Aluminium
Feature Articles
Tariff Terrific
May 2021
Protectionist measures are anticipated to become an increasing theme in the short to medium term. Responding to the impact of the pandemic on world trade and political tensions flowing from actions by an assertive China, other countries are looking to secure domestic manufacturing capability and reduce dependence on the manufacturing behemoth.

To encourage domestic industry governments will typically keep an eye on imports and may take measures to keep them competitive. They may impose tariffs, a tax on imports from specific countries. These are often implemented when a country believes products are being ‘dumped’ into their market or have been provided with external support in their production.

A product is considered to be ‘dumped’ if it is exported to another country at a price below the normal price of a like product in the exporting country. Anti-dumping measures are independent remedies the government of an importing country can apply after a thorough investigation concludes that a product is, in fact, being dumped, and that the sales of the dumped product are causing material harm to domestic producers of the product.

Under the auspices of the World Trade Organisation (WTO), the application of anti-dumping measures is covered by the Anti-Dumping Agreement of the World Trade Organisation—“Agreement on Implementation of Article VI of the General Agreement on Tariffs and Trade 1994” or simply the AD Agreement—at least for WTO member countries. The AD Agreement essentially covers how a government can or cannot react to perceived dumping. It covers the application of anti-dumping duties and is separate to the often-associated Subsidies and Countervailing Measures Agreement—which relate to addressing external supports to manufacture. Both anti-dumping duties and countervailing measures are essentially protectionist actions, though there are subtle differences:

- Anti-dumping duty – is a tariff imposed by a government on foreign imports it believes are being priced below fair market value.

- Countervailing duty – is an additional duty on imported products whose production is considered to have been subsidised within the country of origin.

Typically, an anti-dumping action means charging extra import duty on the particular product from the particular exporting country in order to bring its price closer to the “normal value” or to remove the injury to domestic industry in the importing country.

China tends to be the target of many anti-dumping duties. For example, a third of all Australia’s anti-dumping measures are targeted at China. Decisions to implement anti-dumping tariffs are generally submitted to the Technical Barriers to Trade Committee at the WTO.

 

Everybody Does It

The imposition of duties on imports is at the discretion of individual countries. The majority of WTO member countries have initiated anti-dumping measures of some sort against imported products. The most global anti-dumping initiations are made in relation to materials and products in Section XV - Base Metal and Articles of the Harmonised System (HS). This includes the full array of aluminium products. Since 1995, nearly a third of all anti-dumping initiations have been raised in relation to products under this Section classification.

Overall, Australia punches above its weight in the anti-dumping stakes—given its comparative economic size—as the third largest user of the measures behind India and the United States. 

Protectionist measures including anti-dumping duties are expected to increase as countries look to develop or maintain a degree of manufacturing independence and reducing dependence and defending domestic industries from cheaper imports from China. However, blanket measures are rare with most measures targeting a relatively specific product classification.

Attention to the implementation and impact of tariffs on the aluminium industry specifically has increased since the 2018 implementation of the ‘Trump Tariffs’.

 

The Trump Tariffs

Possibly, the most famous tariffs in the world are the almost blanket tariffs imposed by the US Administration on aluminium and steel imports in 2018. In March of that year, the US Administration imposed a 10% tariff on all aluminium imports under Section 232—essentially on national security grounds—and forming part of the US Administration’s ‘America First’ economic policy at the time. The tariffs were brought into place on imports from most countries, with the only current exemption being Australia and South Korea as well as Canada and Mexico, under the re-negotiated NAFTA agreement, the USMCA.

These blanket tariffs have, to date, not been removed by the new US Administration—one of their first actions was to, in fact, reverse a lifting of tariffs on aluminium foil from the United Arab Emirates.

Despite imposition of the tariffs on aluminium with the intention of boosting the domestic industry, there has been no significant investment in new smelting capacity in the US. In fact, primary production capacity went backwards, with Alcoa announcing the permanent closure of the 230ktpa Intalco smelter in Washington state. The US remains dependent on imports of primary metal and is likely to for the foreseeable future.

 

Recent Anti-Dumping Duties

While the US ‘Trump Tariffs’ are blanket measures, anti-dumping duties are typically on specific products. There are investigations ongoing in countries all over the world assessing the impact of imports, and their sales price, on domestic industry. These investigations are often complex and time intensive.

In the case of the US, anti-dumping duties come on top of the blanket 10%. In March, the US finalised its determination on anti-dumping tariffs for common alloy aluminium sheet from 18 countries. They imposed duties from 0-242.8% depending on the producer.

In some cases, the anti-dumping tariffs are not country specific. In the case of Egypt, in March they implemented blanket duties on aluminium moulds, cylinders and wire for a period of three years.

In some cases, duties are more targeted. In April, Vietnam announced it was increasing existing anti-dumping duties to 4.39-35.58% on aluminium products from 18 specific Chinese companies.

Vietnam claimed the dumping activities of the 18 companies forced the halting of production and laying off of workers at domestic plants. Vietnam believes this has arisen and been necessitated by aluminium being redirected from other countries with existing anti-dumping measures. Vietnam has been previously highlighted as a destination in transhipment activities to avoid tariffs of ultimate destination countries. This escalation of tariffs, largely leaves the end consumers as the ultimate losers.

 

Implications?

The implementation of anti-dumping duties by a country is supposedly aimed at making a level playing field for domestic producers. However, they can lead to a number of unintended consequences.

The implementation of anti-dumping tariffs by one country can lead to the ‘dumped’ material being diverted to another. This can then spur investigations and implementation of anti-dumping measures in the new destination. As such, the use of anti-dumping tariffs can be highly disruptive to global trade flows. In order to secure necessary materials, they artificially increase costs to consumers, especially if supply is constrained domestically and a lack of competition. It also allows domestic producers to increase their prices so long as it’s cheaper than the costs of imports plus tariffs.

A lack of competition within tariff protected industries, resulting in a loss of efficiency and innovation is also a possible longer-term outcome. The perception of governments favouring industries, or indirectly, geographic regions are also potential unintended consequences.

They can also descend into tit-for-tat responses between countries. Diplomatic tensions between Australia and China, for instance, have deteriorated over the last year. The Australian Dumping commission launched investigations into Chinese aluminium, steel and A4 paper in early 2020, which China then pointed to as it imposed anti-dumping tariffs on Australian barley imports and assorted other products—largely seen as a response to broader political tensions, such as Australia’s call for an independent investigation into the origins of the coronavirus. They can initiate and descend into a trade-war as seen between the US and China.