Mexico and U.S. Collaborate on New Technology to Identify Steel
With Chinese and Other Foreign Content The U.S. and Mexico are enhancing their collaboration to thwart the illegal transshipment of steel. In an enhanced effort to increase the transparency of North American steel supply chains, advanced technology will be able to detect and report the country of origin of metal products being shipped across the border from Mexico so proper tariffs can be assessed. As we reported in our last newsletter, President Andres Lopez Obrador on Aug. 15 imposed 25% tariffs on steel imported from countries such as China with which Mexico does not have a free trade agreement. Those tariffs match the duties imposed by the United States in 2018 under Section 232 of the Trade Expansion Act of 1962. The intent of the new tariffs is to deter China and others from shipping excess steel without tariffs to Mexico, making minor upgrades, and then sending it across the border, tariff-free, to the U.S., benefiting from the zero tariffs among USMCA countries. The transshipment of steel products from China and other countries through Mexico to the U.S. has been a major concern of the Biden Administration in its campaign against global overproduction of steel, and the new Mexican tariff measure strikes a blow against this activity which harms the U.S. and Mexican steel industries. In response to the Mexican action, a spokesperson for the U.S. Trade Representative stated, “The United States welcomes Mexico’s efforts to address global non-market excess capacity in the steel sector.” Representatives of the U.S. Customs and Border Patrol (CPB) met earlier this month in Washington with officials from the Mexican Embassy and Deacero, a major clean Mexican steelmaker, to discuss the culmination of a test project on the new interoperable system which, among other functions, can identify the foreign origin components of steel products imported from Mexico to the U.S. In a press release on Sept. 12, Vincent Annunziato, the CPB’s director of the Division of Business Transformation and Innovation, announced the completion of the first interoperability test and stated: Global interoperability standards will help unify the approach to transparent supply chains within both the public and private sectors, streamlining communication and improving both security and facilitation. The standards are part of a broader CBP modernization strategy under its Silicon Valley Innovation Program, with cohort members mesur.io, Neoflow, and Transmute. Karyl Fowler, CEO of Austin-based Transmute, said in a press release that the test project was “a culmination of nearly four years of work alongside U.S. CBP and reaffirms the immense impact verifiable data technologies have in modernizing and securing international trade transactions from product origins to the end consumer.” An article in Identity Week stated: The open standards technology used in the demonstration presented an efficient solution to issue, manage, and present critical trade documents rather than depending on physical documents that could be easily tampered with, having a ripple effect down the operation chain. Question: Can Mexico Respond to a U.S. Surge in Steel? A reader asks, “I have heard a lot of threats from U.S. steelmakers lately, and I am wondering if the May 17, 2019, agreement that ended Section 232 tariffs for USMCA countries allows only the U.S. to respond to a Mexican surge by reimposing 25% duties. But isn’t it reciprocal? Can Mexico respond to a U.S. surge?” Yes, Mexico can. In fact, Mexico can act right now, proactively – and with good reason. Yes, Mexico can. The agreement states clearly that either side may respond to a surge by the other side by reverting to previous tariffs. Here is the relevant passage: In the event that imports of aluminum or steel products surge meaningfully beyond historic volumes of trade over a period of time, with consideration of market share, the importing country may request consultations with the exporting country. After such consultations, the importing party may impose duties of 25 percent for steel and 10 percent for aluminum in respect to the individual product(s) where the surge took place. Note that the terms are “importing country” and “exporting country,” not “United States” and Mexico.” Thus, the two countries have equal rights under the agreement. Further evidence comes later in the section, where the agreement states that in assessing whether a surge has occurred, “the United States will consider that new investment in the United States may require an additional 225,000 metric tons of billet from Mexico; Mexico will consider that new investment in Mexico may require an additional 200,000 metric tons of cold-rolled steel from the United States.” If Mexico could not impose tariffs following a U.S. surge, there would be no need to include the clause about new investment in Mexico requiring extra cold-rolled steel from the United States. How can Mexico act first? The agreement lists 52 different individual categories of steel products, and it makes clear that a surge in any one of them is actionable. Mexico can make the case that in several categories, there is a surge in U.S. exports. Mexico could easily take the offensive. Does Mexico have reason to respond to a U.S. surge? Our guess is that Mexico is taking a close look at U.S. exports of individual steel products. But our expectation is that, even if it does have a valid claim, Mexico would prefer to continue to maintain a productive relationship with the U.S. and not disrupt it with what would become tit-for-tat claims, harming a burgeoning North American supply chain that is supplanting dependence on China. There appears to be considerable risk for U.S. steelmakers in igniting a trade conflagration with their Mexican counterparts. As the Department of Commerce’s International Trade Administration reported in its Global Steel Trade Monitor: “Mexico was the largest market for U.S. steel exports with 45 percent (3.2 mmt), followed by Canada at 44 percent (3.1 mmt). Canada and Mexico have ranked first and second as the top destinations for U.S. steel exports for more than a decade.” Advice to Doubters of Mexico’s Rights: Read the 2019 Agreement We can also pass along this advice: Before calling for extreme actions, read the May 2019 agreement, linked here again. It states that consultations and duties must result from a meaningful surge, but it never defines “surge,” much less “meaningful.” The agreement also refers to “historic volumes of trade,” but it does not define “historic” or state a base year. Recently, an op-ed by the head of an organization called the Coalition for a Prosperous America made over-the-top claims about “surging Mexican steel.” The piece in the Johnstown, Pa., Tribune-Democrat on Aug. 23 stated that “Mexico is now exporting steel products to the U.S. at levels surging well beyond historic baselines.” The piece claims that certain types of steel exports increased “compared to the baseline period of 2015 to 2017.” But the word “baseline” doesn’t even appear in the May 2019 agreement, nor does the agreement cite any specific year. U.S. interests should not be allowed to unilaterally define terms that appear in the agreement. For example, the agreement uses the phrase “with consideration of market share” in discussing the term “surge.” CANACERO, the Mexican steel association, noted earlier this year that “Mexican steel exports to the US represented only 3.3% of [US] domestic consumption, while the market share of the United States in Mexico amounts to 14.6%.” The U.S., then, has captured more than four times the share of the Mexican market as Mexico has captured of the U.S. market. Business Executives and Government Officials Meet in 13th U.S.-Mexico CEO Dialogue U.S. and Mexican business executives and high-ranking government officials met in Washington on Sept. 27 and 28 in the 13th U.S.-Mexico CEO Dialogue, hosted by the U.S. Chamber of Commerce and the Consejo Coordinator Empressarial. The two-day event focused on boosting economic growth in the two nations, in large part through increasing trade and investment. It brought together companies that are dedicated to “committing resources and investing in both markets to advocate for the bilateral relationship.” Irwin Altschuler, a Deacero official in the company’s global trade and corporate affairs headquarters in Washington, spoke at the conference about the importance of talent mobility between Mexico and the U.S., making suggestions on improving the E-Visa process. Representatives of the U.S. Chamber and the auto parts company Martinrea also made supportive comments on the subject. The CEO Dialgue was followed by the High-Level Economic Dialogue (HLED), relaunched by Presidents Biden and Lopez Obrador in 2021 and attended by Cabinet-level officials of the two countries. Secretary of State Antony J. Blinken, Secretary of Commerce Gina Raimondo, U.S. Trade Representative Katherine Tai, and Ambassador Ken Salazar chaired the HLED for the United States. Secretary of Foreign Relations Alicia Bárcena, Secretary of Economy Raquel Buenrostro, and Ambassador Esteban Moctezuma chaired the HLED for Mexico. In a joint statement following the meeting the two countries declared: Under the HLED, the United States and Mexico are strengthening our region’s supply chains, supporting economic development in Central America and southern Mexico, coordinating to expand workforce development efforts. We collaborated by exchanging best practices to develop secure next generation telecommunications and information and communication technologies (ICT) networks. We are using the HLED framework to reduce inequality and poverty, boost job creation, catalyze investment in our people, and achieve greater regional prosperity. The two countries stressed that improved transparency and effective monitoring of steel imports and exports are needed to stop the trans-shipment, or “triangulation” of China’s steel to the United States.
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