US fears Nippon bid for US Steel could hit vital steel supplies

China Steel

06/09/2024 03:28

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      CFIUS fears less domestic steel production
    

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      Letter cites glut of Chinese steel
    

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      Harris, Trump both oppose Nippon-US Steel deal 
    

  
 (Adds lawyer comment in paragraphs 6-7, adds China quote from
Nippon Steel's response letter in paragraph 13)
    By Alexandra Alper
       WASHINGTON, Sept 5 (Reuters) - Nippon Steel's  5401.T 
proposed $14.9 billion takeover of U.S. Steel  X.N  would create
national security risks because it could hurt the supply of
steel needed for critical transportation, construction and
agriculture projects, the U.S. said in a letter sent to the
companies and seen by Reuters.
    The letter also cited a global glut of cheap Chinese steel,
and said that under Nippon, a Japanese company, U.S. Steel would
be less likely to seek tariffs on foreign steel importers.
    The Committee on Foreign Investment in the U.S. (CFIUS) said
in its 17-page letter sent on Saturday to Nippon Steel  5401.T 
and U.S. Steel  X.N , and first reported by Reuters, that
decisions by Nippon could "lead to a reduction in domestic steel
production capacity." 
    CFIUS added: "While U.S. Steel frequently petitions for
(trade) relief, Nippon Steel features prominently as a foreign
respondent resisting trade relief for the U.S. domestic steel
industry."
    The letter provided a first glimpse of the national security
grounds that the Biden administration could use as a basis for
its expected move to block the merger, even as the companies and
many industry experts questioned the strength of the arguments.
    "By almost any measure, the issues identified by the
committee are not ones that would fall into the national
security bucket, but quite clearly into two others:
Nationalistic trade protectionism and electoral politics," said
Michael Leiter, a CFIUS lawyer in Washington, D.C. not involved
in the deal. 
    If the government is "truly worried about maintaining steel
supply here in the United States, the real solution is not to
block this deal, but instead to use the CFIUS hammer to ensure
that Nippon Steel makes and maintains such investments," he
added.  
    The deal has become a political hot potato, with many
Republican and Democratic lawmakers voicing opposition to it.
Vice President and Democratic presidential candidate Kamala
Harris said on Monday at a rally in Pennsylvania, the swing
state where U.S. Steel is headquartered, that she wants U.S.
Steel to remain "American owned and operated." Her Republican
rival Donald Trump has pledged to block the deal if elected.
    China looms large in the background of the trade concerns
described by CFIUS. According to the committee, China's
"persistent use of market-distorting government interventions"
has allowed the country to unfairly gain dominance in the global
steel market, as it exports extensive surplus steel that
artificially lowers international prices.
    It also cited 2022 data that showed China produced about 54%
of total global crude steel and was the largest exporter. 
    In a 100-page response letter seen by Reuters and sent on
Tuesday, Nippon Steel said it will invest billions of dollars to
maintain and boost U.S. Steel facilities that otherwise would
have been idled, "indisputably" allowing it to "maintain and
potentially increase domestic steelmaking capacity in the United
States."
    Nippon also reaffirmed a promise not to transfer any U.S.
Steel production capacity or jobs outside the U.S. and would not
interfere in any of U.S. Steel's decisions on trade matters,
including decisions to pursue trade measures under U.S. law
against unfair trade practices.
    The deal, Nippon added, would "create a stronger global
competitor to China grounded in the close relationship between
U.S. and Japan."
    Nippon even proposed a national security agreement, aimed at
assuaging CFIUS concerns, with pledges that a majority of U.S.
Steel's board of directors would be non-dual U.S. citizens,
including three independent directors approved by CFIUS to
oversee compliance with the agreement.
    "Nippon is throwing a financial lifeline to U.S. Steel while
allowing it to remain led and managed by U.S. persons with
government oversight," said Nicholas Klein, a CFIUS lawyer with
DLA Piper. "I would think that CFIUS could mitigate the risk of
reduction in steel production capacity through supply assurance
and other common mitigation measures."    
    The committee, which reviews foreign investments for
national security threats, also sees risk arising from Nippon's
growing presence in India, where production costs are much lower
than in the U.S. 
     "Nippon Steel has no economic incentive to, and will not,
import Indian-origin...steel into the United States to compete
with or undermine U.S. Steel, which would directly contradict
the basis for Nippon Steel’s multi-billion dollar investment,"
the companies countered in their Tuesday letter. 

 (Additional reporting by David Shepardson; editing by Chris
Sanders, David Gregorio and Sonali Paul)
 ((Alexandra.Alper@thomsonreuters.com; +1(202)354-5865; Reuters
Messaging: alexandra.alper.thomsonreuters.com@reuters.net - https://twitter.com/alexalper?lang=en))