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The US safeguards action against steel - facts and legal aspects

Due to the general nature of its contents, this newsletter is not and should not be regarded as legal advice.
by author: White & Case LLP, June 25, 2001

TubeNet Editor's Note.The Newsletter below relates to the same matter as the Newsletter made by Steel Business Breafing earlier this week. I feel that the matter is currently quite hot topic within Tube Industry.

I. Introduction

This memorandum discusses the United States Trade Representative's request for a global safeguards investigation from factual and legal point of view respectively in Section II. and III. below. In Section IV it comments on the possible effect of the safeguards investigation on antidumping cases.

II. The Administration's request for a global safeguards investigation

Late on Friday last week (article was written on June 25, 2001), United States Trade Representative (USTR) Robert Zoellick requested that the International Trade Commission (ITC) initiate an investigation of steel imports under Section 201 of the Trade Act of 1974. The letter fulfills President Bush's June 5 promise that the administration would pursue a Section 201 action, and other measures, to bring relief to the United States steel industry. Zoellick's request includes an exhaustive list of Harmonized Tariff Schedule numbers that covers a wide range of finished and semi-finished steel products. The letter does not, however, provide the ITC with specific like-product definitions. We understand that the ITC, during the course of its investigation will divide the broad product categories proposed by the administration, into a large number of like-product groupings. It is on this basis that the ITC will conduct its injury analysis. The administration's Section 201 request also lists a number of product exclusions. The list of excluded products covers line pipe and wire rod products already subject to existing safeguard measures, various products that have been historically excluded from the scope of antidumping proceedings, and other products not produced in adequate quantities by the United States industry.

For your reference, we include below a narrative list of those products covered by, and excluded from, the administration's section 201 request. We will provide you with additional information as it becomes available.

Included Products

1. Carbon and Alloy Flat Products (including semi-finished non-alloy steel)

  • Slabs
  • Cut-to-Length Plate
  • Plate in Coils
  • Hot-Rolled Sheet
  • Hot-Rolled Strip
  • Cold-Rolled Sheet
  • Cold-Rolled Strip
  • Tin Plate
  • Hot-Dipped Galvanized Sheet and Strip
  • Electrolytic Galvanized Sheet and Strip
  • Electrical Sheet and Strip (Includes Silicon and Grain-Oriented Steel)
  • All Other Metallic Coated Sheet and Strip
  • Black Plate
  • Tin-Free Steel
  • Steel Ingots

2. Carbon and Alloy Long Products

  • Blooms and Billets
  • Iron and Non-Alloy Steel Ingots
  • Iron and Non-Alloy Steel Primary Forms, Not Ingots
  • Steel Wire Rod
  • Reinforcing Bars
  • Hot-Rolled Bars
  • Cold-Finished Bars
  • Light Shape Bars
  • Alloy and Non-Alloy Drawn Wire
  • Alloy Ingots
  • Steel Piling
  • Standard Rails, Other Rails, and Railroad Accessories
  • Fabricated Structural Shapes
  • Cold-Formed Shapes
  • Sashes and Frames
  • Stranded Wire Rope
  • Wire Strand
  • Woven Wire Products of Iron or Steel
  • Nails, Tacks, and Staples

3. Carbon and Alloy Pipe and Tube

  • Standard Welded Pipe and Tube
  • Standard Seamless Pipe and Tube
  • Oil Country Tubular Goods
  • Line Pipe
  • Mechanical Tubing
  • Pressure Tubing
  • Casing
  • Pipe and Tube Fittings
  • Drill Pipe Fitted with Tool Joints

4. Stainless Steel and Alloy Tool Steel

  • Stainless Steel Ingots
  • Flat-Rolled Stainless Steel
  • Alloy Ingots
  • Stainless Tool and Ball Bearing Steel
  • Stainless Steel Bars and Rods
  • Stainless Steel Wire
  • Stainless Steel Seamless Standard Pipe and Tube
  • Stainless Steel Open-Seam or Welded Pipe and Tube
  • Stainless Steel Pipe and Tube Fittings
  • Stainless Steel Wire Rope
  • Stainless Steel Wire Cloth, Netting, and Fencing

Excluded Products

  1. Wire Rod Covered by Existing Section 201 Safeguard
  2. Line Pipe Covered by Existing Section 201 Safeguard
  3. High-Chromium OCTG Casing and Tubing
  4. Certain Stainless Steel Bar and Wire Rod
  5. Certain Semi-Finished Non-Alloy Steel
  6. Certain Carbon and Alloy Flat-Rolled Products
    • Certain Clad Stainless Steel
    • Doctor Blades
    • Carbon Steel With Specific Chemical Composition
    • Corrosion-Resistant Steel With Specific Chemical Composition
    • Certain Shadow-Mask Steel
    • Certain Flapper Valve Steel
    • Ultra-Thin Strip
    • Certain Silicon Steel
    • Certain Aperture Mask Steel
    • Certain Annealed and Temper-Rolled Cold-Rolled Steel
    • Concast Cold-Rolled Drawing Quality Sheet
    • Various Black Plate Products
    • Cold-Rolled Steel With Specific Chemical Composition
    • Certain Tin-Mill Flat-Rolled Products

    Specialty Products Not Explicitly Identified in USTR Request

    • Barbed Wire
    • Bale Ties and Baling Wire
    • Industrial Fasteners
    • Architectural and Ornamental Work
    • Chains and Parts
    • Cast Steel Rolls
    • Grinding Balls
    • Conduit
    • Cast Iron Tubes, Profiles, and Fittings
    • Malleable Cast Iron Pipe Fittings
    • Pig Iron
    • Sponge Iron
    • Ferromanganese and Spiegeleisen
    • Ferrosilicon
    • Ferrochromium
    • Other Ferroalloys
    • Scrap

III. Legal analysis of a US safeguards investigation

In light of the Bush administration's request for a safeguards (Section 201) investigation on Friday, June 22, the following memorandum summarizes the safeguard action proceedings under Section 201 of the Trade Act of 1974. Safeguard actions typically can be divided into four steps: (1) filing of the petition, (2) the International Trade Commission ("ITC") injury investigation, (3) the ITC remedy investigation, (4) Presidential action. Unlike antidumping and countervailing duty investigations, there is no requirement that the petitioner show that the exporting country/countries has/have engaged in unfair trade practices. Section 201 is intended to provide relief from global imports that are assumed to be fairly traded.

Step One: The Filing Of The Petition

Ordinarily, the petition is filed by a trade association, company or labor union. However, a Section 201 investigation can be self-initiated by the ITC. Additionally, a request for a Section 201 investigation can be made by the executive branch (i.e., the President or the United States Trade Representative (USTR)). Finally, the legislative branch can trigger an investigation via a resolution from the House Ways and Means Committee or the Senate Finance Committee.

Ordinarily, a petition will contain the following: (1) a description of the imported article(s) concerned; (2) the names and addresses of the petitioners and the extent to which the petitioners are representative of a domestic injury; (3) import data; (4) domestic production data; (5) data showing injury and causation; (6) a description of the relief sought; and (8) an industry plan for regaining competitiveness. However, because Friday's request for a Section 201 investigation came as an Executive Branch letter rather than as a formal petition, the Commission will need to gather this information. Nonetheless, in accordance with the statute, the schedule for the investigation will begin once the request is received by the Commission.

Timing of Commission's Investigation

The filing of the petition, or in the case of an investigation requested by the President or Congress, the receipt of the request, triggers a strict timeline for the investigation. The ITC must render an injury determination within 120 days of receiving a petition/request. If "critical circumstances" (see discussion below) exist, then the Commission may take 180 days. The Commission may also find that the investigation is "extraordinarily complicated," which extends the period to 180 days if no critical circumstances exist and to 210 days if critical circumstances exist. The Commission must determine whether the case is "extraordinarily complicated" by day 100. The Commission must make its determination as to whether critical circumstances exist within 60 days of the filing of the petition.

If the Commission determines that the domestic industry is not injured then the Section 201 investigation is terminated. However, if the Commission makes an affirmative injury determination, it must provide a recommendation of remedies to the President within 180 days (240 days if critical circumstances are alleged) of the day the petition was filed or the request was received.

It should be noted that the prevailing interpretation of the statute, as precludes the Commission from extending the investigation period for either critical circumstances or "extraordinarily complicated" proceedings on the basis of the Bush request. Under this interpretation, only a "petitioner" can invoke these extensions. It reamins to be seen whether the Commission will reexamine this position.

The table below shows the schedule for the current investigation.

Request Received 6/22/01
ITC Injury Determination
(within 120 days of request)
ITC Remedy Recommendation
(within 180 days of request)
Presidential Decision on Remedy
(within 60 days of receiving ITC recommendations)
Effective Date of Remedy
(within 15 days of President's decision)
Interim Remedy (in the case of negotiations)
(within 90 days of President's decision)

Step Two: The ITC Injury Investigation

Once the petition or request is received by the Commission, it must promptly initiate an investigation. The first phase of the investigation regards injury. The Commission must determine whether the subject merchandise is being imported in "such increased quantities so as to be a substantial cause of serious injury, or threat thereof, to the domestic industry producing an article like or directly competitive with the imported article." Thus, the prerequisites to safeguard action under Section 201 are: (1) increased imports, (2) substantial cause, and (3) serious injury. This standard is noticeably stricter than the standards the Commission uses for finding injury in antidumping investigations and the standards set forth in the WTO Safeguards Agreement.

(1) Increased Imports

The Commission will first examine whether there have been increased imports of the subject merchandise. The increase in imports may be either in absolute numbers or relative to U.S. production. Thus, increases in import market share will satisfy this requirement even if the volume of imports has actually remained steady or even decreased. The Commission traditionally has considered import trends over the most recent 5-year period as a framework for its analysis, but can consider longer or shorter periods and may focus on the most recent period as it deems appropriate. A simple increase in imports is sufficient to satisfy this statutory requirement.

(2) Serious Injury

(a) Like Product

Before the Commission can examine whether the domestic industry has been seriously injured, it must first determine which domestic products and industry correspond to the imports that are subject to the investigation. This "like-product" determination is a key stage in the investigation. The legislative history of the Trade Act defines the term "like" to mean those articles which are "substantially identical in inherent or intrinsic characteristics (i.e., materials from which made, appearance, quality, texture, etc.)" and the term "directly competitive" to mean those articles which are "substantially equivalent for commercial purposes, that is, are adapted to the same uses and are essentially interchangeable therefor."

In determining what constitutes the like or directly competitive domestic product, the Commission traditionally has taken into account such factors as: (1) the physical properties of the product, (2) the customs treatment of the products, (3) whether products are manufactured in separate facilities, (4) the products end uses, and (5) the marketing channels through which the product is sold. Each of the factors is relevant, but the weight given to each individual factor will depend upon the facts in the particular case. The Commission traditionally has looked for clear dividing lines among possible products and has disregarded minor variations. The Administration did not provide any guidance or recommendations on this issue. Based on past cases, "flat products" are likely to be subdivided into "like products" such as hot-rolled, cold-rolled et cetera.

(b) Serious Injury Standard

The statute provides a definition of "serious injury" as "a significant overall impairment of in the position of the domestic industry." The Commission is also directed by the statute to consider the following three factors: (1) whether there has been a significant idling of facilities; (2) the inability of a significant number of firms to operate at a reasonable level of profit; and (3) significant unemployment. This is a stricter standard than either the U.S. antidumping/countervailing duty proceedings or the WTO Safeguards Agreement.

(c) Threat of Serious Injury

Serious "threat" of injury is defined by the statute as "serious injury that is clearly imminent." The statute further provides the following criteria for the Commission to consider when making a determination regarding threat of serious injury: (1) a decline in sales or market share, a higher and growing inventory, downward trends in production, profits, wages, productivity, or employment in the domestic industry; (2) the extent to which firms in the domestic industry are unable to generate adequate capital to finance the modernization of their domestic plants and equipment, or are unable to maintain existing levels of expenditures for research and development; and (3) the extent to which the United States market is the focal point for the diversion of exports by reason of third market restraints on trade.

(3) Substantial Cause

Finally, the Commission must make a determination as to whether the increase in imports was a "substantial cause" of the injury to the domestic industry. The statute defines "substantial cause" as one that is "important and not less than any other cause." This is markedly different from the causation standard in the antidumping and CVD cases in which imports may be one of many causes of injury to a domestic industry.

In determining whether increased imports are a substantial cause of serious injury or threat of serious injury, the statute directs the Commission to take into account all relevant economic factors, including but not limited to ". . . an increase in imports (either actual or relative to domestic production) and a decline in the proportion of the domestic market supplied by domestic producers." The statute also directs the Commission to consider "the condition of the domestic industry over the course of the relevant business cycle." The Commission may not aggregate the causes of declining demand associated with a recession or economic downturn in the U.S. economy into a single cause of serious injury or threat of serious injury. Also, the statute directs the Commission to examine what factors other than imports that may be a cause of serious injury or threat of serious injury to the domestic industry and include such findings in its report.

Step Three: The ITC Remedy Recommendation

If the Commission makes a negative determination with regard to whether the domestic industry is injured, then the investigation is terminated. The President has no authority under the statute to invoke safeguard remedies in the face of a negative determination. If the Commission makes an affirmative determination with regard to injury then the Commission must provide a specific recommendation as to the type of safeguard remedies to employ. The Commission can authorize any combination of the following: (1) an increase in, or imposition of duties on the imported articles; (2) a tariff-rate quota on the article; (3) a modification or imposition of any quantitative restriction on the importation of the article into the United States; and (4) one or more appropriate adjustment measures, including the provision of trade adjustment assistance (TAA). In addition, the Commission can also recommend that the President initiate international negotiations with those countries that export the subject articles.

The statute requires that the Commission hold a public hearing at which interested parties may be heard. Only those Commissioners that voted affirmative as to injury participate in the hearing and the remedy recommendation. The statute further requires that the Commission take into account the following when making its remedy recommendation: (1) the form and amount of action described that would prevent or remedy the injury, (2) the objectives and actions specified in the adjustment plan, if any is submitted by the petitioner, (3) commitments of individual entities to take adjustment action, (4) available information on the competitive conditions in domestic and world markets, and (5) whether international negotiations might be a constructive way to address the injury.

Step Four: Presidential Decision on Remedy

Within 60 days of receiving the Commission's recommendation, the President must make a decision as to what, if any action will be taken. The President has discretion to accept all, some, or none of the ITC's recommendations and to fashion his remedy, within certain limitations. However, the statute requires that the President consider the following: (1) The Commission's recommendations; (2) the extent to which workers and firms in the domestic industry are: benefiting from adjustment programs and/or engaged in worker retention programs; (3) the efforts being made, or to be implemented, by the domestic industry to make a positive adjustment to import competition; (4) the short- and long-term economic and social benefits of remedial action; (5) other economic factors (such as economic and social costs to taxpayers, consumers and employers in the industry); (6) the extent to which the increased imports are the result of diversion from other countries where restraints are in place; (7) the potential for circumvention; (8) national security issues; and (9) all of the factors the Commission considered in making its remedy recommendation. Moreover, the statute charges the President with selection of "all appropriate action" necessary to ensure that the economic and social benefits outweigh the costs.

The remedy is limited to four years and phased down over time (with the possibility of one extension). The remedy is also limited in that a tariff increase can be no more than 50 ad valorem. Additionally, any quota should be no less than an average of the three most representative years, unless the President finds a different base is clearly justified.

IV. Possible effect on antidumping investigations

A dumping margin established by an antidumping order commands importers to pay additional (antidumping) duties upon entry of goods on the US customs territory. A Section 201 case may result in tariffs, tariff-rate quotas, quantitative restrictions, adjustment measures, or a combination of the above. Theoretically antidumping duties and safeguards measures can be imposed cumulatively. There has not yet been an indication whether the 201 case will affect dumping investigations

Further information can be obtained from:

White & Case LLP
- Tel.+12026263704
- WWW:
- Email.
- Contact: Valeri Valtchev

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