EuroWire January 2016

Transatlantic cable

Surging steel imports are pushing down prices in the American market and hammering US Steel. Citing USA government data, the Tribune-Review reported that imports of carbon steel from China jumped 18 per cent through August 2015 to 1.45 million metric tons. Stainless steel imports from China skyrocketed 48 per cent to 147,484mt over the same period. Meanwhile, a benchmark steel price dropped 40 per cent in a year. In the week in which Mr Nixon’s article was published, the price per metric ton of hot-rolled coil steel was $387, down from $642 at that point in 2014. † Also in November, the American Iron and Steel Institute, a Washington-based trade group on whose board Mr Longhi sits, released a report examining the economic impact of a reclassi cation of China as a market economy. The AISI asserts that China, because it owns or subsidises steel mills throughout the country, is a non-market economy, ie one in which the basic laws of supply and demand are not allowed to function naturally. According to the AISI report, if steel import duties are rendered ine ective by a change in China’s WTO status, cheap imports will continue and likely increase, causing further mill closings and layo s in the American steel industry. “It is almost certain,” reads the AISI report, that “without the [non-market economy designation], imports from China would have caused signi cantly more economic disruptions in US manufacturing industries.” China begs to di er on steel exports Analysts expected Chinese steel makers to ship a record 100 million metric tons-plus of steel products abroad in 2015 to o set shrinking domestic demand amid a slowing economy. Reuters reported on 17 th November that China has declared an intention to cut steel capacity and to “strengthen” its talks with other countries to solve steel trade disputes. “The overcapacity is a common issue facing the global steel industry which is under restructuring,” Shen Danyang, a spokesman for the Ministry of Commerce, told reporters at a brie ng in Shanghai. He said that China “is actively taking measures and optimising the industry structure, including slashing large capacities.” But Mr Shen rejected the complaints of world steel producers about Chinese steel exports. In a recent instance, nine international steel associations said in a joint statement earlier in November that the Chinese government plays a big role in the steel sector and that China remains a non-market economy. Wang Li, an analyst with CRU in Beijing, told Reuters : “I don’t think steel makers in China are subsidised and the government’s attitude towards the steel makers is very clear: those that are not competitive should be closed.”

Business

A tougher US stance on tax inversions makes it more di cult for companies to avoid taxes by moving their domiciles overseas The Treasury Department in November issued new rules to limit tax inversions: controversial deals whereby American companies buy smaller, foreign rivals and reincorporate overseas so as to avoid American taxes. The new rules include provisions against “asset stu ng” and “cherry picking.”As de ned by Fortune Magazine , asset stu ng is the manoeuvre in which an American company “shoves” some assets into a foreign entity it is buying to make it big enough to qualify for an inversion. A USA company cherry picks when it uses a third entity to combine with a foreign company in order to relocate the newly formed company to a country with an even lower tax rate. In its second round of inversion rule changes in 14 months, Treasury said it was reducing the tax bene ts of the deals by limiting the ability of an inverted company to transfer its foreign operations to the new foreign parent without paying USA tax. Some of the changes announced on 19 th November took e ect on that date, while others apply retroactively to inversions completed after 22 nd September 2014. In a conference call with reporters, a Treasury Department o cial said that the biggest impact on inversions will likely come from the new curbs on cherry picking, as some companies have set up units in third countries without any real connection to the transaction. A typical example is that of a Pennsylvania company that “became” Irish for tax purposes by buying a smaller Canadian competitor. Oregon Senator Ron Wyden, the ranking Democrat on the Finance Committee, said in a statement that, while the e orts by Treasury to curb overseas tax inversions are welcome, “Ultimately it’s up to Congress to deliver tax policy that better equips companies to compete and succeed by staying in the US.” The only way “to end the inversion virus that is plaguing our country” is, he said, through true bipartisan tax reform. † Given the near paralysis of Congress, with Republican and Democratic legislators at daggers drawn, these are wan hopes. But the action taken in November is an important step and not, according to Treasury Secretary Jacob J Lew, the last word. “We continue to explore additional ways to address inversions,” Mr Lew said – including potential guidance on earnings stripping. “And we intend to take further action in the coming months.” Dorothy Fabian – USA Editor

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January 2016