China Claims US ‘Deliberately Misread’ WTO Rules in Stainless Import Duties Case

China’s Commerce Ministry said on Wednesday the U.S. deliberately misinterpreted World Trade Organization rules after the Commerce Department found that Chinese stainless steel sheet and strip was illegally subsidized. Some companies were hit with 193% import duties.

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Commerce found in favor of countervailing duties for imports of stainless steel sheet and strip from China and said it had set a preliminary subsidy rate of 57.3% for a Chinese steel manufacturer, Shanxi Taigang Stainless Steel Co. Ltd. Many, many more were hit with 193% duties, in part because they did not respond to Commerce’s requests for information during the investigation.

Steel mills Molten iron smelting furnace production line
Chinese Steel overproduction remains a global issue, even as China complains that other nations unfairly place tariffs on its steel.

China’s Commerce Ministry said in a statement it was not satisfied with the decision and that it would use the WTO dispute settlement process to defend its interests. That’s awfully rich, as China continues to overproduce steel — both carbon and stainless — at a rate that dwarfs every other country in the world.

China produced more steel than the rest of the world combined in May. According to the World Steel Association, China produced 70.5 million metric tons of crude steel products in May, up 1.8% from the levels of a year earlier and just shy of the record level hit in March.

The China Iron & Steel Association said March steel production hit 70.65 mmt, a record high, amounting to 834 mmt on an annualized basis. To China’s credit, Beijing is using both its clout and power to finally start an attempt to consolidate China’s massive steel sector, according to the Financial Times. However, that process is going along about as glacially as other changes in the People’s Republic.

Overproduction Leads to Frustration

It should come as no surprise to China that U.S. and other nations’ regulators are fed up with its overproduction.

After a meeting of 30 different countries organized by the Organization for Economic Development and Cooperation collapsed in Belgium in April, Chinese Commerce Ministry spokesman Shen Danyang told reporters, when asked what steps the Chinese government would take following the unsuccessful talks, “China has already done more than enough. What more do you want us to do?”

“Steel is the food of industry, the food of economic development,” Danyang continued. “At present, the major problem is that countries that need food have a poor appetite so it looks like there’s too much food.”

Too much food? Poor appetite? Wow, quite a comment. Especially when China continues to reopen plants and encourages production of the “food” that the world doesn’t have much appetite for… or KNOW it should have an appetite that it doesn’t if we are to take Shen at his word.

Sure, steel prices have rebounded this year, along with other base metals, but overcapacity has remained a problem for global steel markets. India, the European Union and other nations have taken similar anti-dumping actions as those the U.S. has pursued against Chinese steel, so China’s argument that the U.S. is somehow violating WTO rules is vexing on its face. Are India and the E.U. doing so as well?

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What China can do is leave the zombie mills closed and reduce and, eventually, eliminate subsidies for steel production on the state, regional and national levels. Merging the giants Baosteel and Wuhan Iron & Steel is a step in the right direction, but it will not have an immediate effect on production. Only letting market forces — such as ending the subsidies that other countries are trying to counteract with import duties — will actually influence China’s industry and make it finally face the reality that it has to clean up its act.

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