Articles in Category: Public Policy

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As befits a letter from European treasury ministers to U.S. Treasury Secretary Steven Mnuchin, the wording is couched in polite and respectful terms. The letter acknowledges the U.S. has every right to set its internal tax code, but draws attention to proposals they fear could have serious consequences for global trade.

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According to an article in The Telegraph, the letter asks the U.S. government to consider certain issues raised by a series of measures President Donald Trump has put forward that would increase the tax burden on foreign companies operating in the U.S. and distort domestic U.S. manufacturers’ behaviour.

“It is important that the US government’s rights over domestic tax policy be exercised in a way that adheres with international obligations to which it has signed up,” the letter is reported to say. “The inclusion of certain less conventional international tax provisions could contravene the US’s double taxation treaties and may risk having a major distortive impact on international trade. We would therefore like to draw your attention to some features of the proposals being discussed that cause significant concerns from a European perspective.”

The diplomatic terms mask serious worries in the treasury departments of the signatories: Britain, France, Germany, Italy and Spain. President Trump’s intention is to encourage reshoring and the return of American jobs perceived to have been lost in the process of globalization.

But the fear is the proposals would seriously hamper trade and investment — not just between the U.S. and Europe but also between the U.S. and the rest of the world, without achieving the president’s desired outcome.

According to the article, one of the issues is a proposed cut in corporation tax from 20% to 12.5%, specifically for income derived from exported goods. The treasury ministers (not unreasonably as that’s clearly what it is designed to do) believe the tax cut would violate U.S. obligations under World Trade Organization (WTO) rules, which ban countries from introducing fiscal incentives that distort trade by making exports cheaper or imports more expensive.

The ministers are also quoted as saying that a 20% “excise tax” on financial transactions, including on a U.S. firm importing goods from its own factories abroad, could “discriminate in a manner that would be at odds with international rules.”

The U.S. Senate has already agreed to moves that would lower the corporate tax rate from 35% to 20%, and some Europeans have objected, saying it would go against a series of agreements between the U.S. and Europe to keep corporate tax rates broadly in line with each other.

That argument, however, is on shakier ground. The U.K., for example, already has a 19% corporate tax rate and some smaller European states have even lower rates.

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Whether the U.S. will take notice of Europeans’ concerns remains to be seen. The president’s ambivalence to the WTO is well known, but even he can see such extreme moves as differential taxation for domestic and imported goods could kick off a tit-for-tat reaction; that is no more in the U.S. interest than it is for other major trading blocs, like Europe.

The Department of Commerce announced Wednesday, Dec. 13, that it had issued a preliminary affirmative determination in the countervailing duty (CVD) investigation of cast iron soil pipe fittings from China.

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The department announced the determination in a release, ruling that exporters from China received countervailable subsidies in a fairly broad range of 8.66-102.31%.

“The Trump Administration will not sit back and watch as American companies and workers are harmed by unfair government subsidies,” Commerce Secretary Wilbur Ross said in a prepared statement. “The United States is committed to free, fair and reciprocal trade, and will continue to validate the information provided to us that brought us to this decision.”

The petitioner in the case was the Illinois-based Cast Iron Soil Pipe Institute, which boasts three members: AB&I Foundry (California), Charlotte Pipe & Foundry (North Carolina), and Tyler Pipe (Texas).

According to the department, the 79 antidumping or countervailing duty investigation it initiated from Jan. 20 to Dec. 11 of this year marks a 52 percent increase from investigations started during the same period last year.

As for the respondents, according to a fact sheet provided by the Commerce Department, the following preliminary subsidies were calculated for the respondents:

  • 8.66% for mandatory respondent Shanxi Xuanshi Industrial Group Co., Ltd.
  • preliminary subsidy rate of 12.72% for mandatory respondent Wor-Biz International Trading Co., Ltd. (Anhui).
  • Commerce applied an adverse facts available rate of 102.31% for mandatory respondent Shijiazhuang Chengmei Import & Export Co., Ltd. because of its failure to respond to the Department of Commerce’s request for information.
  • 10.37% for all other Chinese producers and exporters

According to the Department of Commerce, imports of cast iron soil pipe fittings from China during 2016 were valued at an estimated $8.6 million.

A final decision in the CVD case is scheduled for April 24, 2018.

U.S. ITC Rules in 5-Year Sunset Review of Stainless Steel Pipe Fittings

The U.S. International Trade Commission (USITC) issued its own ruling Dec. 14 on stainless steel butt-weld pipe fittings from Italy, Malaysia and the Philippines.

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The USITC ruled that removing existing antidumping duty orders on the product from the trio of countries “would be likely to lead to continuation or recurrence of material injury within a reasonably foreseeable time.”

Before we head into the weekend, let’s take one last look back at the week that was:

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Free Download: The December 2017 MMI Report

With steel overcapacity touching a historic high at about 737 million tons (MT), and China adding to new capacity, this remains a huge industry concern.

Not only is the demand-supply market askew, jobs are being lost, especially in the United States, which, by one reckoning, has seen about 35% of steelmaking jobs vanish in the last two decades or so.

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So, when representatives of G20 member states met at the end of November for the Global Forum on Steel Excess Capacity in Berlin and announced they had come to a basic understanding on the need for restructuring of the sector and dismantling market-distorting subsidies to ensure a level-playing field, many welcomed the move.

In the meeting, China and the U.S. may have locked horns — but China’s neighbor, India, on the other hand, seemed more content regarding the developments coming out of the meeting.

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This morning in metals news, Wisconsin Gov. Scott Walker signed a bill ending the state’s moratorium on gold and silver mining, Chile approaches a busy year for mine union negotiations, and Chinese steel futures drop.

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Going for the Gold in the Badger State

Wisconsin Gov. Scott Walker signed a bill ending the state’s moratorium on gold and silver mining, Wisconsin Public Radio reported.

The moratorium was imposed in 1998, when Walker was a member of the state Assembly.

Union Negotiations on the Horizon in Chile

Chile’s copper mining industry has a busy schedule next year, with 32 union contracts on the docket, Bloomberg reported.

Chile, a dominant force in the copper industry, will negotiate the contracts, which represent approximately 75% of the country’s copper output, according to the report.

China Steel Futures Drop

Chinese steel futures took a dip Tuesday as a result of concerns regarding demand in the country, the world’s top steel consumer, according to Reuters.

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According to the report, upward price movement driven by supply constriction is expected to be counterbalanced by a drop in demand as winter weather affects construction projects.

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This morning in metals news, Chinese steel got a boost on the heels of another round of output cuts, Goldman Sachs executives warns about the potential of a U.S. departure from the North American Free Trade Agreement (NAFTA) and Thyssenkrupp looks to get union backing for its European merger deal with Tata Steel.

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Chinese Steel on the Rise

On the heels of output cuts, Chinese steel got a boost Monday, according to a Reuters report.

According to the report, the most-active rebar on the Shanghai Futures Exchange (SHFE) jumped 1.6%, ultimately closing at 3,912 yuan ($591.26) a ton.

Goldman Warns About NAFTA Exit

Goldman Sachs warned clients that it wasn’t optimistic regarding a positive resolution to the renegotiation talks.
“While we expect the rising odds of tax reform to put less pressure on the trade agenda, we do not expect passage of tax reform will raise the odds of a successful Nafta renegotiation,” Goldman Sachs said in a note to clients, according to Bloomberg. “And so a withdrawal announcement looks more likely than not, even if tax reform is enacted soon.”

Thyssenkrupp Looks to Win Union Favor

As German firm Thyssenkrupp works to execute a merger deal of its European operations with Tata Steel’s, the company is looking to win over its workers’ favor.

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According to Reuters, Thyssenkrupp is offering workers commitments on jobs and investments to get union backing for the deal (which was agreed to in September by the two companies in September).

The Renewables MMI dropped 2.5% for the month of December, ending at a value of 78.

Here’s What Happened

  • Since our recalibration of this index back in May 2017 to better take into account cobalt price fluctuations, the Renewables MMI has been slowly but surely gaining ground the latter half of 2017, hitting a high of 84 in September.
  • Within this basket of metals and materials used in the renewable energy industry, the Big Heavy is the U.S. steel plate price. Yet from November to December, that price point only dropped a single dollar per short ton.
  • The China steel plate price, however, did move much more – increasing 4.3% on the month.

What’s Going On in the Background?

  • The biggest news for the renewables industry has been the controversial tax plan put forth by legislators and still awaiting final House/Senate reconciliation – mainly, the fact that the Base Erosion Anti-Abuse Tax (BEAT) has been kept intact in the latest version of the Senate bill.
  • As Sydney Lazarus wrote in MetalMiner last week, currently, “many companies have large multinational corporations finance wind or solar energy projects, and in return, give the latter the renewable energy credit that the government provides.” But the BEAT tax, which is meant to discourage multinationals from moving profits abroad — and which the Senate bill kept intact — would make the crucial solar investment tax credit (ITC) and wind production tax credit (PTC) “unusable for multinational banks and other corporations who have low tax rates,” according to this article.
  • It’s unclear if this move was intentional or not, but regardless, it injects huge uncertainty into the renewable energy industry as the bill hurtles toward law. (Some, such as American Wind Energy Association’s Peter L. Kelley, say it “could put an end to more than half of the country’s wind projects,” as reported by Lazarus.

What Metal Buyers Should Look Out For

  • Keep an eye out on steel plate’s raw material inputs — iron ore prices increased over the past month, as we reported in our December Monthly Buying Outlook, while coal prices decreased. Although steel plate prices appear a bit sluggish at the moment, China’s demand is something worthy of paying attention.

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This morning in metals, some big news on the international trade and steel imports front.

The U.S. Department of Commerce yesterday announced preliminary affirmative rulings that corrosion-resistant steel (CORE) and certain cold-rolled steel flat products (cold-rolled steel) imported from Vietnam “produced from substrate originating in…China are circumventing existing antidumping and countervailing duty (AD/CVD) orders on CORE and cold-rolled steel imported from China,” according to their news release.

The Details on Duties

“The Commerce department has directed the United States’ customs and border protection agency (CBP) to collect anti-dumping (AD) and Countervailing Duty (CVD) cash deposits from importers of CORE produced in Vietnam using Chinese-origin substrate at rates of 199.43 percent and 39.05 percent, respectively,” according to this article, writing from the release. “CBP has also been directed to collect AD and CVD cash deposits on imports of cold-rolled steel produced in Vietnam using Chinese-origin substrate at rates of 265.79 percent and 256.44 percent, respectively.”

What This Means for Metal Buyers

Many in the steel manufacturing are hailing the decision as a victory as far as solidifying the case against China when it comes to proving that country’s circumvention and “substantial transformation” tactics.

The decision on CORE and cold-rolled products may open the door for the steel pipe and tube industry to file or follow up on similar cases.

Learn more on Trade Circumvention here, including a free white paper download on the topic.

Listen to our MetalMiner Podcast series, “Manufacturing Trade Policy Confidential,” for more discussion around circumvention and other trade topics that matter to metal buyers.

Just as legislators in the U.S. and Europe are taking increasingly strident action to curb imports from countries like China under anti-dumping legislation, the tools available to them are being withdrawn.

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Historically, China and a number of other emerging markets have been classified as non-market economies. This means that the state plays a major role in allocating resources and setting prices, making the cost of products less relevant to the economies of manufacture. Under U.S. law, a non-market economy is defined as one that does not operate on market-based principles, and therefore, its prices for final goods do not (necessarily) reflect fair value.

We talk of China in this context because the country is the world’s largest non-market economy, but it is far from alone: there are many other emerging and previously emerging markets that are classified accordingly.

There lies the problem. China is being reclassified, at least in Europe, under a deal negotiated in October. The Telegraph reports that the full European Parliament then offered its endorsement last month, just leaving national governments to give their final approval on December 4.

China has been pushing hard for its economy to be re-classified. Some suggest that the EU agreement was in part motivated by a desire to improve trade with China. After the U.S., the EU is China’s second largest trade partner.

However, many European manufacturers are probably thinking, “Be careful what you wish for.”

As the article points out, these changes mean it will be harder for European companies to argue they are competing against subsidised competitors, with the new system being more flexible in determining whether domestic producers are being undercut. Anti-dumping measures are in place for some grades and forms of steel and for aluminium foil at present, both of which would be harder to renew if the change in status is accepted. Read more

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This afternoon in metals news, the U.S. renewable energy industry has reason to worry about the Republican tax proposal, union members at the Quebrada Blanca copper mine in Chile move closer to a strike, and precious metal prices fall.

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Renewables Market Pushes Against BEAT Tax

While the Republicans’ latest attempt at an overhaul of the U.S. tax system is receiving the usual praise and criticism, the renewable energy sector is concerned – and understandably so. As Dino Grandoni explains in the Washington Post, the bill may inadvertently end investment in wind and solar energy.

Currently, many companies have large multinational corporations finance wind or solar energy projects, and in return, give the latter the renewable energy credit that the government provides. But these credits may be cancelled out as part of the base erosion anti-abuse (BEAT) tax, which is meant to discourage multinationals from moving profits abroad.

According to the American Wind Energy Association’s Peter L. Kelley, the BEAT tax – if it is not amended to exempt renewables credits – could put an end to more than half of the country’s wind projects.

Strike Brewing at Quebrada Blanca Mine

A quarter of the workforce at the Quebrada Blanca copper mine in Chile moved closer to a strike, as the 106-member union rejected Canadian miner Teck Resources’ contract offer on Wednesday, Reuters reports. Ninety-six percent of the union voted to reject the offer and strike, said the president of the union. Read more