Articles in Category: Public Policy

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U.S. Trade Representative (USTR) Robert Lighthizer, speaking before the House Ways and Means Committee Wednesday morning, addressed a wide range of issues regarding the Trump administration’s trade policy agenda, including steel and aluminum tariffs exemption negotiations with a number of countries.

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In the recently announced steel and aluminum tariffs of 25% and 10%, respectively, the administration formally announced an exemption process. As part of the tariffs announcement, fellow North American Free Trade Agreement (NAFTA) partners Canada and Mexico were granted temporary exemptions, “subject to a successful NAFTA renegotiation,” Lighthizer said. In addition, he said the U.S. is in discussions with South Korea, which is currently engaging the U.S. in talks vis-a-vis “refurbishing” the U.S.-Korea Free Trade Agreement (KORUS).

In addition, the USTR is talking to Australia, Argentina and the European Union about potential exemptions, Lighthizer added. A number of other countries have come forward with exemption requests, he added, with Brazil being one with which talks could soon commence.

“Our hope is by the end of April to have this part of the process resolved,” Lighthizer said in response to a question about the timeline of the exemption requests. “Having said that, the president has the authority at any time during the course of the program to let people out if he thinks its in the national economic interest.”

Lighthizer outlined a series of trade policy goals during his opening statement, including: supporting the president’s national security strategy; working to make U.S. companies and workers competitive in overseas markets; negotiating trade deals “that will work for Americans”; enforcing and defending U.S. trade laws; and reformation of the multilateral trading system, with Lighthizer calling out the World Trade Organization (WTO) in his remarks.

“For too long, the WTO has failed to promote trade liberalization,” he said. “Too many members remain committed to an outdated Doha Round Agenda that is incapable of addressing modern issues like digital trade. Too many members also think that they can get their way through litigation, rather than negotiation.

“Perhaps most worryingly of all, the WTO has proven to be wholly inadequate to deal with China’s version of a state-dominated economy that rejects market principles.”

U.S Rep. Kevin Brady (R-TX), chairman of the committee, initiated the hearing with some comments on trade and other topics.

“I am hopeful we will be able to vote on and pass a new, modern NAFTA for America by year end,” Brady said. “That said, the road ahead isn’t easy. Congress wants strong protection for intellectual property, increased market access for our dairy farmers, and an end to Canada and Mexico’s harshly restrictive customs barriers, such as unreasonably low de minimis levels.”

Brady continued: “We need workable solutions on rules of origin and and procurement, that recognize how Americans benefit from global supply chains — otherwise, we lose out to China.”

Brady also addressed Chinese steel oversupply, which has “put many Americans out of work,” he said.

“It’s a blatant theft of our companies’ technology and intellectual property, and it can’t be tolerated,” he said.

NAFTA and the ISDS Debate, Proposed Sunset Clause

Regarding NAFTA, which recently underwent a seventh round of renegotiation talks, Brady, citing supporting from more than 100 Congressional Republicans, touched on the importance of strong investor-state dispute settlement (ISDS) provisions in any renegotiated iteration of NAFTA.

“This is a key part of passing a strong NAFTA agreement that we’re convinced you’ll negotiate well for us,” Brady said to Lighthizer.

Lighthizer enumerated reasons for skepticism regarding ISDS, including questions of sovereignty.

“Why should a foreign national be able to come in and not have the rights of Americans in the American court system but have more rights than Americans have in the American court system?” he asked. “It strikes me as something that at least we ought to be skeptical of and analyze.”

Committee member U.S. Rep. Sam Johnson (R-TX), meanwhile, expressed concerns regarding a proposed sunset clause put forth by U.S. negotiators — by which all three NAFTA nations would have to periodically reapprove NAFTA every five years — citing businesses’ need for “certainty.”

“The idea is if it’s such a good agreement, we’ll naturally roll it over,” Lighthizer said. “If it’s not a good agreement, we won’t.”

During the lifespan of NAFTA, which is now 24 years old, Lighthizer said the economy has changed and the U.S. has gotten “way out of whack” with what its deficits are.

Committee member and U.S. Rep. Sander Levin (D-MI) addressed the impact of Mexican labor policies, citing low take-home pay for Mexican workers as having a negative impact on the U.S. Lighthizer agreed that wage increases in Mexico are in the U.S.’s interest.

Section 301 Probe and Intellectual Property Rights

Media reports early this week indicated an announcement would soon be coming regarding the imposition of new tariffs against China — which could amount to about $60 billion — in response to what the U.S. perceives as intellectual property theft by China.

Last August, the USTR launched a Section 301 probe under the Trade Act of 1974, which sought to  “determine whether acts, policies, and practices of the Government of China related to technology transfer, intellectual property, and innovation are unreasonable or discriminatory and burden or restrict U.S. commerce.”

“Our view is that we have a very serious problem of losing our intellectual property, which is really the biggest single advantage of the American economy, in my opinion,” said Lighthizer, adding that the U.S. is losing that intellectual property in ways that are “not reflective of the underlying economics.”

In response to the problem, Lighthizer said, potential remedies include actions on the tariffs and investor fronts.

An Update on KORUS

Lighthizer updated the committee on the progress of KORUS talks, explaining that negotiators are down to “the last few issues.”

“In the opinion of many people, Korea is a particular problem in the area of steel primarily,” he said. “We’re trying to work our way through all of those things and we’re hopeful that we can make headway on it. [My] objective would be … to have amendments to the agreement that will satisfy this committee.”

Committee member and U.S. Rep. Dave Reichert (R-WA) expressed concerns regarding the Section 232 tariffs exclusion process and the possibility of tariffs stemming from the Section 301 probe, saying that American manufacturers and consumers would be hurt by an ineffective exclusion process and new tariffs on other imports. He also questioned Lighthizer regarding the transparency of the KORUS process, also asking if the USTR could publish a list of negotiation objectives.

Lighthhizer said it’s unlikely that such a list would be published, but said he would be open to talking privately with committee members and reaching an agreement in principle “fairly quickly.”

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“My objective is to try to do this as quickly as possible with as little disruption as possible,” Lighthizer said regarding the KORUS talks.

The U.S. International Trade Commission (USITC) issued a final affirmative determination in the ongoing anti-dumping and countervailing duty investigation of Chinese aluminum foil.

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The Department of Commerce made its own final affirmative determination Feb. 27.

“The United States International Trade Commission (USITC) today determined that a U.S. industry is materially injured by reason of imports of aluminum foil from China that the U.S. Department of Commerce (Commerce) has determined are subsidized and sold in the United States at less than fair value,” a USITC statement said.

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Liquid steel.

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The Section 232 report and subsequent briefing by the president has put global metal markets in disarray. What makes matters potentially worse: the number of mainstream media sources latching onto a couple of claims from one particular study recently published by a for-profit research and consulting firm (as opposed to a think tank or governmental source).

The findings from this oft-quoted study build upon a prior study (February 2003) conducted by the same authors on behalf of a now defunct trade group, whose original findings were challenged by the U.S. government’s own analysis published by the USITC back in 2003.

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When MetalMiner inquired after whether the current report had been funded by any outside interests, the report’s author Laura Baughman replied via email, “No one funded this research.”

Regardless, the 2003 USITC governmental study examines the assumptions and methodologies of the original study conducted by Baughman and her colleague Dr. Joseph Francois.

The oft-cited finding from their latest report suggests the tariffs will yield a loss of 146,000 jobs. That estimation has been cited in articles by Fortune Magazine, The Washington Post, The Fabricator, AOL as well as other policy and non-profit organizations.

The problem with all of these citations is that nobody has quoted any findings from the only governmental research published on the impact on steel-consuming industries after the imposition of steel safeguard protections. Yet such a study not only exists, but also reveals the actual impact after the last time a U.S. president implemented steel safeguard protections, such as tariffs. This last occurred on March 20, 2002, under President George W. Bush.

So What Are the Key Government Findings?

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Before we head into the weekend, let’s take a look back at the week that was and the stories here on MetalMiner:

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If you’re in the metals industry, you have likely been waiting a long time for word from the White House on what the president will do vis-a-vis the U.S. Department of Commerce’s Section 232 investigations of aluminum and steel imports.

Section 232 buying strategies – grab a copy of MetalMiner’s Section 232 Investigation Impact Report today!

The probes, launched last April, fell under Section 232 of the Trade Expansion Act of 1962, which grants the president authority to limit imports if they are determined to be detrimental to national security.

After many months, the president announced Thursday that his administration plans to implement tariffs of 25% on steel and 10% on aluminum next week. More details still need to emerge — for example, will any countries, like Canada or Australia, garner exemptions? — but the announcement yesterday had the whole metals world talking.

Further news should be coming next week, when Trump’s announcement could become an actual legal proclamation. Until then, the MetalMiner team broke down the Section 232 landscape, including what the announcement might mean for you.

To access the MetalMiner team’s full breakdown of the Section 232 issue, visit our dedicated Section 232 Report Investigation Impact page to download the full report.

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It seems all too familiar — one step ahead, two steps back.

The cancelation by India’s top court, the Supreme Court, of all iron ore mining permits in Goa, one of the country’s top producing provinces for this raw material, has led to concerns being raised in industry and and economic circles of the country (not to mention protests by miners like Vedanta).

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Mining in the state of Goa, which, along with tourism, is one of the major sources of revenue and people’s livelihood, will stop after March 15, 2018. The local government will then have to issue new licenses.

Under the new set of rules laid out by the order, ownership is back to the local government; now it will have to auction the leases, as required by the law.

Some agree with the court ruling that held the local government responsible for not following due process in renewing the 88 mining leases for 20 years with retrospective effect from 2007. The prime minister’s office has also sought a report from the government of Goa on the impact of the court ruling.

Incidentally, the Anil Agarwal-run Vedanta Resources is one of the biggest iron ore miners in the state.

Other than Vedanta, this latest Supreme Court ruling will affect other miners, too, many of them local.

It may be recalled that similar judicial action was initiated in 2012 when illegal mining in Goa was ordered shut down. In the year before the ban, Goa had exported about 50 million tons (MT) of iron ore, but the Supreme Court later limited production in the state to 20 MT a year (most of which gets exported to China).

Now comes a report by an international agency that India no longer featured among the “most attractive regions” for investment in the mining sector, probably as a possible fallout of the mining ban. The Vancouver-based Fraser Institute’s annual survey of mining companies ranked India in the bottom 10 countries, at 97 of 104, in the investment attractiveness index in 2016, but now had dropped it from the list of 91 countries in 2017.

A report in the Hindu BusinessLine said the mining ban in Goa would expectedly have a far-reaching impact, not only on the state, but also on India’s image as an investment destination, going by the report by the Canadian public policy think tank report.

Vedanta, for example, expected to produce around 5.5 MT of iron ore from Goa this fiscal year ending March 31. Next year is a question mark — for now.

Expectedly, Vedanta is not happy with the latest development. Agarwal told news agency PTI that the Supreme Court’s decision would “hamper India’s economic growth as raw material for making steel will have to be imported,  resulting in jobs being created outside the country rather than within.”

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Mining is a capital-intensive business — although it has potential, analysts in India are of the view that not many companies would want to put in money in lieu of such an uncertain business environment.

The restrictions put in time and again by the legislative and judiciary on the mining industry in the form of caps on iron mining in Goa and other states (such as Karnataka), and high export duties, were sending out “negative messages” to the world. While FY17 witnessed the highest inflow of Foreign Direct Investments (FDI) — amounting to U.S. $43,478 million — into India, the mining sector could attract only U.S. $56 million. What was also needed to boost the mining sector was not only the required permissions, but also high-end technology and equipment to increase extraction and productivity.

All of that requires FDI, but with so much uncertainty, the question is: who will want to invest in India’s mining story?

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After a hectic morning during which it seemed like a Section 232 announcement from President Trump was coming, before it then it seemed like it would be postponed, an announcement did finally come.

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CNN reported earlier today that Trump said his administration will put tariffs on steel and aluminum imports of 25% and 10%, respectively, next week. The numbers as announced today differ from those offered up in the Section 232 recommendations produced by Secretary of Commerce Wilbur Ross (which were made public in mid-February).

Unsurprisingly, the announcement was felt throughout the metals world, up and down the value stream.

“We appreciate the President’s commitment to strengthening the U.S. aluminum industry,” said Heidi Brock, president and CEO of the Aluminum Association, in a prepared statement. “We look forward to working with the President on implementation and to creating a more level playing field.”

Scott Paul, president of the Alliance for American Manufacturing, expressed support but urged Trump to follow through with a broad action.

“We’re on the brink of a potentially historic rebalance of America’s trade priorities,” Paul said in a prepared statement. “As we noted in a letter to the president this week and our cable TV ad, we are confident a robust steel trade action is good for our economy. A decision to retore sanity to global steel markets will help create domestic jobs and preserve our national security.

“But to achieve those results, the president’s enforcement action must be broad, robust and comprehensive. We urge the president to stand by our nation’s steel communities. They are counting on him to follow through on this.”

The announcement was not met positively by everyone, however.

“Today’s decision by the Administration to implement new tariffs severely harms the $37 billion U.S. recreational boating industry and the 650,000 American workers it supports,” said Thom Dammrich, president of the National Marine Manufacturers Association, in a statement. “While these tariffs are meant to protect American manufacturing, they do just the opposite. U.S. manufacturers, like those in our industry, which use American-made aluminum, depend on a competitive global market and fair pricing. What’s more, U.S. aluminum manufacturers are at capacity and unable to supply the aluminum sheet used by our members, forcing them to seek it overseas.”

Many associations and government officials alike have warned that the tariffs could set off a trade war, cautioning retaliation should the U.S. impose the tariffs. The European Steel Association (EUROFER), responded to the president’s announcement on Thursday.

 “From one day to the next, EU steel exports to the US – which were at 5 million tonnes in 2017 – will be cut drastically by an estimated 50% or more. The same will happen with all other countries exporting steel to the US. We expect that the tariff could restrict US imports by up to 20-25 million tonnes overall. This would represent a volume representing more than half the total EU imports of 2017 (40 million tonnes),” said Axel Eggert, director general of EUROFER, in a prepared statement. “In the current context of massive global excess steel capacity, markets will be forced to take preventive contingency actions to avoid domestic market disruption from trade deflection.”

The announcement from Trump roiled the markets today. The CBOE’s Volatility Index — or VIX, by its ticker symbol, surged Thursday afternoon, indicating greater volatility.

The VIX shot up Thursday following Trump’s announcement on the intention to impose steel and aluminum tariffs next week. Source: CBOE

Elsewhere, the Dow Jones dropped more than 400 points after Trump’s announcement, CNBC reported.

Steel and aluminum stocks, however, received a boost from the announcement.

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As of just after 3 p.m. Eastern Time, Nucor Corporation was up 3.04%, while AK Steel was up 7.36%. Century Aluminum was up 8.24% for the day, and U.S. Steel posted a 6.09% increase.

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This morning in metals, the president tweets about steel and aluminum (current Section 232 probes under his consideration), Apple’s move on cobalt and China plans to crack down on aluminum price speculation.

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Trump Tweets About Steel, Aluminum; Announcement Possibly Coming Today

According to the Washington Post, during a planned announcement today the president could announce plans for steel and aluminum trade action.

This morning, the president tweeted on the subject, writing:

According to the Washington Post report, there is a chance the announcement might still be postponed.

Apple and Cobalt

Last week, Apple announced it would be seeking to buy cobalt — coveted for its application in things like electric car batteries and cellphones, among other things — directly from miners, as Bloomberg reported.

According to the report, Apple is looking to buy several thousand metrics tons of cobalt for five years or more.

China Targets Excessive Nonferrous Metals Speculation

China’s Ministry of Industry and Information Technology MIIT is looking to crack down on excessive speculation in nonferrous metals, like aluminum, according to a Reuters report.

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According to the report, the MIIT plans to work nonferrous metals associations and other departments to tamp down speculation.

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Earlier this month, the U.S. Department of the Interior announced that it is seeking public comment on a recently released draft list of minerals “considered critical to the economic and national security of the United States.”

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An executive order from President Trump in December directed the secretary of the interior (in coordination with other agencies) to publish a list of critical minerals in the Federal Register. As of Feb. 27, there were 102 public comments listed on the Federal Register.

“The work of the USGS (United States Geological Survey) is at the heart of our nation’s mission to reduce our vulnerability to disruptions in the supply of critical minerals,” said Dr. Tim Petty, assistant secretary of the interior for water and science, in an Interior Department release. “Any shortage of these resources constitutes a strategic vulnerability for the security and prosperity of the United States.”

The published list covers minerals used in a broad range of practical applications, from catalytic agents to batteries.

According to the Executive Order signed Dec. 20 by Trump, a critical mineral is defined according to a trio of components:

  • A non-fuel mineral or mineral material essential to the economic and national security of the U.S.
  • The mineral has a supply chain vulnerable to disruption
  • The mineral serves an essential function in the manufacturing of a product, “the absence of which would have significant consequences” for the economy and national security

According to the order, within 180 days of publication of the list of minerals, the secretary of commerce — in coordination with the secretaries of defense, the interior, agriculture and energy — will submit a report to the president that will outline, among other things, a strategy to reduce the U.S.’s reliance on critical minerals and an assessment of “progress toward developing critical minerals recycling and reprocessing technologies.”

The full list of critical minerals from the Department of the Interior, including common applications, is as follows:

  • Aluminum (bauxite), used in almost all sectors of the economy
  • Antimony, used in batteries and flame retardants
  • Arsenic, used in lumber preservatives, pesticides, and semi-conductors
  • Barite, used in cement and petroleum industries
  • Beryllium, used as an alloying agent in aerospace and defense industries
  • Bismuth, used in medical and atomic research
  • Cesium, used in research and development
  • Chromium, used primarily in stainless steel and other alloys
  • Cobalt, used in rechargeable batteries and superalloys
  • Fluorspar, used in the manufacture of aluminum, gasoline, and uranium fuel
  • Gallium, used for integrated circuits and optical devices like LEDs
  • Germanium, used for fiber optics and night vision applications
  • Graphite (natural), used for lubricants, batteries, and fuel cells
  • Hafnium, used for nuclear control rods, alloys, and high-temperature ceramics
  • Helium, used for MRIs, lifting agent, and research
  • Indium, mostly used in LCD screens
  • Lithium, used primarily for batteries
  • Magnesium, used in furnace linings for manufacturing steel and ceramics
  • Manganese, used in steelmaking
  • Niobium, used mostly in steel alloys
  • Platinum group metals, used for catalytic agents
  • Potash, primarily used as a fertilizer
  • Rare earth elements group, primarily used in batteries and electronics
  • Rhenium, used for lead-free gasoline and superalloys
  • Rubidium, used for research and development in electronics
  • Scandium, used for alloys and fuel cells
  • Strontium, used for pyrotechnics and ceramic magnets
  • Tantalum, used in electronic components, mostly capacitors
  • Tellurium, used in steelmaking and solar cells
  • Tin, used as protective coatings and alloys for steel
  • Titanium, overwhelmingly used as a white pigment or metal alloys
  • Tungsten, primarily used to make wear-resistant metals
  • Uranium, mostly used for nuclear fuel
  • Vanadium, primarily used for titanium alloys
  • Zirconium, used in the high-temperature ceramics industries

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Last week, the Department of Commerce released the reports accompanying the Section 232 investigations for both aluminum and steel products. The Department of Commerce initiated the investigations last April under Section 232 of the Trade Expansion Act of 1962, which grants the president the ability, along with his Department of Commerce, to determine whether certain imports are having an injurious effect on national security. 

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As reported last Friday on MetalMiner, the Department of Commerce proposed two alternative solutions for the alleged harm caused by a glut of aluminum imports. Both solutions seek to restore domestic aluminum production to 80% of capacity utilization. This data may not surprise readers, as the Section 232 steel investigation recommendations include three steel policy alternatives constructed on the same premise.

What MetalMiner found most striking about both report recommendations involves the goal of restoring both the aluminum and steel — stainless steel, too — industries to 80% capacity utilization rates.

The DOC believes an 80% capacity utilization rate reflects a healthy industry. By healthy, the Department of Commerce in the Section 232 steel report acknowledged that, “Industry analysts note that utilization of 80 percent or more is typically necessary for sustained profitability, among other factors.” Moreover the Section 232 report for steel suggested, “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.” (Sources cited in the Steel Section 232 report included Market Realist’s “Why steel investors are mindful of capacity utilization rates,” October 2, 2014.) 

The aluminum analysis looks similar.

The aluminum report pointed to several factors as driving the need for the 80% capacity utilization rate. The DOC examined employment numbers, the dangers of overcapacity, declining R&D and fewer capital expenditures.

Of these arguments, some will seek to argue that employment is somewhat less important, as gains in efficiency and productivity could lead to a decline in employment. But clearly the overcapacity issue in general has forced all but Alcoa and Century Aluminum to declare bankruptcy. By poorer profitability, the industry will not effectively invest in R&D — because it can’t afford to — which will impact future military applications and capabilities.

Therefore, as with the steel industry, the 80% capacity utilization rate reflects a “healthy” aluminum industry with regard to profitability, efficiency and innovation.

Here is the National Security Argument

When steel and aluminum industries do NOT operate at 80% capacity utilization, the economic viability of the industry to produce materials in various war-time scenarios becomes tenuous. MetalMiner will cover this point more explicitly in our Section 232 steel analysis.

Certainly, when mills do not operate at healthier 80% utilization levels, the means to innovate and develop new products, improve production capacity and further increase efficiencies becomes more challenging.

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Aluminum Products

The Department of Commerce included almost all downstream aluminum products in its recommendations.

However, the scope of the investigation does not include bauxite or alumina, or feedstock for the production of primary (unwrought) aluminum.

The investigation also does not include aluminum waste, aluminum scrap, aluminum powders and flakes.  

(Editor’s Note: In the next part of this series, we’ll look at the domestic industry, other relevant findings and the potential impact on prices.)