U.S. Steel
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US Steel Seeks China Trade Probe as Trump Orders Import Study

April 20, 2017
The key question before the U.S. International Trade Commission is whether it has jurisdiction over the antitrust complaint.

U.S. Steel Corp. (IW 500/91) will ask a trade agency Thursday to investigate its claims that rival Chinese manufacturers colluded to fix prices to undercut competitors in the American market on the same day President Donald Trump will order a separate Commerce Department probe of steel imports.

Trump will sign a memorandum authorizing a probe under section 232 of the Trade Expansion Act of whether steel imports hinder national security, according to the White House schedule.

Meanwhile, the U.S. International Trade Commission in Washington will hear U.S. Steel’s argument that an antitrust complaint it filed against Chinese manufacturers should be revived. A trade judge in November had thrown out the claim, saying the agency didn’t have the legal authority to hear the allegations.

From the beginning, the case has caught the attention of U.S. politicians, as members of Congress from both parties wrote to the commission, asking it to hear the case in full. Questions about the future of the American steel industry have became a hot political topic, with Trump signing a “Buy America” order to buoy American steel producers by forcing projects such as U.S. pipelines to use steel made in the country.

Steelmakers in the Americas just capped their best collective stock performance since 2003 following a raft of successful trade cases levying tariffs against foreign metal.

The key question before the commission is whether it has jurisdiction over the antitrust complaint. U.S. Steel and other American steel producers have traditionally filed cases with the commission under anti-dumping laws that bar sale of goods priced at less than fair value or that are subsidized by foreign governments. The remedy usually involves imposition of tariffs that raise the prices on foreign products.

Unfair Trade Practices

In an unusual move, U.S. Steel filed its latest case under a statute covering unfair trade practices, which most often is used to protect domestic companies from patent infringement and theft of intellectual property. Under this provision, the commission could block carbon and alloy steel produced in China from entering the U.S.

The case, however, has been an uphill slog for U.S. Steel.

The complaint filed in April 2016 made three allegations. One was theft of trade secrets in connection with Justice Department allegations that Chinese officials hacked the Pittsburgh-based steel company. A second involved claims the Chinese companies were rerouting their products through other countries to hide the country of origin. The third -- which is the one U.S. Steel is seeking to revive Thursday -- involves antitrust violations that the companies improperly conspired to fix prices and control export volume.

In February, U.S. Steel dropped the trade secrets claim related to hacking, citing “the inequities of the statutes that were enacted before the dawn of the internet age and the substantial threats posed by cyber espionage.”

The judge who dismissed the antitrust claim in November, later threw out a claim that the Chinese companies were routing their products through other nations to hide their country of origin. The commission in February ordered the judge to reconsider that part of the case.

Amid all the legal setbacks, the case has fallen out of focus for U.S. Steel investors, said Lee McMillan, an analyst at Clarksons Platou Securities.

“The bigger problem is their continued overproduction drives down global steel prices,” McMillan said. “This case isn’t seen by most as a cure for that, and thus other remedies are receiving more attention.”

On the antitrust issue, Judge Dee Lord said the problem is that trade law and antitrust law are in conflict. Antitrust law as used in federal courts seeks to promote competition for the benefit of consumers, even if it harms competitive businesses, Lord wrote. She ruled that the ITC has to follow the standard used in the courts, so if the Chinese steel companies are selling at a lower price, that benefits consumers and thus is not an antitrust violation.

The Chinese manufacturers, which deny the unfair trade allegations, say Lord got it right. The only way U.S. Steel’s case could survive is if it could prove “predatory pricing” that harms consumers and there’s no charge of that, they said.

‘Total Blockade’

Baoshan Iron & Steel Co., China’s second-largest steelmaker, accused its American competitor of seeking an unprecedented “total blockade of steel trade from an entire country.” The company, along with other Chinese steelmakers, argue the case should go through the normal type of trade complaint, which the American steel companies have used extensively.

“There are now virtually no steel imports from China, let alone unfairly priced imports,” the Chinese companies said in a filing with the agency.

U.S. Steel has the backing of the nation’s largest steel union and AK Steel Holding Corp. Following Lord’s reasoning would turn a statute to protect American markets into “a dead letter law,” the United Steel, Paper and Forestry, Rubber, Manufacturing, Energy, Allied Industrial and Service Workers International Union said in a filing.

Members of Congress have also sided with U.S. Steel. The 30-member Congressional Steel Caucus sent a letter saying “we assure you we will be carefully watching the progress of this case,” while a bipartisan letter from 47 members of Congress said they “strongly urge” the commission “to ensure that U.S. Steel is permitted to present its case in full.”

While U.S. Steel may be counting on the Trump administration to help its business, any regulatory change could take years, according to Bloomberg Intelligence analyst Caitlin Webber. It also would likely lead to a challenge at the World Trade Organization and faces opposition from the pipeline operators who say it would increase costs and delay projects, she wrote in a note to clients.

The commission has set a target to complete the investigation by April 2018.

By Susan Decker

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Licensed content from Bloomberg, copyright 2016.

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