements
in the U.S. Steel Industry'', March 1983, at 16-17.
---------------------------------------------------------------------------
4. Declining Steel Production Facilities Limits Capacity Available for
a National Emergency
The number of steel production facilities located in the U.S.
continues to decline. As shown earlier in Figure 13, from 1975 to 2016
the number of basic oxygen furnace facilities decreased from 38 to 13.
Similarly, from 1990 to 2016, the number of electric arc furnace
facilities decreased from 127 to 98.
Due to this decline in facilities, domestic steel producers have a
shrinking ability to meet national security production requirements in
a national emergency. The U.S. Department of Commerce, Census Bureau
regularly surveys plant capacity, and has found that steel producers
are quickly shedding production capacity that could be used in a
national emergency. The Census Bureau defines national emergency
production as the ``greatest level of production an establishment can
expect to sustain for one year or more under national emergency
conditions.'' \69\ From 2011 to 2017, steel producers increased the
utilization of the surge capacity they would have during a national
emergency from 54.2 percent to 68.2 percent (see Figure 17). As steel
producers use more of this emergency capacity, there is an increasingly
limited ability to ramp up steel production to meet national security
needs during a national emergency.
---------------------------------------------------------------------------
\69\ U.S. Dept. of Commerce, Census Bureau, Survey of Plant
Capacity. 2011-2017.
[GRAPHIC] [TIFF OMITTED] TN06JY20.030
The ability to increase steel production during a national
emergency continues to diminish as the number of steel production
facilities continues to decline. If the U.S. requires a similar
increase in steel production as it did during previous national
emergencies, domestic steel production capacity may be insufficient to
satisfy national security needs. If a national emergency were to occur
at present utilization levels, domestic steel producers would be able
to increase production by 146 percent.
For comparison, from 1938 through 1946 the U.S. increased the
production of pig iron and ferro-alloys by 217 percent and increased
the production of steel ingots and castings by 210 percent to meet the
demands of fighting a global war.\70\ From 1960 through 1973, during
the Vietnam era, the U.S. increased steel
[[Page 40223]]
production by 152 percent.\71\ Should the U.S. once again experience a
conflict on the scale of the Vietnam War, steel production capacity may
be slightly insufficient to meet national security needs. But if the
U.S. were to experience a conflict requiring the production increase
seen during the Second World War, the existing domestic steel
production capacity would be unable to meet national security
requirements.
---------------------------------------------------------------------------
\70\ U.S. Dept. of Commerce, Census Bureau, Survey of Plant
Capacity. 2011-2017.
\71\ U.S. Dept. of Commerce, Census Bureau. Statistical Abstract
of the United States, 1978. Page 830.
---------------------------------------------------------------------------
Increasing steel production capacity once a large-scale national
emergency has arisen would take a significant amount of time. According
to the American Iron and Steel Institute, the replacement of a basic
oxygen furnace facility takes more than a year to complete. Therefore,
the lack of spare domestic steel production capacity and the possible
inability to sufficiently increase production during a national
emergency may impair the national security of the United States.
D. Global Excess Steel Capacity Is a Circumstance that Contributes to
the Weakening of the Domestic Economy
1. Free Markets Globally are Adversely Affected by Substantial Chronic
Global Excess Steel Production Led by China
Numerous studies, reports, and investigations have documented the
global excess steel capacity, with China having the largest installed
capability (see Figure 18).\72\ \73\ \74\ OECD analyses show that the
world's nominal crude steelmaking capacity reached about 2.4 billion
metric tons in 2016, an increase of 127 percent compared to the 2000
level. Most of the capacity expansion was planned for construction and
manufacturing activities, and to help build the infrastructure
necessary for economic development--most in non-OECD countries.
Furthermore, the OECD reports that while steel capacity increased at a
steady rate, world steel demand contracted sharply in the aftermath of
the global economic and financial crisis of 2008. Global demand for
steel recovered slowly in the years following 2008. However, since
2013, global steel demand has flattened thereby widening the capacity/
demand gap. By 2015, the gap reached over 700 million metric tons.
---------------------------------------------------------------------------
\72\ Brun, L. (2016). Overcapacity in Steel, China's Role in a
Global Problem. Washington, DC. Alliance for American Manufacturing.
http://aamweb.s3.amazonaws.com/uploads/resources/OvercapacityReport2016_R3.pdf.
\73\ Price, A., Weld, C., El-Sabaawi, L., & Teslik, A. (2016).
Capacity Runs Riot. Washington, DC. Wiley Rein LLP.
\74\ OECD Reports. (2016). http://www.oecd.org/industry/ind/82nd-session-of-the-steel-committee.htm.
\75\ OECD, ``High Level Meeting. Excess Capacity and Structural
Adjustment in the Stee Sector,'' April 2016, http://www.oecd.org/sti/ind/Background%20document%20No%202_FINAL_Meeting.pdf.
[GRAPHIC] [TIFF OMITTED] TN06JY20.031
The vast size of the capacity/demand gap means that steel demand
alone cannot increase enough to balance the global overcapacity
problem, which is particularly prevalent in China. Chinese excess
capacity, estimated at more than 300 million metric tons, dwarfs total
U.S. production capacity (see Figure 19).\75\
The effect of global overcapacity and excess steel production on
U.S. steel prices and import levels is discussed in greater detail in
Appendix L. While U.S. steel production capacity has remained flat
since 2001, other steel producing nations have increased their
production capacity, with China alone able to produce as much steel as
the rest of the world combined.
[[Page 40224]]
[GRAPHIC] [TIFF OMITTED] TN06JY20.032
Several countries (India, Iran, and Indonesia) in addition to China
continue to add production capacity despite slack global demand.
According to the OECD Steel Committee Chair's statement from March
2017, ``New data suggest that nearly 40 million metric tons of gross
capacity additions are currently underway and could come on stream
during the three-year period of 2017-19, while an additional 53.6
million metric tons of capacity additions are in the planning stages
for possible start- up during the same time period.'' \76\ This
additional global steel capacity coming online represents over 80
percent of existing U.S. steelmaking production capacity, demonstrating
that the import challenge to U.S. industry is continuing to grow.
---------------------------------------------------------------------------
\76\ OECD, ``82nd Session of the OECD Steel Committee--Chair's
Statement,'' March 2017, http://www.oecd.org/sti/ind/82-oecd-steel-chair-statement.htm.
---------------------------------------------------------------------------
2. Increasing Global Excess Steel Capacity Will Further Weaken the
Internal Economy as U.S. Steel Producers Will Face Increasing Import
Competition
These additions to worldwide steelmaking capacity will only
exacerbate the situation because they will further lower global
operating utilization rates, including in the United States. Growth in
foreign government-subsidized steel production is progressively
weakening the financial health of the U.S. steel industry as other
steel producing countries export more steel to the U.S. to in part to
offset the loss of regional markets to Chinese steel (see Appendix L).
The U.S. share of global production continues to steadily decline.
In the year 2000, when President Clinton signed into a law a statute
granting China permanent normal trade relations status,\77\ the U.S.
share of global steel production stood at 12 percent.\78\ Since that
point in time, the U.S. share of global steel production continued an
inexorable decline as other countries, and especially China, began to
increase production. The U.S. share of global steel production fell to
8 percent in 2005,\79\ 5 percent in 2009,\80\ and 4.8 percent in
2015.\81\ In contrast, China commanded a 49.7 percent share of global
steel production in 2015.\82\
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\77\ Public Law 106-286. An act to authorize extension of
nondiscriminatory treatment (normal trade relations treatment) to
the People's Republic of China, and to establish a framework for
relations between the United States and the People's Republic of
China. October 10, 2000. https://www.gpo.gov/fdsys/pkg/PLAW-106publ286.
\78\ U.S. Dept. of Commerce, Census Bureau. Statistical Abstract
of the United States, 2012. Page 574.
\79\ Id.
\80\ Id.
\81\ Steel Statistical Yearbook, 2016. World Steel Association.
https://www.worldsteel.org/en/dam/jcr.37ad1117-fefc-4df3-b84f-6295478ae460/Steel+Statistical+Yearbook+2016.pdf.
\82\ Steel Statistical Yearbook, 2017. World Steel Association.
https://www.worldsteel.org/en/dam/jcr.3e275c73-6f11-4e7f-a5d8-23d9bc5c508f/Steel+Statistical+Yearbook+2017.pdf.
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If even half of the planned additional global capacity identified
by the OECD Steel Committee is built, and the related new production
finds its way into the U.S., it will drive the operating rate of U.S.
steel mills to less than 50 percent of capacity. This will cause a
substantial and unsustainable negative cash situation that will
ultimately result in multiple corporate bankruptcies due to heavy debt
loads and related declines in steel production capacity and employment
levels.
VI. Conclusion
The Secretary has determined that the displacement of domestic
steel by excessive imports and the consequent adverse impact of those
quantities of steel imports on the economic welfare of the domestic
steel industry, along with the circumstance of global excess capacity
in steel, are ``weakening our internal economy'' and therefore
``threaten to impair'' the national security as defined in Section 232.
The continued rising levels of imports of foreign steel threaten to
impair the national security by placing the U.S. steel industry at
substantial risk of displacing the basic oxygen furnace and other
steelmaking capacity, and the related supply chain needed to produce
steel for critical infrastructure and national defense.
In considering ``the impact of foreign competition on the economic
welfare of individual domestic [steel] industries'' and other factors
Congress expressly outlined in Section 232, the Secretary has
determined that the continued decline and concentration in steel
production capacity is ``weakening of our internal economy and may
impair national security.'' See 19 U.S.C. 1862(d).
[[Page 40225]]
Global excess steel capacity is a circumstance that contributes to
the ``weakening of our internal economy'' that ``threaten[s] to
impair'' the national security as defined in Section 232. Free markets
globally are adversely affected by substantial chronic global excess
steel production led by China. While U.S. steel production capacity has
remained flat since 2001, other steel producing nations have increased
their production capacity, with China alone able to produce as much
steel as the rest of the world combined. This overhang of excess
capacity means that U.S. steel producers, for the foreseeable future,
will face increasing competition from imported steel as other countries
export more steel to the United States to bolster their own economic
objectives.
Since defense and critical infrastructure requirements alone are
not sufficient to support a robust steel industry, U.S. steel producers
must be financially viable and competitive in the commercial market to
be available to produce the needed steel output in a timely and cost
efficient manner. In fact, it is the ability to quickly shift
production capacity used for commercial products to defense and
critical infrastructure production that provides the United States a
surge capability that is vital to national security, especially in an
unexpected or extended conflict or national emergency. It is that
capability which is now at serious risk; as imports continue to take
business away from domestic producers, these producers are in danger of
falling below minimum viable scale and are at risk of having to exit
the market and substantially close down production capacity, often
permanently.
Steel producers in the United States are facing widespread harm
from mounting imports. Growing global steel capacity, flat or declining
world demand, the openness of the U.S. steel market, and the price
differential between U.S. market prices and global market prices (often
caused by foreign government steel intervention) ensures that the U.S.
will remain an attractive market for foreign steel absent quotas or
tariffs. Excessive imports of steel, now consistently above 30 percent
of domestic demand, have displaced domestic steel production, the
related skilled workforce, and threaten the ability of this critical
industry to maintain economic viability.
A U.S. steel industry that is not financially viable to invest in
the latest technologies, facilities, and long-term research and
development, nor retain skilled workers while attracting a next-
generation workforce, will be unable to meet the current and projected
needs of the U.S. military and critical infrastructure sectors.
Moreover, the market environment for U.S. steel producers has
deteriorated dramatically since the 2001 Report, when the Department
concluded that imports of iron ore and semi-finished steel do not
``fundamentally threaten'' the ability of U.S. industry to meet
national security needs.\83\
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\83\ 2001 Report at 28--37. As noted, supra note 16, the 2001
Report added the qualifier ``fundamentally'' which is not found in
the statutory text. The Secretary in this report uses the statutory
standard of ``threatens to impair'' without such qualification.
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The Department's investigation indicates that the domestic steel
industry has declined to a point where further closures and
consolidation of basic oxygen furnace facilities represents a
``weakening of our internal economy'' as defined in Section 232. The
more than 50 percent reduction in the number of basic oxygen furnace
facilities--either through closures or idling of facilities due to
import competition--increases the chance of further closures that place
the United States at serious risk of being unable to increase
production to the levels needed in past national emergencies. The
displacement of domestic product by excessive imports is having the
serious effect of causing the domestic industry to operate at
unsustainable levels, reducing employment, diminishing research and
development, inhibiting capital expenditures, and causing a loss of
vital skills and know-how. The present capacity operating rates for
those remaining plants continue to be below those needed for financial
sustainability. These conditions have been further exacerbated by the
22 percent surge in imports thus far in 2017 compared with 2016.
Imports are now consistently above 30 percent of U.S. domestic demand.
It is evident that the U.S. steel industry is being substantially
impacted by the current levels of imported steel. The displacement of
domestic steel by imports has the serious effect of placing the United
States at risk of being unable meet national security requirements. The
Secretary has determined that the ``displacement of domestic [steel]
products by excessive imports'' of steel is having the ``serious
effect'' of causing the ``weakening of our internal economy.'' See 19
U.S.C. 1862(d). Therefore, the Secretary recommends that the President
take corrective action pursuant to the authority granted by Section
232. See 19 U.S.C. 1862(c).
VII. Recommendation
Prior significant actions to address steel imports (quotas and/or
tariffs) were taken under various statutory authorities by President
George W. Bush, President William J. Clinton (three times), President
George H. W. Bush, President Ronald W. Reagan (three times), President
James E. Carter (twice), and President Richard M. Nixon, all at lower
levels of import penetration than the present level, which is above 30
percent.
Due to the threat of steel imports to the national security, as
defined in Section 232, the Secretary recommends that the President
take immediate action by adjusting the level of imports through quotas
or tariffs on steel imported into the United States, as well as direct
additional actions to keep the U.S. steel industry financially viable
and able to meet U.S. national security needs. The quota or tariff
imposed should be sufficient, after accounting for any exclusions, to
enable the U.S. steel producers to be able to operate at about an 80
percent or better of the industry's capacity utilization rate based on
available capacity in 2017.
In 2016, U.S. steel production was 78.6 million metric tons and
U.S. capacity was 113.3 million metric tons, which represents a 69.4
percent capacity utilization rate. If current import trends for 2017
continue, continued imports without any action are projected to be 36.0
million metric tons, an increase over 2016 of 6.0 million metric tons.
Even with U.S. demand projected to increase to 107.3 from 99.8 million
metric tons, increased imports mean U.S. capacity utilization is
forecast to rise only to 72.3 percent, a non-financially viable and
unsustainable level of operation.
By reducing import penetration rates to approximately 21 percent,
U.S. industry would be able to operate at 80 percent of their capacity
utilization. Achieving this level of capacity utilization based on the
projected 2017 import levels will require reducing imports from 36
million metric tons to about 23 million metric tons. If a reduction in
imports can be combined with an increase in domestic steel demand, as
can be reasonably expected rising economic growth rates combined with
the increased military spending and infrastructure proposals that the
Trump Administration has planned, then U.S. steel mills can be expected
to reach a capacity utilization level of 80 percent or greater. This
increase in U.S. capacity utilization will enable U.S. steel mills to
increase operations significantly in the short-term and
[[Page 40226]]
improve the financial viability of the industry over the long-term.
Recommendation To Ensure Sustainable Capacity Utilization and Financial
Health
Impose a Quota or Tariff on all steel products covered in this
investigation imported into the United States to remove the threatened
impairment to national security. The Secretary recommends adjusting the
level of imports through a quota or tariff on steel imported into the
United States.
Alternative 1--Global Quota or Tariff
1A. Global Quota
Impose quotas on all imported steel products at a specified percent
of the 2017 import level, applied on a country and steel product basis.
According to the Global Trade Analysis Project (GTAP) Model,
produced by Purdue University, a 63 percent quota would be expected to
reduce steel imports by 37 percent (13.3 million metric tons) from 2017
levels. Based on imports from January to October, import levels for
2017 are projected to reach 36.0 million metric tons. The quotas,
adjusted as necessary, would result in imports equaling about 22.7
million metric tons, which will enable an 80 percent capacity
utilization rate at 2017 demand levels (including exports). Application
of an annual quota will reduce the impact of the surge in steel imports
that has occurred since the beginning of 2017.
1B. Global Tariff
Apply a tariff rate on all imported steel products, in addition to
any antidumping or countervailing duty collections applicable to any
imported steel product.
Similar to what is anticipated under a quota, according to the
Global Trade Analysis Project (GTAP) Model, produced by Purdue
University, a 24 percent tariff on all steel imports would be expected
to reduce imports by 37 percent (i.e., a reduction of 13.3 million
metric tons from 2017 levels of 36.0 million metric tons).\84\ This
tariff rate would thus result in imports equaling about 22.7 million
metric tons, which will enable an 80 percent capacity utilization rate
at 2017 demand levels (including exports).\85\
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\84\ Due to general equilibrium effects, the overall import
level would need to decrease by more than the corresponding increase
in domestic production to offset the negative effects of price or
exchange rate changes on export demand.
\85\ The elasticity factor is an estimate, not a certainty. A
variation of 0.1 in the elasticity factor would change the tonnage
reduction by about 375,000 tons. For example, imports would fall by
an additional 375,000 tons under a demand elasticity of -1.7 instead
of -1.6 and a 25 percent tariff.
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Alternative 2--Tariffs on a Subset of Countries
Apply a tariff rate on all imported steel products from Brazil,
South Korea, Russia, Turkey, India, Vietnam, China, Thailand, South
Africa, Egypt, Malaysia and Costa Rica, in addition to any antidumping
or countervailing duty collections applicable to any steel products
from those countries. All other countries would be limited to 100
percent of their 2017 import level.
According to the Global Trade Analysis Project (GTAP) Model,
produced by Purdue University, a 53 percent tariff on all steel imports
from this subset of countries would be expected to reduce imports by
13.3 million metric tons from 2017 import levels from the targeted
countries. This action would enable an increase in domestic production
to achieve an 80 percent capacity utilization rate at 2017 demand
levels (including exports). The countries identified are projected to
account for less than 4 percent of U.S. steel exports in 2017.
Exemptions
In selecting an alternative, the President could determine that
specific countries should be exempted from the proposed 63 percent
quota or 24 percent tariff by granting those specific countries 100
percent of their prior imports in 2017, based on an overriding economic
or security interest of the United States. The Secretary recommends
that any such determination should be made at the outset and a
corresponding adjustment be made to the final quota or tariff imposed
on the remaining countries. This would ensure that overall imports of
steel to the United States remain at or below the level needed to
enable the domestic steel industry to operate as a whole at an 80
percent or greater capacity utilization rate. The limitation to 100
percent of each exempted country's 2017 imports is necessary to prevent
exempted countries from producing additional steel for export to the
United States or encouraging other countries to seek to trans-ship
steel to the United States through the exempted countries.
It is possible to provide exemptions from either the quota or
tariff and still meet the necessary objective of increasing U.S. steel
capacity utilization to a financially viable target of 80 percent.
However, to do so would require a reduction in the quota or increase in
the tariff applied to the remaining countries to offset the effect of
the exempted import tonnage.
Exclusions
The Secretary recommends an appeal process by which affected U.S.
parties could seek an exclusion from the tariff or quota imposed. The
Secretary would grant exclusions based on a demonstrated: (1) Lack of
sufficient U.S. production capacity of comparable products; or (2)
specific national security based considerations. This appeal process
would include a public comment period on each exclusion request, and in
general, would be completed within 90 days of a completed application
being filed with the Secretary.
An exclusion may be granted for a period to be determined by the
Secretary and may be terminated if the conditions that gave rise to the
exclusion change. The U.S. Department of Commerce will lead the appeal
process in coordination with the Department of Defense and other
agencies as appropriate. Should exclusions be granted the Secretary
would consider at the time whether the quota or tariff for the
remaining products needs to be adjusted to increase U.S. steel capacity
utilization to a financially viable target of 80 percent.
Richard E. Ashooh,
Assistant Secretary for Export Administration.
[FR Doc. 2020-14359 Filed 7-2-20; 8:45 am]
BILLING CODE 3510-33-P
