Detrimental changes in duty rates, absolute quotas and the curtailing benefits under various free trade agreements loom overhead as Trump’s investigations into national security of imports takes place.
International trade risk has increased in 2017. Near-term forecasts on detrimental changes in duty rates, absolute quotas and the curtailing benefits under various free trade agreements are gloomy due to mixed messages coming from Washington. The President has ordered investigations into the negative effect on national security of imports of aluminum and semi-conductors. For steel at least, we have been here before.
Import quotas control the amount of various commodities that can be imported at a specific duty rate during a specified period of time. There are three types of quotas: absolute, tariff rate, and tariff preference level. Absolute quotas strictly limit the quantity of goods that may be imported for a specific period. Tariff rate quotas permit a specified quantity of imported merchandise to be entered at a reduced rate of duty during the quota period. And many free trade agreements and other special trade legislation establish tariff preference levels.
The United States has repeatedly sought to limit imports of steel into the United States. Various voluntary restraint agreements and quotas were in effect from 1969 through 1989. During the mid ’80s, absolute quotas were instituted. Back then, customhouse brokers (CHBs) arranged to store their customer’s imported steel in bonded warehouses. The steel quota would open four times a year.
Since the maximum allowed amount of imported steel was always less than the amount of imported and stored steel, customs initiated an interesting policy: On the day of the quota opening, the CHBs would file entries for ALL of the steel that their customers had in bonded storage. Since this was orchestrated around the nation, customs then considered the aggregate quantity of steel that was entered and how much the quota quantity was. Customs then prorated a portion of each entry. All entries were rejected with a notice from customs indicating what percentage of each entry could be released. The entries were redone for the prorated quantity and refiled. And this was done four times per year.
Absolute quotas eventually ended. A new system was put in place by the Department of Commerce to monitor steel imports. Today, all steel imports must have an import license. This licensing system could be the template for aluminum imports. And by the way, it is an excellent foundation for further import controls.
The steel industry has been successful in disrupting steel imports of past decades. There is a likelihood that steel import constraints are in our near-term future.
