LONDON(Reuters) - Right on cue, U.S.steel producers have filed antidumping and anti-subsidy (countervailing duty)complaints against imports of high-quality steel pipe from China.

The core of the dumping andsubsidisation accusations is not new. It centres on alleged benefits China'ssteel producers derive from a legacy of state ownership and aid, as well astheir willingness to continue exporting surplus product that cannot be absorbedinto the domestic market. But until recently the industry was hampered inbringing a case because of high levels of profitability.

To succeed, the petitioner forantidumping relief must prove (1) that goods have been dumped at below the costof production, the selling price in the home country or in comparable thirdcountries; and (2) that the dumping caused or threatened "materialinjury" to producers of the "like product" in the United States.

Because steel producers had beenmaking record profits until last summer, it would have been impossible to prove"material injury". But industry lawyers believe six months of lowerprices will be enough to convince officials the industry is suffering realhardship.

In reality, the industry'sproblems have been caused by the global downturn rather than dumping andsubsidisation. But U.S.producers will point to the combination of slumping demand at home andcontinued strong imports from Chinato make the case that dumped and subsidised Chinese pipe are causing real harmto American competitors.

U.S.producers are complaining because China's steelmakers have notcooperated in their efforts to support prices by closing capacity andpreventing a build up of inventory.

RISKS RISE FOR IMPORTERS

The case now moves to the UnitedStates International Trade Commission (USITC), which will make a determinationabout "material injury", and the US Department of Commerce (USDOC),which will determine whether the goods are being dumped below cost orcomparable home or third-country prices, and if so by how much.

In the parallel countervailingduty case, USDOC will determine whether the goods have benefited from subsidiesthat are not consistent with the World Trade Organisation (WTO) agreement.

Preliminary determinations aredue within the next couple of months, definitive ones later in the year.

But if USDOC and USITC reachpreliminary decisions pipe is being dumped or subsidised and causing materialinjury, U.S. Customs will begin assessing antidumping and countervailing dutieson a provisional basis.

From that moment, importers ofChinese steel will be liable to the full (as yet undetermined) duties if thepreliminary findings are confirmed later in the year and made definitive.

Given pressure on domestic steelproducers, the petitioners may also ask for a "criticalcircumstances" ruling that could allow antidumping and countervailingduties to be imposed retroactively on imports at any time.

From now on importers of Chinesesteel pipe face an uncertain and potentially punitive tariff liability for anypipe entering the country. It will make imports prohibitively risky and islikely to choke off the flow almost immediately -- whatever the eventualoutcome of the case.

POLITICS WEIGHS HEAVILY

In theory, antidumping andcountervailing duty investigations are a quasi-judicial process governed bystatue and the WTO agreements. In practice, the process is at least partlypolitical.

USDOC is an agency of theexecutive branch. USITC is an independent regulatory agency, but the sixcommissioners (three from each party) are nominated by the president andconfirmed by the Senate.

Senators from states withproducers bringing antidumping actions have been known to turn up, sometimes enmasse, at Commission hearings to support material injury claims, and make surecommissioners understand what is at stake.

The final stage of theantidumping and countervailing duty process is for the president to"proclaim" the duties and make them active. In theory, the presidentcould decline to make a proclamation and end the process. But it would beexceptionally rare, and even less likely in the current environment.

Despite bold rhetoric from US andEuropean leaders about the need to reaffirm commitment to the open tradingsystem, antidumping and countervailing duty actions in sensitive sectors aregearing up, and G20 leaders are unlikely to risk unpopularity by blocking them.

It would be a mistake, however,to see this as a return to the tariff wars of the 1930s. WTO disciplines onantidumping and countervailing duties actions have tightened the rules formember countries significantly.

U.S. and European officials willargue that they need flexibility to provide exceptional protection forsensitive sectors facing sudden stress, and defuse political opposition, tosustain broader support for an open multilateral trading system.

It may not be pretty, butappeasing protectionist sentiment by permitting controversial antidumping andcountervailing duties actions in steel and other basic industries is,unfortunately, the price for protecting the wider WTO-based trading system.

By John Kemp

-- John Kemp is aReuters columnist. The views expressed are his own --

Tue Apr 14, 2009 3:39pm IST

Source:in.reuters.com