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April 18, 2016

MSCI Chairman Tell USTR To Directly Engage To End Global Steel Oversupply

Last Tuesday, Richard A. Robinson, president of Norfolk Iron and Metal and chairman of the Metals Service Center Institute (MSCI), told the Office of the U.S. Trade Representative (USTR) in testimony that global steel oversupply is fueled by intentional actions by foreign governments and that, to address the issue, the U.S. government must directly engage with U.S. trading partners through negotiation.

Robinson said USTR should make it a stated principle objective to target countries that use market distorting policies to inflate supply and should increase efforts to address currency manipulation. “The disjunction between capacity and demand has been fueled in large part by intentional actions of foreign governments,” Robinson said. “In particular, China has, through various anti-competitive mechanisms such as massive state-sponsored subsidies, substantially increased its domestic steel industry in the last several years, including during a time of stagnant—and negative—growth in its own steel consumption.”

Robinson testified on behalf of MSCI at a USTR hearing in Washington, D.C., arguing U.S. government policy must ensure a healthy source of supply and a healthy customer base. Robinson noted MSCI member services centers supply the steel requirements of more than 300,000 downstream manufacturers and fabricators and that, collectively, service centers are the largest domestic customers of U.S. mills, purchasing more than 30 percent of all carbon and more than 50 percent of all specialty steels produced and distributed in the United States.

“There is no question that the U.S. steel industry has suffered from these developments, as measured by demand for carbon steel, which is reflected in service center shipments,” argued Robinson. “Today, MSCI member company shipments are only 65 percent of peak shipments just prior to the 2008 recession.”

As a reminder, in comments submitted to USTR in late March, MSCI argued U.S. policy makers must “consider the impact of U.S. trade policy on downstream U.S. markets and U.S. manufacturers, as well as domestic steel producers.” MSCI recommended the U.S. government:

  • Engage with U.S. trading partners directly to reduce global excess capacity through negotiation and make it a stated principle objective of U.S. trade policy to target excess capacity in countries that increase capacity through market distorting policies;
  • Increase efforts to address currency manipulation; and
  • If the U.S. government imposes additional tariffs on imported steel, avoid unintended damage to the U.S. manufacturers that utilize steel by imposing a corresponding and offsetting tariff on steel-containing products identified by USTR in consultation with domestic steel consuming companies.

“MSCI is a strong proponent of free and fair trade,” Robinson said in his testimony. “However, the effectiveness of trade agreements in promoting free and fair trade depends on vigorous monitoring of each party’s compliance and prompt and vigorous enforcement against violators.”

U.S. Commerce Secretary Penny Pritzker also testified at the hearing, including on the possibility of using Section 201 and Section 232 powers to restrict imports. (As Politico’s “Morning Trade” explains, Section 201 of the Trade Act of 1974 allows domestic industries seriously injured by imports, or even just threatened with serious injury, to ask for relief. Under Section 201, the U.S International Trade Commission examines the petition and makes recommendations and the final decision on any action lies with the president. Under Section 232 of the Trade Expansion Act of 1962, the Commerce Department must consult with the Defense Department to determine if imports threaten national security, and the president still makes the call when it comes to final action.) Secretary Pritzker said that, while “taking drastic measures is something to explore,” a Section 201 case “would require enormous input from industry.” She also noted there has not been much discussion yet in the Obama administration about a Section 232 case.