U.S. Steelmakers Seek More Tariffs to Fight Imports

U.S. steelmakers are preparing a raft of complaints against foreign steel imports, a move that could result in tariff increases later this year and escalate trade tensions with China, say people familiar with the matter.

Companies such as U.S. Steel Corp., Nucor Corp. and AK Steel Holding Corp. hope extra tariffs will hold off foreign competitors from gaining market share in parts of the roughly $100 billion U.S. steel market not protected by "Buy American" provisions in the $787 billion stimulus bill.
 

The companies say higher import tariffs are needed to help them survive the global recession and the shakeout in the U.S. car industry -- one of its biggest customers. Now, foreign steel imports are subject to low single-digit duties or no tariffs at all.
 

Formal complaints are weeks away, the people said. But companies are gathering evidence to strengthen their case. The moves echo protectionist efforts gathering speed in countries around the globe as industries brace for a protracted economic slump.
 

"Across the board, we see a widespread belief among our clients and their lawyers that the Chinese are dumping their products and that they're vastly subsidized by various levels of the Chinese government," says David Hartquist, a partner at Washington-based Kellye Drye & Warren LLP, which is representing several large U.S. steel companies.

"Our export volume is very limited," responds Shan Xianghua, secretary-general of the China Iron & Steel Association. "It is not possible for us to export it at loss-making prices."
 

The stimulus bill signed by President Barack Obama this week effectively shuts out companies from China, Russia, India and Brazil -- four of the largest steel exporters -- from public contracts. That business will represent an estimated 25% of new steel orders this year and next.

These countries are expected to "redouble their efforts to get at the rest of the market," says a senior official in the U.S. steel industry. U.S. industry officials say foreign sellers have begun to sell steel at below production costs to win market share -- a practice known as "dumping."
 

World Trade Organization rules allow countries to raise import tariffs if they can prove dumped goods have directly hurt sales of domestic competitors.
 

Threats to file antidumping cases stem in part from a recent influx of steel used for drilling and pipes. U.S. Steel, a dominant supplier of drilling steel, would be vulnerable to foreign competitors that illegally dumped.

Making the case is difficult and requires exhaustive evidence. That could be tough in the near term: U.S. steel companies turned a healthy profit through the first three quarters of 2008, and orders didn't start falling until October. Steel companies will likely wait until April to file formal dumping complaints.
 

"If you can wrap in the first or even the second quarter of 2009, it should be easier to prove injury," says Richard Weiner, a trade lawyer at Chicago-based Sidley Austin.
 

The soft steel market actually is to blame, says Dave Phelps, president of American Institute for International Steel, which represents both U.S. and non-U.S. companies. "A lot of the imports that arrive today in a soft market were ordered in the robust market period," he says.

If U.S. officials decide to impose tariffs, duties could total more than 100% of final prices, say trade lawyers. If higher tariffs are levied, affected countries will likely appeal to the WTO.
 

World-wide, governments approve 60% of requests for punitive tariffs -- a level that rises in bad economic times, say WTO and European Union officials.
 

Around the world, in all types of industries, "companies are preparing complaints right now that we'll see in the spring and summer," says Nikolay Mizulin, a lawyer for Hogan & Hartson LLP. "This business has always had a domino effect."