To Ease Cost Burden on US Firms
The Donald Trump administration has determined that a retaliatory tariff should not be imposed on a South Korean product for the simple reason that it is made of South Korean steel. This decision seems to take into account the cost burden U.S. producers of finished goods that use Korean manufactured materials. Although the possibility of excessive tariffs slapped on various South Korean products has been reduced, experts point out it is still too early to feel relieved.
The U.S. Department of Commerce recently reached the conclusion after an investigation into bearings imported from South Korea. American companies have claimed that the prices of South Korean bearings are distorted as they are made of South Korean steel, which is subsidized by the Korean government. Yet the department dismissed this claim.
The department's conclusion was contrary to its earlier decision to impose a retaliatory tariff on a product based on steel from South Korea. Early this month, it imposed a tariff of 31% on Hyundai Steel’s standard pipes based on the Particular Market Situation (PMS) provision. The department says POSCO’s hot-rolled steel plates, which are widely used as an intermediate product for steel pipes, are subsidized by the South Korean government. It also says cheap steel from China has distorted the South Korean steel market.
According to the department, South Korean steel does have a problem but material composition should be looked into before tariff imposition, and the intermediate product is a material taking up more than 80% of the standard pipes whereas no such proportion has been clarified in the case of the bearings. It also mentioned that the relationship between the steel and bearing prices is yet to be clarified.
Those in the industry say that the department’s recent determination has a strategic intent. According to them, a precedent that South Korean steel always entails a retaliatory tariff is burdensome even for the Donald Trump administration and may lead to a large number of lawsuits, and then damage may be done to American companies supplying finished products based on materials from South Korea. U.S. steel nail manufacturer Mid Continent Steel and Wire is currently downsizing itself in the wake of a rapid rise in steel price triggered by an import tariff.
What matters now is how the department will define the relationship between the steel and bearing prices, which can be an arbitrary definition. “PMS is a political determination that has no legal grounds at all,” said a trade expert, adding, “Therefore, the matter needs to be brought to not the U.S. Court of International Trade but an international body such as the WTO.”