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U.S. to investigate U.S. Steel's complaints against Chinese producers

| Thursday, May 26, 2016, 7:33 p.m.
In this April 25, 2016 photo, a man works in a steel market in Yichang in central China's Hubei province. China accused the United States on Thursday, May 26, 2016, of hampering trade after Washington imposed duties of up to 450 percent on Chinese steel in its latest response to a flood of low-priced imports.

The United States said Thursday that it will investigate allegations that Chinese steelmakers stole trade secrets from U.S. Steel Corp. and illegally undercut prices in a case that could lead to a ban on nearly all steel imports from that country and heighten trade tensions.

The case is the first time in almost 40 years that the government has opened a probe initiated by U.S. steel producers under a 1937 federal law that is typically used against foreign companies in patent infringement cases. The Downtown-based steelmaker, which brought the complaint last month, also accused many of China's largest steel producers and their distributors of conspiring to fix prices and circumventing import tariffs.

U.S. Steel CEO Mario Longhi praised the International Trade Commission for agreeing to investigate the complaint and said the company was eager to confront the Chinese producers it accused of illegal practices that are hurting the domestic steel industry.

“We strongly believe that Chinese steel producers have engaged in illegal unfair methods of competition, which have created a force with which no market economy can compete,” Longhi said in a written statement. “We remain confident that the evidence will prove the Chinese steel producers engaged in collusion, theft and fraud, and we will aggressively seek to stop those responsible for these illegal trade actions.”

The investigation, which experts have said could take 18 months to complete, was supported by dozens of federal and state lawmakers, trade associations, labor unions and others.

United Steelworkers union International President Leo Gerard said the case “may finally force Chinese companies to account for their policies and practices that have damaged U.S. steel producers and workers.”

U.S. Steel and other domestic producers have been hammered for more than a year by a surge of what the industry blamed on unfairly traded imports largely from China. The investigation of the Chinese steel industry is the latest move by U.S. Steel to clamp down on cheap metals flooding the market. The company reported a $1.5 billion loss last year and has idled mills and laid off thousands of workers.

The ITC has slapped tariffs on a number of steel imports from China and other countries.

On May 17, Washington imposed duties of up to 522 percent targeting Chinese-made cold-rolled steel used in automobiles and other manufactured goods.

On Wednesday, the government imposed duties of up to 450 percent on corrosion-resistant steel made in China. That action prompted complaints from China's Ministry of Commerce that the United States was discriminating against Chinese producers.

“The United States has deliberately suppressed the bulk of Chinese steel exports,” read a Commerce Ministry statement. “This not only harms Chinese steel enterprises but hinders trade and cooperation between enterprises.”

The ministry said Beijing will “take all necessary measures to fight for fair treatment” but gave no details.

The nation faces mounting criticism from the United States and Europe that it is exporting steel at unfairly low prices to clear a backlog in its glutted home market.

China's overseas sales of steel in the first four months were 7.6 percent higher than a year earlier, piling on the pressure after the nation shipped a record 112 million tons in 2015, according to Bloomberg News.

U.S. Steel alleged in its complaint that the Chinese producers were circumventing U.S. tariffs by labeling their steel exports to the United States as coming from other countries.

If successful, U.S. Steel's case could force China to confront a fundamental problem it faces from propping up its economy with jobs in steel manufacturing and other industrial production while internal demand has slumped, said Marvin Goodfriend, a professor of economics at Carnegie Mellon University.

If the nation is unable to dump excess steel in the United States, it no longer will be able to keep those people employed in factories and must find new ways to feed economic growth.

Improving relations with trading partners could buy the country some time as it shifts from an industrial-driven economy to one driven by demand for consumer goods, he said.

The 1937 federal law that U.S. Steel used to file its complaint was last employed by the steel industry in 1978 against a group of Japanese steel companies that were exporting stainless steel couplings at low prices and undercutting domestic producers. The Japanese companies were not excluded from the U.S. market but had to certify that they were pricing their exports above their cost to produce.

The law, which also covers unfair trade practices, gives the ITC power to block imports if the commission finds substantial injury to a domestic company.

U.S. Steel alleged China's military hacked the company's computers in 2011 and stole formulas for specialized high-strength steel used in the automotive industry. The military allegedly shared the proprietary information with Chinese steelmakers, allowing them to quickly develop the technology.

The alleged hacking led to a 2014 federal indictment of Chinese military officials, who were charged by the U.S. Attorney in Pittsburgh with infiltrating computers at American companies, including U.S. Steel, Alcoa Inc. and Westinghouse Electric Co.

John Tumazos, an analyst and owner of Tumazos Very Independent Research in Holmdel, N.J., said U.S. Steel was right to fight back, but that even if the company prevails, the domestic steel industry faces a fundamental headwind in weak demand.

“The rhetoric of the steel industry focuses on imports, but the practical issue is that consumption is very poor,” he said.

The Associated Press and Tribune-Review staff writer Chris Fleisher contributed to this report. Alex Nixon is a Tribune-Review staff writer. Reach him at 412-320-7928 or anixon@tribweb.com.

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