Washington Insider --Thursday

Implementing Steel Tariffs

Here’s a quick monitor of Washington farm and trade policy issues from DTN’s well-placed observer.

US-China News Continues to Run Positive, Negative

Statements by President Donald Trump and other officials are continuing a pattern of seemingly getting one step forward and one or even two steps back in the process of reaching an agreement on trade issues between the two.

After Tuesday's news flow which saw reports that China was backing away from certain components sought by Washington in any trade deal and then word that top U.S. negotiators were headed to China next week, the pattern continued Wednesday.

President Donald Trump said as he left Washington that the U.S. would keep tariffs on Chinese goods for a "substantial period of time," potentially even after a deal is reached.

“We have to make sure that if we do the deal with China that China lives by the deal," Trump noted.

But he also sounded some positive notes, including that "top representatives" are headed to China next week for negotiations, a reference confirming the reports Tuesday that U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steve Mnuchin would head to China for talks.

And even despite the warning on tariffs, Trump still labeled the talks as "coming along nicely."

Cruz Says EPA Will Keep Handing Out Small Refiner Waivers

EPA has given "explicit promises" to Sen. Ted Cruz, R-Texas, that the agency will keep granting small refiner waivers under the Renewable Fuel Standard (RFS) and will not retroactively reallocate those waived obligations, according to a report from Bloomberg.

Cruz said he extracted those pledges after working with other Republican senators to slow now-Administrator Andy Wheeler's nomination. Cruz said he and others extracted the pledge from Wheeler after warning that their votes were dependent on the administration continuing to lower the regulatory burden for oil refiners.

EPA said it would not "backtrack" on what Cruz labeled "vital regulatory relief" by not granting the small refiner waivers. “We are going to hold the EPA and the administrator to those commitments,” Cruz said at the American Fuel and Petrochemical Manufacturers association meeting in San Antonio, Texas. “Those were public commitments that were necessary for his confirmation, and we fully expect him to follow through.”

Washington Insider: Implementing Steel Tariffs

There are a great many questions about the administration’s heavy reliance on tariffs as instruments of trade policy, but one that generally receives little notice is the equity of their application. Bloomberg is reporting this week that a number of firms are now raising questions about the role of the four largest US producers who have made a majority of the objections to other companies’ requests for tariff relief, “sinking many importers’ hopes of escaping the duties.”

Nucor Corp., U.S. Steel Corp., AK Steel and TimkenSteel accounted for most of the objections submitted to the Commerce Department concerning steel tariff relief, Bloomberg says, and notes that US Steel and Nucor, respectively, prevailed in getting Commerce to reject tariff relief on 332 out of 333 and 515 out of 544 of decisions recently released, according to Rep. Jackie Walorski, R-Ind.

These data show that Commerce has denied more than 90% of applications where an objection was filed, Can Manufacturers Institute President Robert Budway said.

Walorski said she was concerned that Commerce may be evaluating “each request in a vacuum” without considering whether companies “can actually produce the cumulative total if they prevail in their objections.”

Data on exclusion requests and objections are made public on line where they are posted for comment, although the postings are not always up to date, Commerce notes.

For their part, steel producers claimed that they filed only limited objections and did so “in cases where they could produce the steel for which tariff exemptions were sought.” This suggests that producers are relying on the tariffs to hold down supplies, Christine McDaniel, senior research fellow at the Mercatus Center at the George Mason University in Virginia, told Bloomberg.

As of Dec. 20, 2018, US producers objected to exclusions on 145.2 million metric tons of steel — well above last year’s domestic production of 81.6 million metric tons, she said.

“They would have to literally double or triple their production, which is unheard of,” she said.

The American Iron and Steel Institute, the major steelmakers’ trade group, said claims by some opponents of the process are “grossly misleading.” Instead of focusing on the success of any particular request or objection, the focus should be on the impact that the cumulative requests could have. To date, the amount of steel from which US importers have requested relief far exceeds the volume that the entire US imported in 2017, according to the institute.

At the same time, delays in getting decisions on 23 exclusion requests filed in June are costly for Mid-Continent Nail Corp., which faces objections from Nucor, according to Adam Gordon of Bristol Group PLLC. While Nucor can produce the products in question, it cannot supply the quantities Mid-Continent needs, he said.

Gordon, who represents Mid-Continent, said extraordinary delays in processing exclusions are hurting downstream industries. One of the biggest things that would help speed up the process would be if steelmakers were more candid about their production limitations and choices, he said.

Independent Can Co. in Belchamp, Md., has about 24 requests still pending, President and Chief Executive Officer Rick Huether told Bloomberg. Domestic companies lack the capacity to service Independent Can’s needs, he said. Independent Can, which needs an exclusion for tin plate, has spent some $160,000 just on filing the exclusions and paid about $800,000 in tariffs, he said.

“For a small company, this is very costly,” he said.

A major problem with the system is lack of information on how Commerce makes a decision, trade attorney Bernd Janzen of Akin Gump said. His firm represents Volkswagen Group of America, which is waiting for decisions on requests where objections have been filed.

“How do they decide when the requester and the objector say different things?” he asked. Frustration with the delays and general opacity of the system will likely result in litigation, he said.

Most manufacturers of industrial products hate the tariffs and the current system and are quick to charge that it raises costs significantly for consumers across the United States. The charges that it adds uncertainty and is widely seen as inequitable are serious shortcomings that will be raised repeatedly as the administration’s trade policies are reviewed in the process of considering approval for the new trade deals now being negotiated — a process producers should watch closely as it proceeds, Washington Insider believes.

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