Will Commerce show steely resolve on South Korea’s dumping?

During the presidential campaign, Donald Trump espoused a get-tough position on trade. And, sure enough, a few days after he took office, he canceled the Trans-Pacific Partnership (TPP) and said he would renegotiate NAFTA, the 23-year-old free trade agreement among the U.S., Mexico and Canada. Trump also accused China and Japan of manipulating their currencies to make their exports cheaper.

Absent so far from the hawkish Trump trade agenda, however, was action, or even much rhetoric, opposing unfair trade practices known as dumping and subsidies — that is, the sale of exports at artificially low prices, often with government financial support.

The only indication that dumping may be high on the president’s agenda was his nomination of Robert Lighthizer as U.S. trade representative (USTR). Lighthizer won a reputation for vigorously pursuing anti-dumping cases against Japan when he was a trade official in the Reagan administration.

Now, the new administration has a perfect opportunity to show it’s serious about dumping remedies — a much better way to demonstrate its animosity to unfair trade than opposition to multilateral deals like TPP and NAFTA. The target is South Korea, which has been accused of dumping and subsidies in the export of what are called oil country tubular goods (OCTG), industry jargon for high-quality steel pipes used in the extraction of oil and gas from wells.

A decade ago, Chinese producers were flooding the U.S. market with OCTG, and the U.S. industry successfully prosecuted an anti-dumping case that limited Chinese exports.

The victory led several large domestic steel manufacturers to announce major expansions, such as the V&M expansion of its Youngstown, Ohio facility and the U.S. Steel expansion of its Lorain, Ohio facility. The largest of these expansions is the Luxembourg-based Tenaris, which owns U.S.-based Maverick Tube Corp., $1.8-billion green-field plant in Bay City, Texas, 70 miles from Houston.

When it opens this summer, the plant will employ 600 workers and will be “the most advanced manufacturing facility in our industry in the world,” according to German Cura, the North American president of Tenaris.

{mosads}In building the plant, Tenaris made a courageous move. During the height of the shale boom, half of all well piping was imported from Asia and other parts of the world. With the new highly automated Tenarisplant, “the intent is to change how the industry works in a much more effective way, but also to drastically substitute for the imports that are coming into our market,” said Cura, quoted in the Houston Chronicle.

It’s a story that fits the Trump narrative: A manufacturer hiring Americans for well-paying jobs in support of a domestic energy industry that the new administration is unleashing.

There is only one problem. Shortly after the anti-dumping decision forced Chinese exporters out of the U.S. market, they were supplanted by the South Koreans.

These OCTG manufacturers, as well, were hit with anti-dumping actions, and eventually the Commerce Department set duties on South Korean firms from 10 percent to 15 percent.

But it turned out that those penalties did not fully reflect the full amount of unfair trade and barely deterred the flow of South Korean OCTG exports, and, among others, hundreds of American steelworkers lost their jobs at U.S. Steel plants in McKeesport, Pennsylania, and Bellville, Texas. The Commerce Department is now reviewing whether those duties against South Korea should be adjusted.

Trade dumping cases revolve around complicated and often arcane rules, but a major issue is whether an exporter is selling a product in the U.S. below its costs. A law enacted in 2015 called the Trade Preferences Extension Act gave American companies a new tool. It directed the Commerce Department to consider any “particular market situation” within a foreign country that distorts a producer’s costs. In such cases, Commerce can adjust the costs to reflect that reality.

OCTG manufacturers in the U.S. became the first industry ever to use the “particular market situation” clause to make their case. They argued that the South Korean government was outrageously subsidizing hot-rolled steel, which is the main input of drilling pipe. As a result, the U.S. companies said, for comparison purposes, the price of Korean OCTG should be adjusted upward to account for the subsidized steel.

Taking the subsidized steel into account, the U.S. industry claims would show the full degree of the South Korean dumping at prices far below the cost of production. Basic economics tells you that subsidies on the major input affect the price of the downstream pipe. This preliminary determination underscores the type of obtuse bureaucratic thinking the new administration wants to change.

On Feb. 21, however, the Commerce Department ruled that there was not enough evidence to apply the “particular market situation” provision to the South Korean case. The decision was preliminary. A final ruling will come in late March or early April.

Wilbur Ross, a trade hawk who once owned a large steel company, was confirmed as Commerce Secretary last Monday. He clearly has the ammunition to go after unfair South Korean pipe exports to the United States. If the anti-dumping action succeeds, it will mean that huge new plant in Texas will be humming.

If it fails, the new administration will suffer an embarrassment, Americans will lose jobs, and the beneficiaries will be 7,000 miles away.

James K. Glassman served as undersecretary of State for public diplomacy and public affairs in the George W. Bush administration.

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