On April 26, 2016, United States Steel Corporation (U.S. Steel) filed a complaint under Section 337 of the Tariff Act with the U.S. International Trade Commission (ITC) on certain carbon and alloy steel products. The proceeding is likely to be high profile and politically charged, especially given the current state of the U.S. steel industry and the upcoming presidential elections. The complaint targets a wide range of steel mills and exporters in China. Although U.S. Steel (along with other major U.S. steel producers) have frequently filed antidumping (AD) and countervailing duty (CVD) petitions on a wide variety of steel products, this new complaint appears to be a significant and novel use of the U.S. unfair trade laws.
Section 337 is a separate trade remedy procedure that addresses “unfair methods of competition” other than dumping or subsidies. Generally, Section 337 is used as a tool to exclude imports (i.e., exclude entirely, not just impose special tariffs) on U.S. imports that violate a valid U.S. patent. However, the statute is written broadly, and on rare occasions it has been used for other types of “unfair” methods of competition. U.S. Steel does not allege any patent violations, but does allege several other violations of U.S. law, which it claims entitle it to a remedy under Section 337.
In the complaint, U.S. Steel alleges three categories of violations: (1) antitrust violations (i.e., a conspiracy to fix prices); (2) theft of trade secrets; and (3) falsification of documents regarding country of origin of imported steel that should have been declared as Chinese-origin and subject to ongoing AD/CVD investigations of hot-rolled, cold-rolled, and corrosion-resistant carbon and alloy steel from China, and existing AD/CVD orders on various pipe and tube products from China.
The price fixing allegations argue that the Chinese companies conspire to control raw material inputs, production output, export volumes, and prices. These actions would be a violation of U.S. antitrust law (Section 1 of the Sherman Act). U.S. Steel alleges that through a cartel, the China Iron and Steel Association (CISA), the Chinese producers agree to set prices at levels that undercut their competitors in the United States. When prices are too low, the Chinese producers, through CISA, jointly restrict production and thus support the price. The Chinese respondents allegedly share cost data, production schedules, production volumes, export volumes, and pricing information.
U.S. Steel also alleges misappropriation of U.S. Steel’s trade secrets. According to the complaint, throughout 2010, the Government of China subjected U.S. Steel to cyber-attacks to aid China’s state-owned steel enterprises. A U.S. grand jury later indicted some Chinese government hackers for these attacks. U.S. Steel alleges additional cyber-attacks in 2011. According to U.S. Steel, the cyber attackers stole U.S. Steel trade secrets for manufacturing Advanced High-Strength Steel (AHSS), including: (1) the particular chemistry for the steel and its coating; (2) the critical temperatures for heating, cooling and coating the steel; (3) hold times for each temperature; and (4) capabilities and layout of the intended production line, which affects the timing for heating and cooling and how well the steel maintains a steady temperature. U.S. Steel alleges that the Government of China stole U.S. Steel’s trade secrets for the benefit of the Chinese steel industry. U.S. Steel believes that the Government of China disseminated U.S. Steel’s trade secrets to the Chinese respondent steel groups. U.S. Steel alleges also that Baosteel specifically used U.S. Steel’s trade secrets to manufacture steel in China and export that product to the United States, in violation of Section 337.
Finally, U.S. Steel alleges that Chinese producers and distributors have falsely labeled and transshipped significant volumes of steel to the United States that disguise the country of origin of Chinese steel, in order to avoid AD/CVD duty orders. U.S. Steel points to particular Chinese companies that it alleges have been transshipping steel made by specifically named Chinese producers.
U.S. Steel’s allegations cover an extremely broad range of steel products. The antitrust allegations cite Chinese imports of numerous categories of flat-rolled carbon steel, flat-rolled stainless steel, flat-rolled alloy steel, and pipe and tube products. The trade secret theft allegations in the complaint appear to cover categories of flat-rolled steel imports from China that cover AHSS. The false labeling/transshipment allegations cover a wide range of hot-rolled, cold-rolled, and corrosion-resistant carbon and alloy flat steel products, and oil country tubular goods from China. However, the complaint leaves open the possibility to broaden the scope of any exclusion order remedy ordered by the ITC.
Procedure and Remedy
Under the Section 337 procedure, the ITC has 30 days to determine whether to initiate an investigation. If the ITC initiates an investigation, the case goes to an administrative law judge (ALJ) who conducts a procedure similar to a U.S. court trial. Like U.S. Federal court litigation, the parties engage in document discovery, depositions, etc. The ITC can (and does) issue subpoenas to require information, even from entities other than the named respondents. After the end of the trial, the ALJ issues a formal written opinion, with findings of fact and conclusions of law. The full ITC then has an opportunity to review the ALJ’s findings, and accept, reject, or modify those findings.
If the ITC makes an affirmative determination, the remedy is not a tariff, but instead, the ITC can issue an “exclusion order” to U.S. Customs and Border Protection (CBP) to exclude the imported products at issue from entry into the United States entirely, and to seize imported merchandise. Unlike AD/CVD cases, Section 337 cases are directed at particular named companies, not all imports from a particular country. Sometimes, the ITC can issue a “general exclusion order,” which can bar imports even from companies that are not named in the complaint and that did not participate in the investigation. The ITC can also issue a “cease and desist” order, which would order a respondent to stop the unfair act, such as antitrust conspiracy, cyber theft of U.S. Steel’s trade secrets, or transshipment schemes. However, unlike a U.S. Federal court, the ITC cannot award money damages. Nevertheless, U.S. Steel could file a separate lawsuit in a U.S. Federal district court for money damages on essentially the same claims.
U.S. law generally requires Section 337 investigations to be completed within 15 months. If the ITC issues an exclusion order (or a cease and desist order), the order is sent to the president, who may disapprove the order within 60 days after issuance. The president can disapprove for policy reasons, and has wide discretion. The president disapproves of Section 337 orders only very rarely, however. During the 60-day presidential review period, the importer may continue to import, but only if it posts a bond with CBP in an amount determined by the ITC. At the end of the 60-day period, imports entered in violation of Section 337 cannot be imported, and can be seized by CBP. For imports entered during the 60-day period under bond, the bond may be forfeited if the exclusion order stands.
Members of the public or government agencies may ask the ITC’s ALJ to take evidence on whether an exclusion order (or cease and desist order) would be in the “public interest.” However, comments on whether the ITC should collect “public interest” evidence are due within eight days after the ITC publishes a notice that it received the complaint.
The complaint signals that the U.S. steel industry is indeed grasping for almost every trade remedy available to shut out imports of steel from China.