US GOES interests allege circumvention via Canada, Mexico

Customers of AK Steel’s electrical steel business in the United States and members of Congress are urging President Donald Trump’s administration to extend Section 232 tariffs to imports of laminations and cores, claiming that circumvention is occurring through neighboring countries Canada and Mexico.

Downstream manufacturers who procure grain-oriented electrical steel (GOES) from AK Steel, now owned by Cleveland-Cliffs, are placed at a deepening disadvantage due to competing finished goods made from cheaper foreign steel entering the US via its two US-Mexico-Canada Agreement (USMCA) trading partners.

In a letter to Trump dated Wednesday April 15, 25 members of Congress have asked him to examine the alleged circumvention and to include laminations and cores used in manufacturing electrical transformers in the two-year-old Section 232 order. Import volumes of these items from Canada and Mexico soared by 87% between 2017 and 2019 even though neither nation produces GOES.

The path of the overseas GOES can clearly be traced to North American border towns, where processing plants have “popped up specifically for this purpose,” Michael McGuire, director of sales at laminations producer Sko-Die Inc, said.

Morton Grove, Illinois-based Sko-Die produces laminations from both GOES and non-oriented electrical steels (NOES), for which anti-dumping duties on imports were extended in February. Sko-Die and its domestic counterparts would be threatened if neither AK Steel nor its customers can produce competitively, McGuire added.

“This has been a conundrum forever,” he said. “There are companies positioned along the two borders who are able to partially convert it - making changes like slitting - and they get around the tariff.”

The problem has been exacerbated by the Section 232 pricing environment, with the cost of raw material jumping in the US but not abroad.

Plenty of venture capital was directed toward setting up shops near the US borders in Canada and Mexico to make subtle changes to GOES from China, South Korea, Japan, Germany and Austria, McGuire said. Almost all of that modified material then gets pushed into the US, categorized as Canadian- and Mexican-sourced imports.

“When you go ahead and put a tariff on the steel, you just created an enormous cottage industry on the border in Canada and Mexico,” he said. “We see the pressure that the imports put on the market.”

At the urging of AK Steel and customers, US lawmakers in March asked for an expansion of Section 232 protection for GOES items.

The letter to Trump was signed by a bipartisan group of House members - mostly from states where AK Steel operates - led by Reps Mike Kelly (Republican, Pennsylvania) and Marcy Kaptur (Democrat, Ohio).

Unless the alleged circumvention can be stopped, AK Steel might have little choice but to idle production at electrical steel mills in Butler, Pennsylvania, and Zanesville, Ohio, which would result in “approximately 1,500 layoffs and the loss of America’s last electric steel producer,” they noted.

That would leave US power grids largely dependent on steel from China, Japan, South Korea and Russia, the letter said.

“In order to effectively address circumvention and to preserve this critical supply chain, tariffs must be applied to laminations and cores from Mexico and Canada,” the congressional members wrote.

“Taking this action will not undermine the USMCA agreements,” they said. “In fact, when the new USMCA rules of origination are fully implemented, laminations and cores would rightly be considered originating from the country where the GOES was produced, not Canada or Mexico... This derivative product action would narrowly target intentional circumvention of the national security tariffs applying to GOES.”

The rising US import volumes from the two countries replace what would be 43,000 tons of domestic material, according to the letter.

An executive of one US high-quality audio and power transformer company that makes GOES laminations also urged the extension of tariffs to the product.

There are “just a few transformer companies like Edcor [Electronics] in the US still alive, and AK Steel is one of our biggest vendors” either directly or indirectly, Brian Weston, president of the Carlsbad, New Mexico-based company, told Fastmarkets.

“As a company that prides itself in purchasing components and doing all manufacturing in the US, we strongly agree that the import of GOES from Mexico and Canada should not go unchallenged,” he said.

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