March 2007 UPDATE

Eliminating Global Barriers to Trade in Steel Scrap and Raw

Materials

Alan Price and Tim Brightbill

1776 K Street, NW

Washington, DC 20006

Presentation to SMA Board of Directors

October 23, 2008

Page 21776 K Street, NW, Washington, DC 20006

OverviewI. Barriers to Trade in Steel Scrap

II. Barriers to Trade in Raw Materials

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I. Barriers to Trade in Steel Scrap• The U.S. open scrap trade regime has led to a

sustained, dramatic rise in steel scrap exports from the U.S. (on pace for 22-23 million tons)

• Our trading partners have imposed substantial barriers to the export of scrap, leading to a reduction in U.S. scrap imports

• Result: (1) Limited U.S. scrap supply and (2) Surge in scrap prices

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U.S. Exports of Steel ScrapU.S. Scrap Exports Have Steadily Increased Since 2000

2

6

10

14

18

2000 2001 2002 2003 2004 2005 2006 2007 Jan-Aug2007

Jan-Aug2008

Mil

lion

s of

Sh

ort

Ton

s

Includes HTS subheadings 7204.10, 7204.21, 7204.29, 7204.30, 7204.41, 7204.49, and 7204.50 Data Source : US export data is from the USITC Trade Dataweb, http:/ /dataweb.usitc.gov /scripts/user_set.asp

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U.S. Exports of Steel Scrap (cont.)

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$50

$150

$250

$350

$450

$550

$650

U.S. Shredded Auto ScrapMonthly, $/ ton

Data Source : American Metal Market; prices based on Chicago IL

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Foreign Barriers to Trade (cont.)• List of scrap trade barriers:

www.scrapcoalition.com

• Examples– Russia: larger of 15% / 15€ per ton export tax, but plans

to raise export tariffs to 120-130 € ($191 to $207 per ton).

– Indonesia: imported 239,394 tons of U.S. scrap in 2007 but bans the export of Indonesian ferrous scrap

– Saudi Arabia: decreed a halt on scrap exports as of June 2008 and may be strengthening enforcement of its export tax

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Foreign Barriers to Trade (cont.)• List of scrap trade barriers:

www.scrapcoalition.com

• Examples– Malaysia: increased its consumption of U.S. scrap from

350,297 in 2002 to 1,367,785 in 2007; increased its export tax on scrap from 2.5% in 2001 to its present 30%

– Vietnam – export tax of 35%

– Pakistan – export tax of 25%.

– Others include Iran, Argentina, India, UAE, Kazakhstan, Egypt, and others.

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American Scrap Coalition Actions

• Meetings with Congress, Commerce Department, and USTR

• Proposed Congressional Briefing

• Opposition to Ex-Im Financing of Scrap Sale to Turkey

• Section 301 Draft Petitions

• Address specific countries through negotiations or possible legal actions

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II. Barriers to Trade in Raw Materials

• All countries are currently engaged in a global race for access to raw materials

• Result has been unprecedented cost increases for dozens of commodities

• Governments are increasingly becoming involved in the search for raw materials

• Government intervention distorts the global market

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Barriers to Trade in Raw Materials• Protectionism in the raw material sector

unfairly tilts the playing field throughout the global manufacturing economy.

• These trade barriers often clearly violate World Trade Organization agreements, free trade agreements, or bilateral investment treaties

• The United States has repeatedly identified many of these barriers as trade distortive

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China• Export Barriers

– Export Quotas

– Export Tariffs

– Licensing requirements

• Restrictions on foreign investment in raw materials

• Subsidized raw material acquisition

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I. China’s Export Barriers - Quotas

• USTR Report on Foreign Trade Barriers: “China has continued to impose restrictions on exports of raw materials, including quotas, related licensing requirements, and duties, as China’s state planners have continued to guide the development of downstream industries. These export restrictions are widespread.”

• NOTE: These are WTO-prohibited.

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I. China’s Export Barriers - Quotas

• 2007 2008 Export Quotas on Certain Raw Materials– Antimony: 61,800 metric tons (mt) 59,000 mt

– Bauxite: 2008 quota is 940,000 mt

– Coke: 13.3 mt 12 mt

– Magnesium Carbonate: 2008 quota is 1.3 million mt

– Molybdenum: 19,383 mt 26,300 mt

– Silicon Carbide: 2008 quota is 216,000 mt

– Tin: 37,000 mt 33,300 mt

– Tungsten: 15,400 mt 14,900 mt

– Also: Fluorspar, Indium, Rare Earths, Talc, Zinc

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I. China’s Export Barriers - Taxes

• USTR: “Over time, China’s state planners have increased the artificial advantages afforded to China’s downstream producers by making the export quotas more restrictive and by imposing or increasing export duties on many raw materials at issue.”

• Most of China’s export taxes on raw materials are also illegal according to its WTO accession agreement

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I. Barriers to Trade in Raw MaterialsChina (contd.)

• Export Taxes

Raw MaterialExport Tax

(2008)

Antimony 5-10%

Bauxite 15%

Coal Coke and Semi-coke 40%

Ferrous Scrap 10%

Magnesium Carbonate 5-10%

Manganese 20%

Molybdenum 15-20%

Silicon 10-20%

Tin 10-20%

Zinc 5-15%

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I. Barriers to Trade in Raw MaterialsRussia

• Export Tariffs

• Export Restrictions

• Government Intervention

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I. Barriers to Trade in Raw MaterialsRussia (contd.)

• Export Tariffs

Commodity Current Export Tax

Ferrous Scrap 15% or €15 per tonne

Aluminum Ore and Concentrates 6.5%

Molybdenum Ore and Concentrates 6.5%

Tin Waste and Scrap 6.5%

Tungsten Waste and Scrap 6.5%

Antimony Waste and Scrap 6.5%

Nickel Waste and Scrap 30.0%

Nickel Products 5.0%

Coking Coal 6.5%

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I. Barriers to Trade in Raw MaterialsUkraine

• Export Tariffs

• Export Registration and Licensing Requirements

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I. Barriers to Trade in Raw MaterialsUkraine (contd.)

• Export Tariffs - Though its WTO accession and related negotiations brought numerous promises to reduce or eliminate trade barriers, Ukraine has been slow or unwilling to fulfill them.

• Ukraine will maintain export tariffs on the following until 2014:

• Cast Iron (Ferrous) Waste and Scrap• Alloy Steel Waste and Scrap• Stainless Steel Waste and Scrap• Ferro-Chromium-Nickel• Unrefined Copper, Copper Waste and Scrap• Nickel Waste and Scrap• Aluminum Waste and Scrap• Lead Waste and Scrap• Zinc Waste and Scrap• Tin Waste and Scrap• Tungsten Waste and Scrap

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I. Barriers to Trade in Raw MaterialsIndia

• Export Tariffs

• Government Intervention

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I. Barriers to Trade in Raw MaterialsIndia (contd.)

• Export Tariffs– In June 2008, India enacted export tariffs of 15% on all

grades of iron ore, pig iron, and ferrous scrap.

– Iron ore exports to China (India’s main customer) have plummeted

– The Indian steel industry is reaping massive benefits from the cheap domestic supply of iron ore.

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Actions Taken by Scrap Coalition and U.S. Industry

• Assistance to USTR on potential WTO case against China’s raw material export quotas and taxes

• Research on specific illegal trade barriers

• Contacts with other U.S. industries, EU, Japan and others to assist

• White paper: “Raw Deal”

• Importance of continuing these efforts

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Conclusion

Please contact with any questions:Alan Price and Tim Brightbill

aprice@wileyrein.com

202-719-3375

tbrightbill@wileyrein.com

202-719-3138