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Nail Maker News Issue No. 18

Updated: Feb 24, 2022

In this issue:

  • As imports of nails rise, Biden Administration lifts tariffs for the EU.

  • On the other hand, the Administration is fighting vigorously in federal court to sustain Trump-era tariffs on nails.

  • Plaintiffs in a case involving Turkish steel imports appeal to the Supreme Court. The outcome could affect Section 232’s application to nails.

  • U.S. agrees to consider requests by Japan and the U.K. to lift or modify tariffs on steel – and probably derivatives as well.

  • Full-page ad in New York Times asks North American leaders to build a bulwark against China by strengthening the continent’s steel and nails supply chains.

  • An op-ed warns against extending the EU deal on steel and nails to other countries.

Threat of Circumvention Heightens as Biden Lifts Tariffs on Nails for EU It seems like a contradiction. On the one hand, the Biden Administration reached an agreement with the European Union on Oct. 30 to end Section 232 tariffs on steel derivative products, including nails. On the other hand, the Administration is vigorously fighting in court to sustain 232 derivative tariffs elsewhere in the world The U.S. imports about four-fifths of the nails it uses, with China by far the largest source. EU countries are small players currently, with about 5% of U.S. imports, but they could become more significant, if foreign nails producers invest in manufacturing facilities in the EU. An even bigger worry is that President Biden will enter into Section 232 deals with other countries that are similar to the one with the EU, lifting duties on derivatives entirely. Imports of nails rose 44.7% in October compared with the same month a year ago. We recently quoted Cliff Mentrup, CEO of KYOCERA SENCO Industrial Tools, Inc., a Cincinnati-based global manufacturer of nails, other fasteners, compressors and tools, founded in 1948, as saying, “Foreign companies are circumventing Section 232 [the authority for tariff imposition]. They are using steel produced abroad to make their nails and selling them in the U.S. in an unfair work-around.” He added, “Steel derivative products like nails and staples also must be covered or, as we have seen, imports will devastate those markets.

But Biden Justice Dept. Fights in Court to Sustain Nails Tariffs on Other Countries Derivative tariffs were enacted in January 2020 through Proclamation 9980, a presidential order that extended Donald Trump’s March 2018 order, under Section 232 of the Trade Expansion Act of 1962, that applied 25% tariffs on aluminum and steel from nearly all the countries in the world. President Trump issued the original 2018 order because, he said, steel and aluminum were “being imported into the United States in such quantities and under such circumstances as to threaten to impair the national security of the United States.” The 2020 order became necessary after it was evident that foreign makers of nails and other steel derivatives were circumventing the 2018 order by using their own steel or steel imported from elsewhere (including China) to make nails at home and then bringing that foreign steel – in finished form– into the United States without Section 232 duties.

Lawsuits by foreign nail makers and domestic suppliers quickly followed the derivatives order. A decision by the U.S. Court of International Trade (CIT) favored the plaintiffs, and the U.S. Government appealed.

The Transpacific Case Is Appealed to Supreme Court A July decision by the Federal Circuit Court of Appeals in another Section 232 case, Transpacific Steel v. United States, provided a strong indication that the government would prevail in the derivatives case as well. Transpacific also involved an extension of the 2018 order – increasing tariffs from 25% to 50% on Turkish steel. The CIT in Transpacific had also ruled in favor of the plaintiffs, but a three-judge appeals panel disagreed, and the plaintiffs asked for a full court rehearing. Their request was denied in September. The CIT then reversed its previous ruling and ordered that the plaintiffs to return all the money refunded to them On Nov. 12, the plaintiffs – Transpacific Steel, Borusan Mannesmann and the Jordan International Company – filed a petition asking the U.S. Supreme Court to take their case. According to Trade Law Daily, “If the Supreme Court takes up the Transpacific case, it could affect other cases challenging the extent of the president's authority to issue tariff action.” Those other cases, of course, involve steel derivatives. But the question is the same: Can the government extend previously issued tariffs without starting the entire process of investigation and notification required by Section 232 all over again? Meanwhile, the Oman Fasteners and PrimeSource Building Products cases involving the nails tariff extension have been consolidated and are being heard by the same U.S. Court of Appeals that decided the Transpacific case. That court has asked for the government to file its brief by Jan. 3. An amicus brief by the American Steel Nail Coalition, whose members include KYOCERA SENCO, is scheduled to be filed Jan. 10

Talks With Japan and the U.K. Could Lift Section 232 for Nails The Biden Administration, as you can see, has not hesitated to back the enforcement of the Section 232 derivatives tariffs issued under President Trump. But it did rescind those tariffs as part of its Section 232 deal with the EU that substituted tariff rate quotas for 25% tariffs on basic steel. In addition, the Administration is talking with the U.K., which is no longer part of the EU, and Japan, which seek a similar deal to the EU’s on steel – and almost certainly on derivatives as well On a trip to Tokyo last month, for example, the U.S. Secretary of Commerce, Gina Raimondo announced the launch of a new U.S.-Japan Commercial and Industrial Partnership and, according to U.S. Trade Online, “pledged to prioritize the country’s concerns about Section 232 steel and aluminum tariffs. As of Dec. 13, according to Bloomberg, an offer has been made to Japan, modeled after the October US-EU agreement on steel and aluminum tariffs. However, derivatives were not addressed and it is unclear whether accord can be reached by the end of the year.

North America as a Bulwark Against China for Steel and Derivatives Matters of steel and nails are inextricably tied to the broader question of global excess steel capacity caused by China’s unfair economic practices, which, in turn, is connected to the issue of North America as a trading bloc whose integrated supply chains are a counterweight. On Nov. 18, the three North American leaders met in Washington, and Deacero, the parent company of Mid Continent Steel & Wire, the largest U.S. nail manufacturer, placed a full-page advertisement in the New York Times advocating the substitution of “neighboring and competitive supply chains for long and fragile ones” as a way “to face the challenges of China and other countries.”

The ad was in the form of an open letter addressed to Presidents Biden and Lopez Obrador and Prime Minister Trudeau, the participants in the North American Leaders’ Summit (NALS), which was launched in 2005 but halted after Donald Trump was elected in 2016. The ad also stated A high priority of NALS should be to safeguard key industries. For example, Section 232 tariffs and other mechanisms to avoid circumvention on steel and derivatives should remain in effect until the North American manufacturers have recovered sufficient production and employment levels -- in other words, until there is a real solution to global steel excess capacity caused by China and other countries The ad was signed by Raul Gutierrez, the chairman of Deacero, whose U.S.-based operations consist of about 800 employees, mainly in Poplar Bluff, Mo., home of Mid Continent, and Houston. Earlier in November, Deacero opened a global trade and corporate affairs office in Washington, the first of its kind by a Mexican company. The ad noted: We have an extensive North American supply chain. We buy and recycle scrap metal in the U.S. and process it in our mills in Mexico to produce steel that is shipped back to our U.S. facilities to make nails and other wire products.

Op-Ed Warns That EU Deal Must Not Be Extended Now to Other Countries In an opinion piece on the popular website RealClear Politics, also appearing on the day of the Summit, Gutierrez pointed out that the Three Amigos, as the leaders are nicknamed, “will address the COVID-19 pandemic, climate change, immigration, and equitable growth in our region.” It is China, however, that “looms over all these issues.” An “essential step to building back better” North American supply chains, Gutierrez wrote, is to strengthen key industries against the Chinese threat. He urged the three leaders to keep current Section 232 tariffs on steel as well as on derivatives such as nails for the immediate future. Gutierrez also warned that “the recent agreement with the European Union, substituting tariff rate quotas for the tariffs of Section 232, must not be extended to any other countries until there is a real solution to the problem of global steel excess capacity caused by China and other countries. And derivative products, such as nails, must receive the same national security protection under 232 as basic steel products.” The U.S. is the largest importer of steel nails in the world.

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