Carbon and Alloy Steel: ITC Institutes Investigation Sought by U.S. Steel Against China's Largest Steel Producers

LiquidSteelIn the first antitrust-based investigation at the ITC in more than 25 years, the Commission on May 26, 2016, instituted a Section 337 investigation (Inv. No. 337-TA-1002) brought by U.S. Steel against the 11 largest steel producers in China and nine of their distributors.  U.S. Steel alleges that the Chinese respondents 1) conspired to fix prices and control output and export volumes in violation of antitrust law, 2) misappropriated U.S. Steel’s trade secrets through computer hacking, and 3) engaged in false designation of origin to circumvent existing anti-dumping and countervailing duty orders.  Pre-institution public interest statements submitted by the Chinese respondents argued that the investigation could interfere with the economic and political relationship between the U.S. and China, while U.S. Steel contended that the requested remedy (exclusion of certain Chinese steel products) was needed to protect investment and innovation in the American steel industry.

U.S. Steel alleges a violation of the Sherman Act by accusing the 11 Chinese steel producers (“Manufacturer Respondents”) of conspiring to fix prices and control output as members of the China Iron and Steel Association (CISA).  According to U.S. Steel, through CISA the Manufacturer Respondents conspire to set prices at levels that undercut their competitors in the U.S., and then “restrict production” to support prices when they become too low.  Individual CISA members are allegedly encouraged to maintain “self-discipline,” and CISA purportedly uses the Chinese government to punish members that do not comply with CISA’s directives.  U.S. Steel further alleges that CISA members demonstrate irrationally coordinated action, which confirms the existence of a conspiracy.  For example, CISA members allegedly invest in production capacity even when there is a glut in global steel markets.  Thus, according to U.S. Steel, as steel prices decline, Chinese steel exports irrationally continue to increase.

The ITC has not conducted many investigations based on antitrust allegations, and the last such investigation was more than 25 years ago.  Only once has the ITC found a violation based on an antitrust theory, in the 1978 investigation Certain Welded Steel Pipe & Tube, Inv. No. 337-TA-29.  In that case, the president exercised rarely used veto power and overturned the ITC’s finding on public policy grounds.  All other ITC investigations based on antitrust allegations have found no violation.

Trade Secrets Misappropriation
U.S. Steel alleges that at least one Manufacturer Respondent, Baosteel, used U.S. Steel trade secrets that were purportedly misappropriated in a cyberattack by the Chinese government.  According to the Complaint, in January 2011, a cyberattack against U.S. Steel targeted secret research data concerning high-strength “Dual-Phase” steel designed for automobiles.   U.S. Steel conducted a forensic analysis of the malware used in the cyberattack and determined that the malware sent the research data to IP addresses linked to Chinese hackers.  U.S. Steel also alleges that Baosteel commercialized high‑strength steel in 2013 using the stolen research data, and is now shipping that steel to the United States.  U.S. Steel alleges that it expects discovery to reveal that other Manufacturer Respondents have used its trade secrets as well.

False Designation of Origin
U.S. Steel alleges that nearly all respondents have violated the Lanham Act by circumventing existing antidumping and countervailing duties ordered by the Commerce Department.  According to U.S. Steel, the respondents are disguising Chinese steel as originating from other countries, such as Taiwan and Vietnam, in order to avoid additional duties.  U.S. Steel alleges that the Chinese steel distributors (“Distributor Respondents”) falsify documents to show Chinese steel shipped to the United States originating from countries other than China.

Public Interest Statements
U.S. Steel filed a public interest statement with the Complaint stating, among other things, that the requested remedial orders will protect domestic investment and innovation in the American steel industry.  It also stated that American steel producers have sufficient unused capacity to replace the volume of steel subject to the remedial orders in a reasonable amount of time.

In response to the Commission’s solicitation of comments relating to the public interest, respondents Baosteel and Hunan Valin filed public interest statements.  Baosteel stated that the trade issues implicated by U.S. Steel’s Complaint are global in nature and better addressed through diplomatic means.  Hunan Valin similarly argued that any remedial orders issued by the ITC would interfere with the economic and political relationship between the U.S. and China.  In response, U.S. Steel observed that the ITC investigates many Chinese products and practices without disturbing diplomacy.  It also noted that the Obama administration has said it will use all available tools to go after cybercriminals, and argued that Section 337 is one of those tools.

Baosteel also noted that it makes steel for niche product lines, such as metal containers, that cannot be replaced by domestic producers.  Several of its customers, such as Allstate Can Corporation, BWAY Corporation, and Ardagh Group, submitted letters to the Commission in favor of respondents.  Some stated that Baosteel’s products are superior to those of domestic producers and that Baosteel also has superior customer service.  In response, U.S. Steel argued that it could supply suitable products for metal container applications.  U.S. Steel also stated that it has the ability to provide other kinds of steel, such as laminated steel, but has not yet brought these products to market because of the financial damage caused by the alleged unfair activities of the respondents.

Administrative Law Judge Dee Lord is assigned to the investigation.  The Commission has delegated the public interest issue to Judge Lord for the development of a record and issuance of a Recommended Determination on that issue.