In its 2022 WTO Trade Policy Review for the United States (US), China asked the US about its Section 232 tariffs on steel and aluminium. Specifically, China asked about the US steel capacity utilisation rate target of 80% in the Steel Report. China asked the US whether it would now amend its tariffs and trade arrangements or continue them on steel indefinitely. (Question 33, p.80) The US countered that its TPR is retrospective and, therefore, it did not answer the question. China pressed again, stating that the US and China now had the same 80% capacity utilisation rate for the steel industry. (Question 34). The US responded that in 2018, the Department of Commerce (DOC) Steel Report stated that a goal was to increase US capacity utilisation to 80% or greater to enable US steel mills to increase domestic operations. The US otherwise reiterated that the US President retains authority to adjust trade restrictions under section 232 of the Trade Expansion Act of 1962.
As elaborated here, the US appealed the US – Certain Steel and Aluminium Products dispute settlement panel reports and offered Norway and Switzerland the opportunity to bring non-violation complaints or to resolve the matter under Article 5 of the DSU (good offices, conciliation, and mediation). China’s questions in the US TPR raise an interesting afterthought: What is the current US steel capacity utilisation rate? Was the US even justifying its import relief based on essential security anymore? Is there a point where a security justification expires? Can the GATT/WTO legal order accommodate a moving target based on security preparedness?
The American Iron and Steel Institute published data as of June 3, 2023, indicating that domestic raw steel production was 1,754,000 net tons while the capacity utilisation rate was 78.0 per cent. The US International Trade Commission (ITC) Report (2022) on the impact of the Section 232 tariffs showed that the capacity utilisation rate increased from 2017 to 2021, with a rate at a 14-year high in 2021. In 2022, the capacity utilisation rate was 80.5 per cent. Prices of US steel products increased from USD 697 per metric ton to USD 1,855 per ton of hot-rolled steel (an increase of 166.1 per cent). The US ITC cautioned against monocausal arguments that the increase stems from the Section 232 measures, citing the COVID-19 pandemic, AD/CVD orders, surges in energy prices, and Russia’s invasion of Ukraine, among other factors (p.21). Nevertheless, the US ITC developed a model to assess the economic effects of the Section 232 tariffs, observing reduced imports of steel and aluminium products covered by Section 232 tariffs by an estimated 24.0 per cent and 31.1 per cent on average, respectively. The Section 232 tariffs are estimated to have increased the US’s average price of steel and aluminium by 2.4 per cent and 1.6 per cent, respectively. See the USITC Table ES.1.
The US ITC also explained how the US steel industry evolved, with two distinct production methods that use different furnaces and raw inputs: traditional, ‘vertically integrated mills’ that use ovens to heat coal into coke, combine the coke with iron ore in a blast furnace to produce pig iron (a raw form of metal), and then melt the pig iron in a basic oxygen furnace to produce liquid steel; and, ‘mini-mills’ that use electric arc furnaces that do not require coke ovens or blast furnaces.
The US ITC stated that, in 2021, 3 companies, which operated integrated steel mills in 11 US locations, produced 29 per cent of domestic steel output. The US ITC further cited that, in 2022, 50 companies which operated 101 mini-mills produced the remaining 71 per cent of domestic steel production. When setting out the rationale for the Section 232 actions, the DOC 2018 Steel Report (at p. 39) explained that mini-mills have ‘lower energy costs’ than the integrated mills, which require a more energy-intensive process.
Returning to the 2018 DOC Steel Report that served as the basis for the Section 232 tariffs, at the time, the US economic competitors (Brazil, SK, Japan, Russia, Germany, and China) relied on integrated mills. Incidentally, the US DOC also listed its top five import sources of steel in 2022; Norway and Switzerland do not make this list.
A core motivation for the Section 232 tariffs was to insulate domestic integrated mill capacity to enable the US ‘to support its critical industries and defence needs.’ But the 2018 DOC Steel Report does not reflect (though there are some redacted parts of the report) whether the threat is coming from inside the house - a general shift in the US towards a different production method. I leave it to steel production experts and labour law experts to weigh in on internal competition between these two approaches to steel production.
Returning to the US-Certain Steel and Aluminium Products (DS556) dispute, the dispute settlement panel report does not dwell on these questions of US domestic competition on steel production. In fact, a key finding of the panel report was that the US could not equate a domestic situation to an assessment of an international one. Still, these particular security measures involve questions about domestic innovation and military preparedness. The US may have legitimate security concerns requiring it to take necessary action against other members. Yet, this evidence suggests that a US metric of projecting national defence requirements cannot be the end of the story when invoking essential security at the WTO. Robust, ongoing scrutiny and a transparent mechanism must accompany the notification of security measures such that governments and producers may understand when and what will unwind once the security risks are met - in this case, the domestic industry’s capacity met the DOC requirements.
Norway and Switzerland may desire to bring another costly and time-consuming complaint or entertain mediation. This hypothetical raises further questions about how to process security in today’s geopolitical environment – to see the forest for the trees. Can the WTO foster an effective solution to address how security ebbs and flows in trade policies? What would the US offer Norway or Switzerland in mediation? Would the US entertain retrospective compensation to Norway and Switzerland? Should the US offer more transparency to all Members as to the administrative review of the Section 232 tariffs in 2023? And, perhaps more importantly, how can members manage long-term security planning without upending all trade commitments indefinitely?
This post highlights various complexities arising from the slipperiness of timing in planning security measures, not to mention the intersection with domestic and global reforms regarding economic competition and climate action. Future work investigates a multilateral framework to understand economic security beyond discrete disputes and coalition building.
I want to thank Amy Porges for pointing me to excellent sources on this topic!
