Mucking Through Data
Commerce Secretary Wilbur Ross called customs rules for steel and aluminum so specific that they are “easy to get around without a blanket solution” to a crowd at the National Press Club Foundation May 14.
“That’s why we did tariffs on a broad basis,” Ross told the crowd, including a blanket tariff provision for countries that currently produce no steel to prevent them from becoming the next transshipment hub.
Ross’s comments come as countries are acting quick to reinforce their restrictions on transshipping—shipping via multiple countries, sometimes to obscure the country of origin—to avoid tariffs and steel groups pointed to transshipment through Canada as a major concern.
Europe recently announced safeguard actions, and Canada announced $30 million in new funding for trade investigations and a move to close loopholes on customs rules for marking the country of origin on steel and aluminum imports from NAFTA countries.
Identifying transshipment has been an ongoing concern for groups like the Coalition to Enforce Anti-Dumping & Countervailing Duties (AD/CVD), which represents U.S. steel manufacturers, who don't believe Customs and Border Patrol (CBP) has the capability of detecting it.
AD/CVD representative Amy DeArmond told Bloomberg Law that "CBP was somewhat limited in its ability to see the bigger supply chain picture."
DeArmond believes that CBP agents continue to look at ways to better identify patterns and target potential bad actors, but unless importers are sloppy, they are often never caught.
Canada is the largest source of imported steel to the U.S. and imports of critical infrastructure steel from Canada have grown 20 percent since 2000. For certain types of steel, like cold-rolled, the increase is 79 percent, and the U.S. now runs an approximate $1 billion deficit in iron and steel with Canada according to data from the U.S. Census and Statistics Canada.
Canada is ranked sixth on a Commerce Department transshipment watch list according to a 2011 Government Accountability Office report, right behind Taiwan, and the country has been increasingly exporting more steel since 2002, particularly from 2002-2006, despite declining steel production, declining growth in steel-related industries, and increasing steel consumption.
Additionally, vessel shipments of steel to the U.S. have grown 13-fold since 2003, and Canadian-Indian steelmaker Essar Steel Algoma shipped five times what it sent in 2009 with little growth in their Canadian foundries.
Canada's trade office had no comment on where that steel trade growth is coming from or how much of that steel could be the result of transshipment.
Dan DiMicco, former CEO of Nucor Steel and Trump trade adviser, said that transshipment of steel from China, Taiwan, and other countries through Canada is "absolutely a major concern," and that it, along with dumping, is a national security issue.
Wayne Ranick, representative for the United Steelworkers union said that “we’ve raised those concerns and Prime Minister Trudeau has made it clear publicly that Canada intends to be a strong partner in addressing these issues.”
But the scale of steel transshipment through Canada may not be known.
Peter MacKay, partner with Baker McKenzie and former member of Canadian Parliament, said that there have been anecdotal rumors about steel transshipment but they haven’t been substantiated, and real numbers may not be known.
“Nobody declares the quantity of steel they’re trying to slip across the border,” he added.
But MacKay added that Canada is acting quick to reassure that its Canadian steel, not Chinese steel that’s making its way into the U.S. market.
“Canada is on a charm offensive to provide as much certainty as they can. Tariffs could have a catastrophic impact on the U.S.-Canadian supply chain, affecting the automobiles, aerospace, and construction industries,“ he added.
Imports from Canada of critical infrastructure steel—a collection of raw steel and steel pipe products listed in the Commerce Department's recent security assessment that supported import tariffs—jumped around 2005 alongside a spike in steel prices following the 2002 steel tariffs by the Bush administration and China's growing demand for steel scrap.
The tariffs were eventually rescinded in 2003, but steel prices kept increasing.
The House Committee on Small Business held hearings in 2004 about imposing export controls on scrap steel to lower the cost of steel to domestic manufacturers, but the controls were objected to by steel industry representatives, including now-Commerce Secretary Wilbur Ross.
Detroit is the largest destination for Canadian steel, representing over 58 percent of imports on an annual basis according to U.S. Census data.
Steel shipments by boat into that port increased ten-fold from 2007 to 2015 according to Panjiva data.
One shipper, Essar Steel Algoma, accounted for the vast majority of that increase and represented over 98 percent of all steel shipments from Canada into Detroit by weight in 2017.
Essar, a Canadian and Indian steel manufacturer and subsidiary of Essar Global Unlimited, shipped over 149,000 metric tons of steel to Detroit by boat in 2017, almost ten times what it sent in 2007.
Despite the recent flood of shipments, Essar’s Canadian steel production appears to be below 2002 levels, according to SEDAR, Canada’s corporate filing system, and estimates by a court-appointed monitor from Ernst & Young.
Shipping records show that Essar sent steel to numerous manufacturers in the U.S. as well as large companies like Ford Motor Co., Thyssenkrupp, and ArcellorMittal, but none of those companies publicly listed Essar as a supplier according to Blooomberg supply chain data.
Only one U.S. company, Meritor Inc.—a military automobile component manufacturer—publicly mentioned Essar as a source in their supply chains.
A representative from Essar Steel Algoma did not respond to a request for comment.
Canada is the largest source of imported steel for the U.S.—around 17 percent of U.S. iron and steel imports and 18 percent of imports of steel used for critical infrastructure according to the International Trade Administration and U.S. Census numbers.
Yet only one Canadian steel company appears as a source for American companies in Bloomberg supply chain data.
Exco Technologies supplies several U.S. companies such as Ford Motor Co., Alcoa Corp., and General Motors Co., for a 2017 estimated total of $14 million—less than 1 percent of Canadian steel imports.