China Opposes U.S. Duties on Steel Pipes Used in Oil Industry

By Mark Drajem

Sept. 10 (Bloomberg) -- China “strongly opposes” a ruling by the U.S. Commerce Department to impose duties of as much as 31 percent on steel pipes, a Chinese government spokesman said.

“The Ministry of Commerce is very concerned about the ruling and strongly opposes it,” said a spokesman from the Chinese ministry, who declined to be named. He said an official statement will be released later, without elaborating.

The average duties on $2.8 billion in annual imports of the pipe, used in oil and gas wells, will be 21.3 percent, the Commerce Department said in an e-mailed statement yesterday announcing the preliminary decision. The ruling agreed with American producers led by U.S. Steel Corp. that the imports were supported by unfair subsidies.

The tariffs may help U.S. Steel and other domestic producers weather a drop in pipe demand following last year’s collapse in oil prices. It also may be a precursor for a number of trade complaints against China. President Barack Obama must decide a separate case on imported Chinese tires by Sept. 17.

“These are the dynamic duo of trade complaints,” said Joanne Thornton, a senior vice president at Concept Capital, an investors research group focused on Washington policy. “They take on a symbolic significance at a time when countries are concerned about trade restraints” amid the global recession, she said in an interview.

The pipe case, the largest so-called countervailing duty complaint filed against Chinese-made products, was brought by the United Steelworkers union; U.S. Steel, the largest U.S.- based steelmaker; U.S. operations of Evraz Group SA, Russia’s second-largest mill; and Pennsylvania-based Wheatland Tube Co.

Depositing Duties

After the ruling is published in the Federal Register, importers of the product -- known as oil country tubular goods -- will have to deposit duties of the assigned amount, pending a final ruling later this year by the Commerce Department and a separate decision by the U.S. International Trade Commission.

Chinese officials have spent the past months trying to head off tariffs for the steel pipes and the separate case brought by the United Steelworkers union against Chinese auto tires.

“If there is really such a decision, China’s Commerce Ministry will have a formal response,” Wang Baodong, a spokesman for the embassy in Washington, said in a telephone interview. “On these anti-dumping charges, the Chinese government has been very clear.”

‘Damage Done’

“This finding once again confirms what we have known for many years -- the Chinese steel industry benefits from substantial subsidies,” Dan DiMicco, the chief executive officer of Nucor Corp., the second largest U.S. steelmaker, said in an e-mail. “Unfortunately the damage has already been done and inventories are still at near record levels,” he said.

U.S. Steel spokeswoman Erin DiPietro declined to comment. U.S. Steel rose 2.4 percent to $44.30 in New York Stock Exchange composite trading and has gained 19 percent this year.

In the steel-pipe case, U.S. manufacturers saw their gross profits almost triple to $2.42 billion in 2008 from the previous year, according to the International Trade Commission. Record oil prices drove demand for the product. While imports from China surged, U.S. production and employment increased too.

“The fact that China is subsidizing is very clear,” Michelle Applebaum, who runs a research firm in Highland Park, Illinois, that advises investors on the steel industry, said in an interview. Chinese pipe imports came in “like locust” last year, and a duty of as much as 31 percent could block most or all new imports, she added.

‘Dumping’ Stopped

After the ITC issued a preliminary ruling May 22 in support of tariffs, imports from China ground to a halt as companies anticipated additional duties, Mark Parr, an analyst at Keybanc Capital Markets in Cleveland, said in an interview. Many Chinese companies “were forced to stop supplying this market,” he said. “All of the dumping that has gone on has really stopped now.”

China has already filed a complaint to the World Trade Organization arguing that the U.S. punishes China twice for the same subsidies. The U.S. categorizes China as a subsidized economy, allowing higher anti-dumping duties, and then imposes tariffs for the alleged subsidies too, according to its WTO complaint.

Obama has sent a number of messages about trade with China. When campaigning for president in Pennsylvania on April 14, 2008, he told union members that he supported “going after China.”

As president, Obama joined other leaders at a meeting of the Group of Eight in Italy in July to pledge to refrain from “taking decisions to increase tariffs above today’s levels.”

In June he warned, in an interview with the New York Times, about “sending any protectionist signals out there.”

The Commerce Department said in its decision that steel pipe from Jiangsu Changbao Steel Tube Co. would face duties of 24 percent; Tianjin Pipe Group Corp., 11 percent; Wuxi Seamless Pipe Co., 25 percent; and Zhejiang Jianli Enterprise Co., 31 percent. All other producers must pay the trade-weighted average of those figures, or 21 percent.

To contact the reporter on this story: Mark Drajem in Washington at mdrajem@bloomberg.net.