Investigation of iron ore and ferrous semi imports commenced
by the United States Department of Commerce

NEITHER WAR NOR PEACE

Investigation of iron ore and ferrous semi imports commenced
by the United States Department of Commerce

Vladimir PIKOVSKY, Alexey SHAPOVAL, experts with DerzhZovnishInform

On February 1, 2001 the United States Department of Commerce initiated an investigation into influence of iron ore (briquettes, agglomerate, and pellets) and ferrous semi (ingots, square billets, blooms, and slabs) imports on national security of the USA. Investigation is carried out by the Strategic Analysis Service with the Bureau of Export Administration of the US Department of Commerce on the basis of Trade Expansion Act issued in 1962 (article 232). Informing on forthcoming investigation, Federal Register contained only data on commodities supplied in large quantities and mentioned neither exporting countries nor concrete companies. On domestic market, the Department started to collect and systematize data on such imports from the point of view of their influence on national security including the following issues:

- supplied volumes of those commodities or products, which directly or indirectly relate to commodities under investigation;

- data on necessary domestic production and productive capacities’ expanding for those materials and commodities, which fall under requirements of national security;

- data on available and required human resources, products, raw materials, equipment, and productive capacities necessary for production of the mentioned commodities;

- required augmentation of the US industrial potential and conditions of its increment needed to meet the requirements of national security;

- influence exerted by foreign competitors operating in this sphere on economic prosperity of the US industry;

- probability of situation when substitution of the mentioned domestically-made products for imported commodities leads to significant augmentation of unemployment, narrows governmental income, results in investment withdrawal, abridgement of specialized qualification and productive capacities, and other serious implications.

Strategic Industries and Economic Security Office proposed all interested parties in the USA to send their comment, opinions, data, proposals, and other information on the investigation in written form by April 9, 2001. Besides, the Office welcomed any confidential data, which would remain unrevealed as well as all correspondence related to this issue. In case of public debates to be held in support of such investigation, Federal Register will make further notification. Should any political issues be concerned, inquirers would have to consult with the Secretary of National Security.

As prescribed by existing procedure, final report of the inquiring Commission should be forwarded to the President of the USA not later than in 270 days after investigation is started (before October 29, 2001). What is more, final report should be available for broad publication. Further on, the President will have 90 days to decide whether a potential threat for national security exists and suggest possible ways of import correlation. The President’s decision should be promulgated not later than in 15 days since the moment of its adoption. The President can acknowledge that imports of the mentioned commodities have no influence on national security. In such case, he will have to address his considerations to the Congress as well. Thus, real implications of taken measures will be revealed not earlier than in the second quarter of 2002.

Conducting of investigations under article 226 has a long history. Most of 25 investigations carried out since 1962 had no implications at all. In such cases, the President proclaimed the absence of any threat to national security or inexpedience of any measures to be taken. Speaking of fruitful investigations, embargoes on oil trade with Libya and Iran as well as double introduction of duty levied on oil imports (subsequently abrogated) should be mentioned.

As regards Ukraine, proper heed should be given to investigation initiated against imports of metalworking tools finished in 1986. Such inquiry resulted in agreements with Japan and Taiwan, which stipulated voluntary limitation of their exports for a five-year term. Besides, special governmental program aimed at recovery of this industry had been elaborated. Despite two investigations against ferromanganese and ferrochrome imports carried out in 1964 and 1982 revealed no threat for national security, the USA introduced a ten-year program for replenishment of strategic ferroalloy reserves while duty-free imports of certain ferroalloys were revoked.

While defining the extent to which certain imported commodities affect national security, the US Department of Commerce primarily estimate the ratio between their imported volumes and domestic production. Since Ukraine does not export iron ore to the USA, this stage of conducted inquiries seems to be of little interest for readers. However, Ukrainian exports of steel semis contribute a lot to its trade balance.

In the recent years, import of steel semis (Group 7207 under the Commodity Classification for Foreign Economic Activities) to the USA was notable for its stability (table 1). Finally, contingent of semi suppliers had shaped in 1998 stipulated by abrupt drop of semi imports from Germany (from 1 million tons in 1996 to 197 thousand tons in 1998). Brazil and Mexico turned into unrivaled leaders of the US-bound semi supplies while Australia, Russia, Canada, Germany, and Ukraine always ranked among the ten largest importers of this commodity. In the past five years, Ukraine noteworthy boosted its semi supplies, which allowed it to become the 4-5th largest importer of semis to the USA in 1998-2000. Due to broad utilization of continuous casting in the USA, it seems impossible to estimate its total semi production (with the only exception for tubular billets). In our opinion, to analyze tendencies existing in this sphere production of crude steel should be examined first. In the past five years, semi imports remained quite stable and made up 6-7% of the total production of crude steel. Even severe recession witnessed by the US market for finished rolled products in 1998-2000 had no influence on this figure. As regards outlooks for 2001-2002, further development of this industry is quite promising.

Since special commission with the US Department of Commerce collects data on commodities that relate to products being under investigation, situation with cast iron imports (commodity group 7201) to the USA should be analyzed as well. In the past five years, cast iron imports constantly grew while now both supplied volumes and ratio between imported and domestically produced cast iron became quite stable (table 2).

Despite the number of cast iron exporters gradually shrank to 10 countries, the five leading suppliers remain the same while their sequence order featured only slight changes. Being the leading supplier of cast iron to the USA, Brazil was followed by Russia and Ukraine. In 2000, Ukraine managed to outpace Russia and became the second largest exporter of cast iron followed by South Africa and Canada. In 1996, Brazilian and Russian imports exceeded Ukrainian supplies nine times and 1.4 times correspondingly while in 2000, Ukrainian import was only 2.8 times lower than that of Brazil and simultaneously exceeded supplies from Russia 2.5 times. Since 1998, imported cast iron made up 10% of its domestic production in the USA while imports of Ukrainian-made cast iron featured abrupt recovery with the only slowdown registered in 2000. Thus, contingent of cast iron suppliers has shaped as well while ratio between imported and domestically produced cast iron should be considered as optimal for the US economy in the recent years.

So, what are the purposes and what implications will follow the mentioned investigation? Taking into consideration the history of such inquiries, latest events on the US steel market in 1998-2000 and current macroeconomic tendencies, the following conclusion should be made.

In 1998-2000, production and imports of cast iron and semis in the USA were notable for their unique stability. Import volumes did not exceed 7-10% of their domestic production while all supplying countries enjoyed comparatively predictable economies. The only reason for possible curtailment of cast iron and semi imports in 2001-2002 may be caused by abrupt recession of basic industries and dropped demand for commodities of long-term utilization and construction activity. The latter closely relates to general economic situation in the USA, development of which has lately been distinctly narrowed. However, should the boom of ‘new economy’ in 1998-beginning of 2000 be juxtaposed with development of basic industries, it would appear that general economic recovery had almost no impact on their performance. It can be assumed that gradual shrinking of ‘new economy’ will not result in significant abridgement of raw material imports for the US metallurgy since currently, there is no need to introduce such changes. Thus, it would be quite logical should the mentioned inquiry result in decision of the President according to which cast iron and semi imports pose no threat to national security of the USA.

At the same time, since the mid-2000 situation on the market for finished rolled products was notable for acute tension. Powerful organizations of steel-makers intensified pressure upon the President compelling him to introduce general restrictions on imports of steel rolled products according to article 201 with the trade legislation of the USA. However, the President’s administration is reluctant to implement such severe measures and is elaborating alternatives aimed at satisfaction of both domestic steel-makers and their lobbyists in the Congress. What is more, sensational bankruptcy of some small-scale and medium-scale steel-making enterprises greatly advanced the necessity of systematic state assistance. Taking into account the mentioned tendencies and the fact that production of cast iron and crude steel (semis) turned into integral part of the US steel-making, investigation into their imports is likely to result in a program on state assistance aimed at modernization of this economic sector. In such case, possible curtailment of domestic production may be compensated with imported commodities, which currently make up 10% of cast iron and semis produced in the USA.

Table 1. The U.S. production and import of billets, ths. tons

Note: Data with the U.S. International Trade Commission Trade Database

Table 2. The U.S. production and import of cast iron, ths. tons

Note: Data with the U.S. International Trade Commission Trade Database