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Steel Orbis: Steel Trade Conference (Session 2 – Trade Matters and Legislation)

Steel Orbis: Steel Trade Conference (Session 2 – Trade Matters and Legislation) North American Steel Industry Challenges. Thomas A. Danjczek President Steel Manufacturers Association San Diego, CA July 11, 2008. Steel Orbis – Session 2. Outline. • U.S. Competitiveness

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Steel Orbis: Steel Trade Conference (Session 2 – Trade Matters and Legislation)

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  1. Steel Orbis: Steel Trade Conference (Session 2 – Trade Matters and Legislation) North American Steel Industry Challenges Thomas A. Danjczek President Steel Manufacturers Association San Diego, CA July 11, 2008

  2. Steel Orbis – Session 2 Outline • U.S. Competitiveness • China - Comments - Chinese subsidies - Chinese interference with raw materials - Auto parts - Circular welded steel pipe • Regulating GHGs • Conclusion

  3. Steel Orbis – Session 2 Competitiveness U.S. - China Steel Future Competitiveness Drivers DriverU.S.ChinaComment 1. Metallics •Weak $ •1/2 imported •Technological (Availability/Price) •Scrap exports •Freight developments + to U.S. 2. Energy •Gas/electricity + to China •Climate change (Availability/Price) constraints policy •Limited nuclear 3. Labor •Lack of technical + to China •Health care costs 4. Transportation + to U.S. 5. Trade + to China •Growth of steel- intensive goods 6. Environment + to U.S. •Enforcement?

  4. China’s Trade Surplus with the U.S. Steel Orbis – Session 2 YearChina’s Trade Surplus 2001 $22 billion (year China joined WTO) 2006 $177 billion 2007 $262 billion(up 47.7%) The U.S. has lost 3.3 million manufacturing jobs since 2000… imbalances cannot go on forever.

  5. Steel Orbis – Session 2 Impact of AD/CVD Percent of the value of Chinese imports covered by AD/CVD duties? 2004 – 0.13% 2006 – 0.10% (TAD comment – What Protectionism?) International Trade Commission, based on U.S. DOC and Customs official statistics

  6. Steel Orbis – Session 2 China Steel Comments • China has NOT become the world’s largest steel producer by accident, or by operation of free markets, or comparative advantage • China is NOT a low-cost steel producer • China has reached its position through a combination of subsidies, mandates, and planned intervention • In finished goods containing steel, China’s exports are expanding by approximately 30 percent per year • Chinese steel market is still reliant on exports to absorb overproduction • Chinese steel industry is overbuilt and under-demolished

  7. China Continues to Interfere with Raw Material Markets • China’s steel policy mandates such interference • Article 28: “Mineral resources belong to the state” • Article 30: The state will encourage large Chinese producers to “construct production supply bases of iron ores, chrome ores, manganese ores, nickel ores, scrap steel, and coking coal in foreign countries” • Article 30: The state will use its power to prevent “cut-throat competition” among Chinese mills for raw materials • Article 30: The export of “coke, iron alloy, cast iron, scrap steel, {and} steel billet . . . shall be restricted.” • Examples of how China restricts critical exports: • Metallurgical coke • Ferroalloys and other nonferrous metals • China has subsidized domestic iron ore production, as well as foreign ventures created to obtain iron ore from abroad.

  8. Case Study: China Has Supported Auto Parts Production in Many Different Ways • WTO-prohibited subsidies • Transfer technology requirements • Five-year plans • Government ownership of auto parts producers • Preferential financing for auto parts producers • Research and development incentives • Restrictions on imported auto parts

  9. U.S. Imports of Auto Parts and Vehicle Bodies from China Source: AISI

  10. U.S. Indirect Steel Trade Balance with China: Automotive Sector 2000 2001 2002 2003 2005 2006 2004 Source: AISI

  11. Recent WTO Case Regarding Auto Parts • Involves a local content regulation: 25 percent surcharge on imported auto parts for any car that does not comply • This regulation violated China’s 10 percent bound tariff rate on imported auto parts • February 2008 – WTO issued preliminary ruling against China • Case does nothing about other forms of government support for China’s auto parts industry

  12. AD/CVD – Circular Welded Steel Pipe from China Steel Orbis – Session 2 • On June 20, 2008, ITC - final injury determinant - Duties: 69.2 to 75.5% for antidumping 29.5 to 615.9% for counter civilian duties (Average subsidy rate of 37.2%)- Event: First time CVD on steel product from China- Numbers: See next graph • Background: Filed on June 7, 2007- DOC Preliminary on November 5, 2007, with margins at 0 to 26.4% (Avg – 16.6%)- Final on May 29, 2008, with margins at 69.2 to 75.5% • Conclusion: U.S. producers will not allow this industry to be undercut by unfair subsidies

  13. Steel Orbis – Session 2 Regulating GHGs: Trade Perspectives • Acting unilaterally creates significant potential for trade and investment distortions (“carbon leakage”) • North American production cutbacks are a bad compliance mechanism - Environmental and economic “lose/lose” • Medium to longer term requires comprehensive global sectoral approach • Until global approaches are in place, N.A. needs to level compliance cost obligations - Border measures to avoid loss of competitiveness

  14. Steel Orbis – Session 2 Steel Trade and Environment: Perspectives • Developing countries >90% global GHG rise since 1990 • Canada, US, EU, Japan committed to or considering significant short-term GHG reduction mandates • India not committed to action; Russia? Brazil? China? • Steel sector approx 4% of global GHGs - China over 50% of GHGs, and growing - North American steel <0.5% of total global GHGs• High rate of recycling – lowest steel emitters • Steel will continues to grow globally - 3-5 percent in total; 8-10 percent in China, India, Russia - Could be ~ 3 billion tonnes by 2050 (vs. 1.2 bT in 2007)

  15. Steel Orbis – Session 2 Climate Change Policy Overview: U.S. • Congress considering cap and trade - Unlikely to pass before 2009 - Lieberman-Warner most likely basis • Both Presidential candidates support some form of cap and trade system • Various state-level plans: inconsistent • Some momentum for global sectoral agreement • Industry Position: - Recognize current-day technology limits and time to develop/deploy/diffuse new technologies - Supports global sectoral agreement - If cap and trade, then: • Carbon intensity standard – verifiable - Apply to all domestic and imported steel sold in U.S. • Credit/exemption for recycling and process emissions

  16. Conclusions • China, China, China (Anything else is an embellishment) • More CVDs against China are coming • Doha talks must not be used to weaken trade laws. • Need strong and effective enforcement of trade laws throughout the NAFTA region • Need a more effective approach to dealing with market-distorting practices in China. • Need to monitor raw material situation to ensure that market forces operate properly.

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