Trade Wars: An analysis of US steel and aluminium tariffs

To recap, on 8 March 2018 the US announced additional tariffs on global steel and aluminium imports, at 25 and 10 percent ad valorem respectively. The tariffs were imposed for national security reasons based upon the findings of an investigation in terms of section 232 of the Trade Expansion Act of 1962. They came into force on 23 March. Certain countries were however granted temporary exemption from the tariffs, including Mexico and Canada (dependent upon the outcome of NAFTA negotiations), and the EU, Australia, Argentina, Brazil, Canada, and South Korea (based on their important security relationship with the US). The temporary exemptions were extended for one month on 30 April for Canada, Mexico and the EU, while Australia, Argentina and Brazil have reached agreements “in principle” with the US, including accepting quotas. South Korea secured permanent exclusion from the tariffs on steel by accepting quotas but will pay the 10% tariff on aluminium. Brazil also appears to have agreed to quotas for steel and to paying the tariffs on aluminium.

Despite extensive lobbying for exemption from the section 232 tariffs by the South African government, no exclusion was forthcoming in the 30 April Presidential Proclamation to any countries other than those initially excluded. South African steel and aluminium products (under the specified tariff lines) imported to the US are therefore subject to the tariffs, despite the fact that South Africa is a beneficiary country under the African Growth and Opportunity Act (AGOA). In recent years AGOA preferences were largely irrelevant for steel because most steel imports in the US were duty-free on a Most-Favoured-Nation (MFN) basis. 41 percent of aluminium products covered did however enjoy preferences under AGOA. Besides the section 232 tariffs, certain South African steel products are also subject to anti-dumping investigations in the US.

South Africa and the Western Cape: On 1 May the Department of Trade and Industry (DTI) stated that it had emphasized to the US government that SA exports of aluminium products per year constitute only 1.6 percent of total US aluminium imports, and that according to US Census Bureau data in 2017 only approximately 0.98 percent of total steel imports came from SA. According to Wesgro research South Africa exported approximately R8.77 billion worth of products included under the section 232 tariffs to the US. In South Africa the product most affected based on 2017 figures would be unwrought aluminium, with R3 billion worth of exports from SA to the US.

In 2017 the Western Cape exported 23.4 percent of total South African exports of the affected products to the US, accounting for R2 billion; of this, R1.6 billion (80 percent) was certain “coated flat-rolled products of iron or non-alloy steel.” 94 percent of exports of this specific steel product from the Western Cape was exported to the US in 2017.

It is worth mentioning that the Western Cape also exports a large amount of steel products to Africa. Significant growth prospects in Africa, as set out in the image below, paint a positive picture for growth in steel demand on the continent. Demand is especially increasing in West and East Africa due to investment in infrastructure such as railways, roads and energy facilities. Renewed energy to integrate regional economies in Africa through, for example, the African Continental Free Trade Area and the Tripartite Free Trade Agreement also brings prospects of decreasing costs of doing business across the continent.

Next Steps: China has initiated a dispute against the US’ section 232 tariffs at the World Trade Organisation (WTO), and a number of affected countries have requested to join consultations, including India, Russia, Thailand, the EU, and Hong Kong, China. In each case the complainants have stated that the US’ section 232 tariffs are in essence a “safeguard measure” and should have been implemented in accordance with the WTO rules on safeguards. Although the US denies that its actions constitute a safeguard measure, it is significant for South Africa that such a high number of WTO member countries are calling the tariffs safeguard measures. This is because under WTO rules, safeguard measures include exceptions for developing member countries, under certain circumstances, and if the developing country’s share of imports of the product concerned do not exceed 3 percent.

The DTI has also stated that it is encouraging domestic exporters to engage with their US buyers about applying for product exemption under a process conducted by the US Commerce Department. On 7 May a bipartisan group of 39 members of the House of Representatives wrote to the Commerce Secretary, Wilbur Ross, pressing for this process to be implemented faster and more effectively, as thousands of applications for product exclusion have already been submitted.

The 30 April Presidential Proclamation does leave open the door for further exemptions and negotiations, and the DTI has stated that it remains open to engage US authorities towards finding a mutually acceptable outcome. A positive result therefore remains a possibility, and developments at the WTO and in the US domestic product exemption process can still influence the impact of these tariffs upon South African steel and aluminium exports to the US.

Wesgro is Cape Town and the Western Cape’s tourism, trade, and investment promotion agency. The Wesgro Trade Promotion Unit is focussed on increasing the rand value of exports into global markets and the number of jobs resulting from export orders. To this extent, Wesgro keeps a keen eye on developments in the global trade landscape and works closely with national and provincial government, business and export councils, as well as academic institutions in order to provide high quality service and leverage opportunities across global markets for Western Cape exporters.

Issued by Wesgro Media Team, 15 May 2018

References:

1. Presidential Proclamation Adjusting Imports of Steel into the United States. 30 April 2018.

2. Brazilian Ministry of Foreign Affairs. Web: http://www.itamaraty.gov.br/en/press-releases/18772-american-restrictions-on-steel-and-aluminum-exports-press-release-from-the-minister-of-foreign-affairs-and-the-minister-of-industry-foreign-trade-and-services. 2 May 2018.

3.Naumann, E. (2018). Trump’s steel and aluminium tariff action: Putting America first? Trade Law Centre. Web: https://www.tralac.org/documen...

4. Id.

5. DTI. South Africa Disappointed With the Section 232 Duties Implemented By the United States (US) on Steel and Aluminium Products.

6. HS Code level 4.

7. Who Owns Whom: Manufacture and wholesale of basic iron and steel. April 2018.

8. https://www.wto.org/english/tratop_e/dispu_e/cases_e/ds544_e.htm.

9. Safeguard measures are defined as “emergency" actions with respect to increased imports of particular products, where such imports have caused or threaten to cause serious injury to the importing Member's domestic industry, and can consist of increased duty rates or quantitative import restrictions.