A Different Take on the OCTG Trade Case and the Trade Wars

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Anti-Dumping, Ferrous Metals

We are caught in a web with our own trade policies. On the one hand, a preliminary ruling on OCTG has placed anti-dumping duties of 36.53% – 99.14% on imported Chinese OCTG products. At the same time, the US, Europe and Mexico have initiated a dispute within the WTO framework claiming that China has placed export restrictions on a range of products including bauxite, magnesium, coke, fluorspar, manganese, silicon metal, silicon carbide, yellow phosphorus and zinc. And according to Meat Trade News Daily (no, I don’t read it daily),

“China’s restrictions on raw materials continue to distort competition and increase global prices, making conditions for our companies even more difficult in this economic climate, said Catherine Ashton, the European Union’s (EU) trade commissioner.

Perhaps more ironic are the arguments provided by Beijing as to why the export restrictions exist. They claim the curbs are there to protect the environment by increasing the cost of extraction. Some duties are as high as 15%. We shouldn’t sound so tongue-in-cheek. China has done more for the environment in recent years but they don’t seem to make that argument for other products that damage the environment, say, for example, OCTG or the steel used to make OCTG. Why did China need to produce so much OCTG? Because Beijing creates these export tax policies that on the one hand discourage the export of raw materials (steel slabs, HRC, CRC for example) but encourage the export of those materials into a more value-added product, like OCTG. OCTG imports to the US skyrocketed from $750m in 2007 to $2.63b in 2008 (undoubtedly due to these tax schemes that we believe skew the market).

And when you get down to look at the numbers, they appear staggering. According to this article from The China Post, OCTG exports from China account for 46% of China’s total steel exports. No environmental argument there from the Chinese.   The OCTG anti-dumping case represents the single largest “trade action by the US against China based on volume. Beijing calls the duties “discriminatory and claims the pipes had been sold into the US at a 20% premium to domestic prices, according to the China Post article. Well, it’s easy to sell something at a 20% premium in the export markets. Let’s ask a different question. Was OCTG sold profitably in the domestic market in the first place? Unfortunately, that question has no relevance.

This becomes an important element of the trade case as domestic producers will need to prove OCTG products came into the US at a price lower than the domestic Chinese market, to prove anti-dumping actually occurred. Otherwise, the ITC could overturn the ruling. The vote should occur in May of next year. The domestic producers include Maverick Tube Corp, United States Steel Corp, TMK IPSCO, V&M Star LLP, Wheatland Tube Corp and Evraz Rocky Mountain Steel along with the USW.

China has retaliated with several anti-dumping cases of its own including one involving cars and SUV’s made by GM. China claims GM has “benefited unfairly from American government help, according to The China Post. I guess we can’t argue with that one.

–Lisa Reisman

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