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No. 24 of  2016

TUESDAY, APRIL 26  2016

Filed from Portland, Oregon

Click here for the April 12 quote on Brexit from
Professor Andrew Moravcsik of Princeton.

ALUMINUM: THE WEEK OF THE 201 CASE

"The United States primary aluminum industry is collapsing."

The United Steel Workers
April 18, 2016

CONTEXT

Aluminum took center stage in American trade policy last week. It was a dramatic week. On Monday, April 18, the United Steel Workers filed a petition for import relief with the U.S. International Trade Commission.  On Friday, April 22, the petition was withdrawn or, in the words of the USW, "suspended."  Today's quote is from the original petition.  The full paragraph with this statement reads as follows:

"The United States primary aluminum industry is collapsing.  The industry is unable to survive in a market where primary aluminum prices have plummeted far below full costs of production and imports have grown rapidly.  Domestic producers have been forced to close or idle nine of fourteen smelter facilities since 2011, with a tenth to be idled at the end of June 2016, and with two of the other remaining operating smelter facilities utilizing only 50 percent or less of their capacity."

As with any major development, there are hundreds of strands to this story, but two questions come to mind immediately.  The first is, why the quick turnaround?  How did a major petition go from "filed" to "suspended" in just one week?   The second question is the more important one, namely, is that the end of the story?   We'll deal with both.  First, however, one needs to consider the context of the filing, the problem that the United Steel Workers and their supporters were aiming to address and also the nature of an escape clause filing itself. 

Conceptually at least, escape clause actions are not about blame.  Like a no-fault divorce, they are a mechanism for addressing a problem, not for affixing blame.  That said, the issue of fault is inescapable.  It always comes up.   In the press release that the United Steel Workers put out on Monday, the day of the filing, the president of the USW, Leo Gerard, highlighted China's enormous excess capacity in aluminum as the main source of the problem. 

In somewhat muted language, he explained:

 "The world has been going through a period of significant imbalance between supply and demand in primary unwrought aluminum, principally caused by massive capacity additions in China that exceed growth in demand."

On the same day, the Ranking Member of the Senate Finance Committee, Senator Ron Wyden (D-Or), spoke to the same issue on the Senate Floor.  There was nothing muted about his comments, which included these observations:

"Over the past few decades, China has used market-distorting subsidies and industrial policies to prop up their own industries and rip off American jobs. Steel, tires, solar panels - the same story plays out over and over again. Too often, China's economy is not run by the markets -- it's run by government committee. So even though its own State Council has called out the problem of "severe excess capacities," China clings to the same old, destructive policies. And today I want to address what's happening now with China's huge overcapacity of aluminum.

"The amount of aluminum Chinese smelters are churning out has gone up by more than 1,200 percent in a decade and a half. In 2000 they produced 2.5 million metric tons. In 2015, China produced 32 million metric tons. When you create a glut of aluminum production the way China has, you send the markets into turmoil and do enormous harm to workers in the U.S."

Senator Wyden concluded saying:

"The U.S. cannot afford to sit idly by and watch China's destructive policies cause our aluminum industry to be wiped out. Enough is enough. The Steelworkers are standing up and fighting back, and I'm committed to standing with them."

***

But there was a problem - two of them really.  As mentioned, Section 201 isn't really about blame; it's about imports.   And China is not the principal supplier of aluminum imports into the United States.  Canada is, "accounting for nearly 66 percent of imports and 2.2 million tonnes in 2015, worth nearly $4 billion," according to The Globe and Mail.  Had the petition proved successful, Canadian companies would have been the ones hit hardest, and it is clear that Canada was not shy about expressing its deep concern over the threat to Canadian exports.

Then there is the company angle.  In a nutshell, though the aluminum industry has expressed concern over China's excess capacity, it did not support the United Steel Workers petition.  Alcoa may be central here, as it has plants in both Canada and the United States.  (And, while this may have been irrelevant, it also has facilities that supply bauxite to China.) 

Leo Gerard of the United Steel Workers addressed these issues on Friday, May 22, when the United Steel Workers announced they were suspending their petition.  He said:

"The petition we filed was based on the tools available. We believe the Section 201 case would have resulted in immediate price increases that would have helped to maintain domestic production and employment as well as ensuring that producers in the United States and Canada would be able to obtain a fairer price for their products. Many in the industry refused to support the case. 

"These are complex issues and many parties are placing short-term interests over the long-term viability of the sector. This opposition could have resulted in no relief for the remaining domestic industry and our members."


COMMENT
The petition the United Steel Workers filed last week on unwrought aluminum was prepared by the law firm of Stewart and Stewart.  So we sent an email to Terence Stewart, the managing partner, asking him what to make of the week's developments.  In reply, Mr. Stewart wrote:

"The USW statement is the best information available re withdrawal.  I would add only this, the global trade system is being seriously challenged by problems of global excess capacity of a magnitude never seen historically.  There are no global rules which permit a timely addressing of the problems.  The challenges that both steel and aluminum are facing at the moment are extraordinary and we risk losing large parts of each industry without action to address the global excess capacity.  This is largely a function of Chinese policies, subsidies and lack of market disciplines in China.  At the moment the world depends on China behaving responsibly.  Chinese comments at the OECD meeting in Brussels suggest that we are a long way from China owning up to its responsibility."

***

It is said of Napoleon III that while his guests ate with cutlery made of gold, his was of aluminum.  Alas, those dinner parties epitomized the emperor's frustration as much as his foresight.  He was certainly right about aluminum having enormous potential - both military and civilian.  The problem was that there wasn't any way - at least not in 1855 -- of extracting aluminum from its ores at a cost that made sense for any but the most rarefied uses.  Well, you can do it relatively cheaply now, but the capital costs are still significant.  And that raises an old question.  When a government decides to have or indeed to dominate a particular industry, regardless of costs, what should other governments do? One answer, of course, is nothing.  There is a strong logical argument for accepting such a bargain, logical but very disquieting. 
SOURCES & LINKS
Text of the United Steel Workers petition for relief from imports of unwrought aluminum, filed with the International Trade Commission on April 18, 2016, and suspended on April 22, 2016.   This was the source for today's featured quote.

The United Steel Workers Statement of April 22, 2016, announcing the suspension of the 201 petition on primary unwrought aluminum, which had been filed on April 18, 2016.

April 18 announcement by the United Steel Workers of their petition for relief from imports of unwrought aluminum under Section 201 of the Trade Act of 1974.

Canadian Industry Threatened is a report on the USW initial aluminum petition from the Toronto Globe and Mail, written by Barrie McKenna and published in April 19.
 
Canada's Sigh of Relief is a link the April 25 edition of Politico's morning trade, which includes a quote from Canada' trade minister on the USW's decision to suspend its 201 petition on unwrought aluminum.

China and Trade takes you to a page on the website of the Aluminum Association.  This includes both an analysis of problems caused by China's overcapacity and a series of recommended solutions.

Wyden Supports Aluminum 201 Petition takes you to the text of Senator Wyden's (D-OR) statement on the Senator Floor in support of the 201 petition on unwrought aluminum filed by the United Steel Workers on

 

 

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