Searching for answers to global trade questions.

You could cut the tension with a knife. More than 60 metalcasting industry leaders had gathered in Washington, D.C., April 8-9 for the AES Government Affairs Trade Forum and hearts were racing.

Since the early '80s, U.S. foundries have been losing casting orders to lowcost offshore sources such as Mexico, India and China. But within the last 10 years, the losses (particularly from Asian competitors) have begun to accelerate and mount, resulting in measurable market share and pricing erosion.

The leaders gathered in Washington in hopes of finding a solution. More to the point, the hope was to find ways to level the playing field and compete against offshore sources with built-in advantages, including lower wages, reduced environmental and worker safety regulations, and government subsidies.

This article examines the key issues raised at the Trade Forum, including:

* Antidumping and Countervailing Duty petitions;

* Section 201 trade cases;

* the overvalued dollar;

* foreign castings impact on U.S. foundries.

Winning Trade Cases

According to Paul Rosenthal, Collier Shannon Scott, P.L.L.C., who has worked with municipal casting trade cases the last 20 years, the keys to winning trade cases are understanding the law and understanding the Facts (especially the particular industry and products involved).

"This is simple to say but not always easy to implement," said Rosenthal. 'Over half the antidumping and countervailing duty cases fail at the International Trade Commission. Section 201 cases have an even lower success ratio."

So why have more than 1000 unfair trade cases been filed in the last 20 years? Because when you win, the results can include:

* elimination or reduction of import price undercutting, suppression and! or depression;

* elimination or reduction of volume losses;

* price discipline;

* greater profit.

Three trade laws exist for firms and industries looking to fight "casting dumping"--Antidumping and Countervailing Duties and the Escape Clause (Section 201).

According to Rosenthal, between 1980-2000, 833 Antidumping Duty cases were filed with 347 affirmatives (41%). Between 1980 and 1999, 271 Countervailing Duty cases were filed with 141 affirmatives (52%). These cases were filed by a variety of industries, including steel, agriculture, fabricated products, electronics, computers, chemicals and municipal castings.

Antidumping

The first measure outlined by Rosenthal was the petition for an Antidumping Duty.

The requirements for the imposition of Antidumping Duties on a foreign competitor are that the imported merchandise is being sold in the U.S. at "dumped," or less-than-normal-value prices and these dumped sales cause or threaten to cause material injury to a U.S. industry (or materially retard the Injury does not have to he "serious," only "material," meaning "not inconsequential, immaterial or unimportant." The material injury is determined by the International Trade Commission. The key factors in this determination are:

* underselling of domestic product by dumped imports;

* price suppression or depression;

* inadequate profits by domestic producers;

* significant levels of imports or import market share;

* inadequate levels of capacity utilization, employment, production and shipments.

The determination of whether dumping is occurring (and the petition is affirmed) is done by the U.S. Dept. of Commerce. Dumping will he found if U.S. prices of imports are below "normal value," defined as home market prices, third country prices or constructed value. First, the U.S price is compared to "normal value" (assumed to he a "fair value'). If the net U.S. price is less than normal value, dumping exists.

If the U.S. Dept. of Commerce publishes an affirmative preliminary determination (usually within 160 days of the filing of the Antidumping Duty), importers are required to post a cash deposit or bond on all entries of the subject merchandise equal to the weighted average dumping margin. When an antidumping duty order is issued, importers must post a cash deposit on all future entries. The bonding option is eliminated. After review, any dumping duties owed will he collected hy U.S. Customs.

When an Antidumping Duty is ordered, the normal response by the foreign producers is to eliminate dumping (if possible) rather than have importers pay additional duties.

But who may file an antidumping petition?

* a U.S. manufacturer, producer or wholesaler of a product like that of the subject import;

An Antidumping Duty petitioner can be:

* a certified or recognized union or group of workers that represents an industry engaged in manufacturing, producing or wholesaling a product in the U.S. similar to that in question;

* a trade or business association, the majority of whose members either manufacture, produce or wholesale a product in the U.S. similar to that in question;

* companies and workers representing at least 25% of domestic production with at least 50% supporting the case (new standing requirements under Uruguay Round);

Countervailing Duty

The next tool tackled by Rosenthal was the Countervailing Duty petition.

The requirements for the imposition of countervailing duties are that merchandise that is imported into the U.S. is receiving a subsidy in the country of manufacture or that production and sales of subsidized imports cause or threaten to cause material injury to a U.S. industry. The injury analysis performed in a Countervailing Duty petition is the same as in Antidumping.

The determination of foreign subsidization is done by the U.S. Dept. of Commerce. Foreign subsidization is found if a foreign country provides a sector-specific benefit for the manufacture, production or exportation of goods subsequently imported into the U.S. The source of the subsidy may he a foreign government. firm or private person. The subsidy itself may be:

* loans at low interest rates;

* provision of goods and services at preferential rates;

* coverage for operating losses;

* assumption of any manufacturing, production or distribution costs;

* any export subsidy described in Annex A to the 1979 GATT Subsidies Code, including direct cash benefits, credits against taxes, loans at low interest rates or insurance against export risks;

* certain upstream subsidies on manufacturing inputs that significantly reduce the cost of manufacturing the exported goods.

The net subsidy is the gross subsidy amount minus any fees paid to qualify for the subsidy, loss in value of the subsidy resulting from its deferred receipt, and export taxes levied on the export of the subsidized merchandise to offset the subsidy received.

If the U.S. Dept. of Commerce orders a Countervailing Duty, the importers are required to pay the same cash deposit and perform other customs actions as with an antidumping case. Although the Countervailing Duty has an annual review requirement that provides less price discipline than the Antidumping case, it has the ability to change foreign government behavior. Depending on the size of the duty, it can have beneficial volume and price effects.

Section 201

The third option outlined by Rosenthal, Section 201 of the Fair Trade Act of 1974, provides for temporary relief from seriously injurious imports. Called the "Escape Clause" or "Safeguard Action," Section 201 doesn't require a finding of unfair trade, but instead has higher standards to prove injury and causation from the dumping of imports.

The three requirements to prove for a Section 201 petition are: increased levels of imports over time, substantial cause and serious injury to the domestic industry. If a Section 201 petition is filed, it is brought before the International Trade Commission for a six-month investigation. If the Commission determines serious injury exists, it then proposes a remedy to be sent to the President for review. The President then has 60 days to decide.

The President virtually has total discretion in regard to what actions will be taken (if any) and can ignore the Commission's recommendations. The President will consider the effect an action would have on producers, consumers and foreign policy. The possible remedies that can be generated from a Section 201 petition include increased duties, quotas, grants, loans and alterations in government programs. Any relief that will be instituted is available for four years, and then will undergo a review.

A recent example of a Section 201 case was won by the flat-rolled and slab steel industry. As a result of the affirmative decision to that industry's petition, the President provided this industry with a three-year relief through a 30% tariff on imported finished flat-rolled products and a quota on slab imports (with NAFTA and some developing countries excluded). But this industry also must make internal adjustments to itself such as investment in capital equipment and improvements in capital structure to reduce costs to comply with the Section 201.

Trade Law Success

Why are some cases successful?

According to Rosenthal, "The first decision can be the most critical--was the choice of remedy (Antidumping, Countervailing, etc.) correct?" Each remedy has specific provisions that must be demonstrated, so it is critical to choose the remedy that best fits the problems facing your situation.

Next. "it is critical to be sure that the focus for the trade case is not too broad or too narrow a focus for industry/product definitions," said Rosenthal. The petitioner must be able to determine that injury has been caused to the group petitioning. Also, the petitioner must be able to define the industry being affected and illustrate the like products being affected. This grouping is key to the injury determination.

Last, the petitioner must perform adequate research on the foreign government and product behavior to prove dumping or subsidization. The proper data must be calculated and supplied.

According to Rosenthal, an industry's success in trade cases is defined by five keys:

* industry commitment;

* sufficient data;

* informed and dedicated personnel working on the case;

* sufficient facts that support the case;

* proper timing.

For a free copy of this article circle No. 341 on the Reader Action Card.

For More In formation

Visit www.nam.org for more information on the "overvalued dollar."

For assistance with trade cases, contact the Trade Remedy Compliance staff with the U.S. Dept. of Commerce at 202/482-3415.

RELATED ARTICLE: Foreign Casting Import Trends

Significant importing of foreign castings into the U.S. began in '82 and accelerated in '83 as the practice was supported by direct participation by U.S. firms in foreign nations. A big surge in Asian imports occurred in the late '90s as currency exchanges weakened against the U.S. dollar. In 2002, it is projected that $3.2 billion in castings will be imported into the U.S.

Following is a look at some of the key statistics and trends concerning the importing of foreign castings into the U.S. This data was presented at the AES Trade Forum by Michael Lessiter, Editor/Publisher, and is courtesy of Stratecasts, Inc., Fort Myers, Florida, and the 35th MODERN GASTING Census of World Casting Production.

Low-Labor Rate Nations' Casting Production in 200 (metric tons) and % increase from 1999

* China: 13.9 million (10%)

* Brazil: 1.8 million (15%)

* India: 3.1 million (-4%)

* Mexico: 1.7 million (19%)

Most Significant Ferrous Casting Imports in 2000 (by tons with % of total demand)

Gray Iron--Passenger Car/Light Truck: 244,000 (19%); Internal Combustion Engine: 185,000 (30%); Municipal Castings: 157,000 (25%); valves/Fittings: 116,000 (35%).

Ductile Iron--Passenger Car/Light Truck: 131,000 (13%); Valves/Fittings:85,000 (35%); Medium to Heavy Truck: 22,000 (11%); Construction Equipment: 19,000 (10%).

* Steel-Railroad: 60,000 (12%); Construction/Mining: 35,000 (11%); Valves/Fittings: 23,000 (30%).

Most Significant Nonferrous Casting Imports (by tons with % of total demand)

Aluminum Die Castings--Passenger Car/Light Truck: 153,000 (21%); Internal Combustion Engine: 11,000 (15%); Refrigeration/Air Conditioning: 9000 (20%).

Aluminum Permanent Mold/Sand Castings--Passenger Car/Light Truck: 120,000 (22%); Aircraft: 6000 (9%).

Copper-Base--Value/Fittings: 22,000 (20%).

Changes in Imports in 2002

The following markets are expected to see the greatest increase in imports in 2002:

* Valves/fittings (all metals);

* Sanitary and radiator (gray iron);

* Farm equipment (gray and ductile iron);

* Machine tool (gray iron);

* Electric motors/generators (gray iron);

* Passenger car/light truck (aluminum).

Imports are expected to gain ground in 43% of the markets. MC

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Voices from Washington on Global Trade

"The main reason for U.S. manufacturing's inability to compete on a global scale is the overvaluation of the dollar. If manufacturing doesn't get any relief from the overvalued dollar and affect the exchange rate differential with the world market, then work will continue to go to China and other low-cost offshore nations."

Jerry Jasinowski, president, National Assn. of Manufacturers

"A Section 201 trade case like that the steel industry recently won is not a remedy that will allow the foundry industry to ride off into the sunset. If you win a Section 201 case, which is an enormous task itself (less than 50% of these cases receive affirmative votes and they require at least 9 months for just the International Trade Commission and Presidential hearings), it takes due diligence by your industry from year to year to support the provisions of the ruling. The municipal casting industry has been persistent in its fight and has seen 15 years of success keeping imports down."

Paul Rosenthal, attorney, Collier Shannon Scott, PLLC, who was involved with municipal casting trade cases the last 20 years.

"The litmus test of the steel industry's Section 201 victory will be how the situation looks in three years. Have we struck the right balance? We have an obligation to make the market work. Although a large percentage of the steel industry is bankrupt and hundreds of thousands of jobs are being lost, this isn't our concern. We must determine if the market is working. Are unfair imports causing these bankruptcies and taking jobs away from our guys? This is our focus."

Faryar Shirzad, assistant secretary for import administration, U.S. Dept. of Commerce

"Unlike the '80s, there is not a lot of attention being paid to the $500 billion trade deficit on capitol Hill. The strong, dynamic economy has deflated the issue. It only will become important when industries make it a political concern... Although the steel relief via the Section 201 case was positive and needed, it was approved for political reasons--to gain votes."

Linda Conlin, assistant secretary for trade development, U.S. Dept. of Commerce

AFS Forms Commission on Trade

At the end of the Trade Forum, AFS President Donald Huizenga, Kurdziel Industries, Inc., announced that AES has formed a Blue Ribbon Commission to help formulate a plan for AES on how to tackle the trade issue. Parties interested in supporting this cause should contact the leader of the Commission, Charles Kurtti, Neenah Foundry Co., at 920/725-7000.

Examining the 'Overvalued' Dollar

"Many of our members, particularly smaller companies, are literally being driven out of European markets because no matter how efficient they are, they can't overcome what is, in effect, an added 30% tax on their products (due to the overvalued dollar)," said Jerry Jasinowski, president of the National Assn. of Manufacturers (NAM). "Some are even starting to lose market share here at home from artificially cheap imports."

In his discussion at the APS Trade Forum, Jasinowski focused on the efforts of NAM to alert the Bush administration to the problems being caused by a U.S. dollar whose value has risen nearly 30% against other major worldwide currencies since 1997. The dollar has reached a 16-year high and is at the point at which it is pricing many U.S. goods out of world markets (as evidenced by the most recent $115 billion plunge in manufactured goods exports from their most recent peak). In addition, and more importantly, the overvaluation is making it tougher for U.S. manufacturing to compete against foreign imports at home, said Jasinowski.

Beyond trade issues, according to NAM, the overvalued dollar also continues to keep manufacturing from aggressively rebounding from the recession that saw domestic manufacturing lose 90,000 jobs/month for 18 straight months from mid 2000 through early 2002.

The value of the dollar is approaching its 1982-85 levels when it rose 40% against other major currencies because of speculative inflows. At that time, the Reagan administration established a precedent by negotiating the "Plaza Accord" with Japan and Europe, which stated that the currencies were out of line and that concerted action would be taken to restore market order.

NAM has been lobbying the Bush Administration to "rationalize" the dollar's value. The association has met with Treasury Secretary Paul O'Neill and sent a joint letter with the Farm Bureau to President Bush asking that he make resolution of the problem one of his major economic priorities.

"Frankly, we'd he happy if the White House would simply stop creating the impression that there's no such thing as an overvalued dollar," Jasinowski said. "Given the nature of global currency markets, even subtle signs from government officials can have a significant impact. If we don't slowly and gently deflate the speculative bubble that the dollar has become, we risk a sudden dive that doesn't help anyone."

NAM, along with a core group of other associations, has developed a broad "Dollar Coalition" aimed at addressing the overvalued dollar.

"We've decided the time has come to take our initial teamwork approach to a higher level and develop a broad and coordinated approach," said Jasinowski. "Our aim is to help trade associations encourage member companies and their employees to develop a grassroots campaign on the problem."

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