US tariff exemptions overlook Chinese transshipments

US exemptions of a majority of steel imports from a new 25pc tariff turn a blind eye to steel originating in China that is transshipped through South Korea and other countries, according to industry executives.

The countries so far permanently or temporarily excluded from the tariff – Canada, Mexico, Australia, South Korea, Argentina, Brazil and the 28-member EU – supplied 65pc of US steel imports from 2015-17, according to Commerce Department data.

South Korea is the third largest supplier of foreign steel to the US, accounting for 11pc of US steel imports in the prior three years.

South Korea, as China's largest steel export market, is also widely viewed by US producers as a transshipment point for China to circumvent significant duties already in place on Chinese exports to the US. Imports from China accounted for only 2pc of total US imports last year.

"It is clear to see the direct connection between China's steel exports to [South] Korea and Korea's pipe and tube exports to the US," Tony Frabotta, vice president of US pipemaker Zekelman, said at a congressional hearing on 21 March that focused on the tariffs.

South Korea and other countries such as Vietnam "import vast quantities of dumped and subsidized steel from China to make further processed steel products that are then shipped to the United States," Mark Millett, chief executive of Steel Dynamics, a top US steel producer, said at the hearing.

China's direct shipments of steel to the US have fallen sharply in response to import duties imposed in recent years. China in 2017 shipped 740,126t to the US, a 74pc drop from a peak of 2.9mn t in 2014. It fell to 11th largest US supplier last year from sixth place in 2014.

Yet China's total steel exports in 2016 totaled 106.6mn t, more than the US produces in a year.

China's crude steel output was 831.7mn t in 2017, 49.2pc of total global production, according to the World Steel Association. US steel output last year was 81.6mn t.

South Korea agreed this week to a US steel import quota equal to 70pc of its average import volume over the last three years – an estimated 2.6mn t – in return for its exemption from the tariff. The Korean quotas will be product-specific rather than based on aggregate volumes.

The agreement amended a controversial free-trade accord between the two allies and included doubling the annual quota of US car exports to South Korea.

US President Donald Trump's trade advisor Peter Navarro called the bilateral agreement "absolutely a home run" even as no specific limits on South Korean imports of Chinese steel were included in the pact.

The 33 other countries, besides South Korea, were granted temporary exemptions until 1 May to allow the administration to negotiate permanent exclusions in return for more favorable trade terms.

Trump pegged exemptions for Canada and Mexico to the renegotiation of the North American Free Trade Agreement (Nafta).

Canada, the largest foreign supplier of steel to the US, accounted for 16pc of imports in the prior three years. Canada has also announced its own crackdown on transshipment of steel.

Mexico represented 8pc as one of the five largest suppliers.

Brazil is the second largest supplier of steel to the US and primarily exports semi-finished products that are further processed by domestic mills.

EU countries combined to ship 15pc of US import over the prior three years, the second largest volume behind Canada.

Australia and Argentina ship relatively small volumes to the US, representing a combined 1pc of US imports in the prior three years.

The major foreign suppliers not granted exemptions – Russia, Japan and Turkey – accounted for 20pc of US imports over the same period.