[Federal Register Volume 85, Number 129 (Monday, July 6, 2020)]
[Notices]
[Pages 40508-40567]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-14358]



[[Page 40507]]

Vol. 85

Monday,

No. 129

July 6, 2020

Part V





 Department of Commerce





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Bureau of Industry and Security





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Publication of a Report on the Effect of Imports of Aluminum on the 
National Security: An Investigation Conducted Under Section 232 of the 
Trade Expansion Act of 1962, as Amended; Notice

  Federal Register / Vol. 85, No. 129 / Monday, July 6, 2020 / 
Notices  

[[Page 40508]]


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DEPARTMENT OF COMMERCE

Bureau of Industry and Security

RIN 0694-XC060


Publication of a Report on the Effect of Imports of Aluminum on 
the National Security: An Investigation Conducted Under Section 232 of 
the Trade Expansion Act of 1962, as Amended

AGENCY: Bureau of Industry and Security, Commerce.

ACTION: Publication of a report.

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SUMMARY: The Bureau of Industry and Security (BIS) in this notice is 
publishing a report that summarizes the findings of an investigation 
conducted by the U.S. Department of Commerce (the ``Department'') 
pursuant to Section 232 of the Trade Expansion Act of 1962, as amended 
(``Section 232''), into the effect of imports of aluminum on the 
national security of the United States. This report was completed on 
January 17, 2018 and posted on the BIS website on February 16, 2018. 
BIS has not published the appendices to the report in this notification 
of report findings, but they are available online at the BIS website, 
along with the rest of the report (see the ADDRESSES section).

DATES: The report was completed on January 17, 2018. The report was 
posted on the BIS website on February 16, 2018.

ADDRESSES: The full report, including the appendices to the report, are 
available online: https://www.commerce.gov/news/press-releases/2018/02/secretary-ross-releases-steel-and-aluminum-232-reports-coordination.

FOR FURTHER INFORMATION CONTACT: For further information about this 
report contact Erika Maynard, Special Projects Manager, (202) 482-5572; 
and David Boylan-Kolchin, Trade and Industry Analyst, (202) 482-7816. 
For more information about the Office of Technology Evaluation and the 
Section 232 Investigations, please visit: http://www.bis.doc.gov/232

SUPPLEMENTARY INFORMATION:

The Effect of Imports of Aluminum on the National Security an 
Investigation Conducted Under Section 232 of the Trade Expansion Act of 
1962, As Amended

January 17, 2018

Prepared by U.S. Department of Commerce Bureau of Industry and Security 
Office of Technology Evaluation

Table of Contents

I. Executive Summary
    A. Overview
    B. Findings
    C. Conclusion
II. Legal Framework
    A. Section 232 Requirements
    B. Discussion
III. Investigation Process
    A. Initiation of Investigation
    B. Public Comment
    C. Public Hearing
    D. Interagency Consultation
IV. Product Scope of the Investigation
V. Background on the Aluminum Industry
VI. Findings
    A. Aluminum Is Essential to U.S. National Security
    1. Aluminum Is Required for U.S. National Defense
    2. Aluminum Is Required for U.S. Critical Infrastructure
    B. Domestic Production of Aluminum Is Essential to National 
Security
    C. Domestic Aluminum Production Capacity Is Declining
    1. Primary Aluminum Production Capacity
    2. Secondary Aluminum Production Capacity
    3. Canadian Primary Aluminum Capacity
    4. Downstream Aluminum Production
    D. Domestic Production Is Well Below Demand
    E. U.S. Imports of Aluminum Are Increasing
    1. Overview of Aluminum Imports in Aggregate
    2. Unwrought Aluminum Imports
    3. Aluminum Bars, Rods and Profiles
    4. Aluminum Plate, Sheet and Strip
    5. Aluminum Foil
    6. Aluminum Pipe and Tubes
    7. Aluminum Castings & Forgings
    F. United States Aluminum Exports
    G. High Import to Export Ratio
    H. Impact of Imports on the Welfare of the U.S. Aluminum 
Industry
    1. Declining Employment
    2. Poor Financial Status of the U.S. Aluminum Industry
    3. Research and Development (R&D) Expenditures
    4. Capital Expenditures
    5. Aluminum Prices
VII. Conclusion
VIII. Recommendation
IX. Appendices \i\
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    \i\ BIS has not published the appendices, but they are available 
online at https://www.commerce.gov/news/press-releases/2018/02/secretary-ross-releases-steel-and-aluminum-232-reports-coordination, 
along with the rest of the report.
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    Appendix A: Public Comments APPENDIX B: Public Hearing Testimony
    Appendix C: Background on the Aluminum Industry APPENDIX D: 
Trade Actions Related to Aluminum APPENDIX E: Global Excess Aluminum 
Production

Prepared by Bureau of Industry and Security http://www.bis.doc.gov

I. Executive Summary

A. Overview

    This report summarizes the findings of an investigation conducted 
by the U.S. Department of Commerce (the ``Department'') pursuant to 
Section 232 of the Trade Expansion Act of 1962, as amended (19 U.S.C. 
1862 (``Section 232'')), into the effect of imports of aluminum on the 
national security of the United States.
    In conducting this investigation, the Secretary of Commerce (the 
``Secretary'') noted the Department's prior investigations under 
Section 232. This report incorporates the statutory analysis from the 
Department's 2001 Report \1\ with respect to applying the terms 
``national defense'' and ``national security'' in a manner that is 
consistent with the statute and legislative intent.\2\ As in the 2001 
Report, the Secretary in this investigation determined that ``national 
security'' for purposes of Section 232 includes the ``general security 
and welfare of certain industries, beyond those necessary to satisfy 
national defense requirements, which are critical to minimum operations 
of the economy and government.'' \3\
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    \1\ U.S. Department of Commerce, Bureau of Export 
Administration; The Effect of Imports of Iron Ore and Semi[hyphen] 
Finished Steel on the National Security; Oct. 2001 (``2001 
Report'').
    \2\ Id. at 5.
    \3\ Id.
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    As required by statute, the Secretary considered all factors set 
forth in Section 232(d). In particular, the Secretary examined the 
effect of imports on national security requirements, including: 
domestic production needed for projected national defense requirements; 
the capacity of domestic industries to meet such requirements; existing 
and anticipated availabilities of the human resources, products, raw 
materials, and other supplies and services essential to the national 
defense; the requirements of growth of such industries and such 
supplies and services including the investment, exploration, and 
development necessary to assure such growth; and the importation of 
goods in terms of their quantities, availabilities, character, and use 
as those affect such industries; and

[[Page 40509]]

the capacity of the United States to meet national security 
requirements.
    The Secretary also recognized the close relation of the economic 
welfare of the United States to its national security; the impact of 
foreign competition on the economic welfare of individual domestic 
industries; and any substantial unemployment, decrease in revenues of 
government, loss of skills, or any other serious effects resulting from 
the displacement of any domestic products by excessive imports, without 
excluding other factors, in determining whether a weakening of the U.S. 
economy by such imports threaten to impair national security. In 
particular, this report assesses whether aluminum is being imported 
``in such quantities'' and ``under such circumstances'' as to 
``threaten to impair the national security.'' \4\
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    \4\ 19 U.S.C. 1862(b)(3)(A).
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B. Findings

    In conducting the investigation, the Secretary found:
    (1) Aluminum is essential to U.S. national security. Aluminum is 
needed to satisfy requirements for:
    a. The U.S. Department of Defense (``DoD'') for maintaining 
effective military capabilities including armor plate for armored 
vehicles, aircraft structural parts and components, naval vessels, 
space and missile structural components, and propellants; and
    b. Critical Infrastructure Sectors that are central to the 
essential operations of the U.S. economy and government, including 
power transmissions, transportation systems, manufacturing industries, 
construction, and others.
    (2) The U.S. Government does not maintain any strategic stockpile 
of bauxite, alumina, aluminum ingots, billets or any semi-finished 
aluminum products such aluminum plate.
    (3) The present quantity of imports adversely impacts the economic 
welfare of the U.S. aluminum industry.
    a. Imports and global aluminum production overcapacity, caused in 
part by foreign government subsidies--particularly in China, have had a 
substantial negative impact on the economic welfare and production 
capacity of the United States primary aluminum industry. The decline in 
U.S. production has occurred despite growing demand for aluminum both 
in the U.S. and abroad.
    b. In 2016, the United States imported five times as much primary 
aluminum on a tonnage basis as it produced; the import penetration 
level was about 90 percent, up from 66 percent in 2012.
    c. U.S. primary aluminum production in 2016 was about half of what 
it was in 2015, and output further declined in 2017. U.S. smelters are 
now producing at 43 percent of capacity and at annual rate of 785,000 
metric tons. As recently as 2013, U.S. production was approximately 2 
million metric tons per year.
    d. Since 2012, six smelters with a combined 3,500 workers have been 
permanently shut down, totaling 1.13 million metric tons in lost 
production capacity per year.
    e. The loss of jobs in the primary aluminum sector has been 
precipitous between 2013 and 2016, falling 58 percent from about 13,000 
to 5,000 employees.
    f. The U.S. currently has five smelters remaining, only two 
smelters that are operating at full capacity. Only one of these five 
smelters produces high-purity aluminum required for critical 
infrastructure and defense aerospace applications, including types of 
high performance armor plate and aircraft-grade aluminum products used 
in upgrading F-18, F-35, and C-17 aircraft. Should this one U.S. 
smelter close, the U.S. would be left without an adequate domestic 
supplier for key national security needs. The only other high-volume 
producers of high-purity aluminum are located in the UAE and China 
(internal use only).
    g. The impact so far has been greatest on the primary (unwrought) 
aluminum sector. Now, however, the downstream aluminum sector also is 
threatened by overcapacity and surging imports.
    h. Imports accounted for 64 percent of U.S. consumption of aluminum 
(primary and downstream mill products combined) in 2016.
    i. U.S. imports in the aluminum categories subject to this 
investigation totaled 5.9 million metric tons in 2016, up 34 percent 
from 4.4 million metric tons in 2013. In the first 10 months of 2017, 
aluminum imports rose 18 percent above 2016 levels on a tonnage basis.
    j. In the downstream aluminum sectors of bars, rods, plates, 
sheets, foil, wire, tubes and pipes, imports rose 33 percent from 1.2 
million metric tons in 2013 to 1.6 million metric tons in 2016.
    k. Overall in 2016, for the aluminum product categories covered by 
this investigation, the United States ran a trade deficit of $7.2 
billion.
    (4) Global excess aluminum capacity is a circumstance that 
contributes to the weakening of the U.S. aluminum industry and the U.S. 
economy.
    a. A major cause of the recent decline in the U.S. aluminum 
industry is the rapid increase in production in China. Chinese 
overproduction suppressed global aluminum prices and flooded into world 
markets.
    b. China's aluminum production is largely unresponsive to market 
forces. China produced approximately one million metric tons of excess 
supply in 2016. This excess alone exceeds the total U.S. 2016 
production of primary aluminum of 840,000 metric tons.
    c. China's industrial policies encourage development and domination 
of the entire aluminum production chain. These policies are further 
intended to stimulate the export of aluminum processed into sheets, 
plates, rods, bars, foils and other semi-manufactures and to target 
development of increasingly sophisticated and high-value product 
sectors such as automotive and aerospace.
    d. China imposes an excise tax that creates a disincentive for the 
export of primary aluminum ingots and billets. It provides tax rebates 
on exports of semi-finished or finished aluminum products. Thus, U.S. 
imports of aluminum from China are not in the form of unwrought 
aluminum, but primarily semi-finished downstream aluminum products.
    e. As imports make further inroads into the higher value-added, 
more sophisticated downstream sectors, U.S. downstream companies 
supporting the defense sector will be increasingly impacted.

C. Conclusion

    Based on these findings, the Secretary of Commerce has concluded 
that the present quantities and circumstance of aluminum imports are 
``weakening our internal economy'' and threaten to impair the national 
security as defined in Section 232. The Department of Defense and 
critical domestic industries depend on large quantities of aluminum. 
But recent import trends have left the U.S. almost totally reliant on 
foreign producers of primary aluminum. The U.S. is also at risk of 
becoming completely reliant on foreign producers of high-purity 
aluminum that is essential for key military and commercial systems. The 
domestic aluminum industry is at risk of becoming unable to satisfy 
existing national security needs or respond to a national security 
emergency that requires a large increase in domestic production. These 
risks and long-run industry trends ``threaten to impair the national 
security'' as defined by Section 232.
    The Secretary has determined that to remove the threat of 
impairment, it is necessary to reduce imports to a level that will 
provide the opportunity for U.S. primary aluminum producers to

[[Page 40510]]

restart idled capacity. This will increase and stabilize U.S. 
production of aluminum at the minimal level needed to meet current and 
future national security needs. If no action is taken, the United 
States is in danger of losing the capability to smelt primary aluminum 
altogether.
    The imposition of a quota or tariff on downstream products also is 
necessary because global overcapacity, coupled with industrial policies 
that promote exports of downstream products, have had a negative impact 
on the U.S. primary aluminum industry through reduced demand for inputs 
from downstream companies, as well as directly on the downstream 
companies that face increased import penetration in many aluminum 
product sectors.

D. Recommendation

    Due to the threat, as defined in Section 232, to national security 
from the quantities and circumstances of aluminum imports, the 
Secretary recommends that the President take immediate action by 
adjusting the level of these imports. Under alternatives 1 and 2, the 
quotas or tariffs would be designed, even after any exemptions (if 
granted), to enable U.S. aluminum production to utilize an average of 
80 percent of production capacity. The quotas and tariffs described 
below should be sufficient to enable U.S. aluminum producers to operate 
profitably under current market prices for aluminum and will allow them 
to reopen idled capacity (see Table 1).
[GRAPHIC] [TIFF OMITTED] TN06JY20.038

    Two alternatives for achieving this object are described. In each 
alternative, quotas or tariffs would be imposed on imports of: 1) 
unwrought aluminum (Harmonized Tariff Schedule (HTS) Code 7601); 2) 
aluminum castings and forgings (HTS Codes 7616.99.51.60 and 
7616.99.51.70); 3) aluminum plate, sheet, strip, and foil (flat rolled 
products) (HTS Codes 7606 and 7607); 4) aluminum wire (HTS Code 7605); 
5) aluminum bars, rods and profiles (HTS Code 7604); and 6) aluminum 
tubes and pipes (HTS Code 7608); and 7) aluminum tube and pipe fittings 
(HTS Code 7609) based on 2017 annualized imports in those categories.
    In either alternative, the Secretary recommends that the action 
taken to adjust the level of imports must be in effect for a duration 
sufficient to allow necessary time and assurances to stabilize the U.S. 
industry. It takes up to nine months to restart idled smelting 
capacity. Market certainty is needed to build cash flow to pay down 
debt and to raise capital for plant modernization to improve 
manufacturing efficiency.
    The Department of Commerce, in consultation with other appropriate 
departments and agencies, will monitor the status of the U.S. aluminum 
industry and the effectiveness of the remedies to determine if the 
remedies should be terminated, extended, or adjusted as needed.

[[Page 40511]]

Alternative 1--Global Quota or Tariff

Global Quota

    A worldwide quota of 86.7 percent on imports described above would 
restrict aluminum imports sufficiently to allow U.S. primary aluminum 
producers to increase production by about 669,000 metric tons, bringing 
total production to about 1.45 million metric tons, or about 80 percent 
of U.S. primary aluminum production capacity. This quota would also be 
applied to the five other aluminum product categories listed above and 
would help ensure the viability of those U.S. producers to meet 
national security needs.
Global Tariff
    A tariff rate of 7.7 percent on imports of unwrought aluminum and 
the other aluminum product categories listed above should have the same 
impact as the 86.7 percent quota. This tariff rate would be in addition 
to any antidumping or countervailing duty collections applicable to any 
product.
    This tariff rate also will adequately adjust for the price 
distortions in downstream aluminum product sectors that are caused by 
global overcapacity and overproduction being exported in the form of 
downstream products.
Alternative 2--Tariffs on a Subset of Countries
Tariffs on a Subset of Countries
    A tariff rate of 23.6 percent on imports of aluminum products from 
China, Hong Kong, Russia, Venezuela, and Vietnam should also restrict 
aluminum imports sufficiently to allow U.S. aluminum producers to 
utilize an average of 80 percent of capacity. These five countries are 
the source of substantial imports due to significant overcapacity, and/
or are potential unreliable suppliers or likely sources of transshipped 
aluminum from China.
    As in Alternative 1 above, this tariff rate would be in addition to 
any antidumping or countervailing duty collections applicable to any 
product. (For targeted tariff, all other countries would be limited to 
100 percent of their 2017 import volumes.)
Exemptions
    In selecting an alternative, the President could determine that 
specific countries should be exempted from the proposed quota (by 
granting those specific countries 100 percent of their prior imports in 
2017 or exempting them entirely), based on an overriding economic or 
security interest of the United States, which could include their 
willingness to work with the United States to address global excess 
capacity and other challenges facing the U.S. aluminum industry.
    The Secretary recommends that any such determination should be made 
at the outset and a corresponding adjustment be made to the final quota 
or tariff imposed on the remaining countries. This would ensure that 
overall imports of aluminum to the United States remain at or below the 
level needed to enable the domestic aluminum industry to return to 2012 
production and import penetration levels.
Exclusions
    The Secretary recommends an appeal process by which affected U.S. 
parties could seek an exclusion from the tariff or quota imposed. The 
Secretary would grant exclusions based on a demonstrated: (1) Lack of 
sufficient U.S. production capacity of comparable products; or (2) 
specific national security-based considerations. This appeal process 
would include a public comment period on each exclusion request, and in 
general, would be completed within 90 days of a completed application 
being filed with the Secretary.
    An exclusion may be granted for a period to be determined by the 
Secretary and may be terminated if the conditions that gave rise to the 
exclusion change. The U.S. Department of Commerce will lead the appeal 
process in coordination with the Department of Defense and other 
agencies as appropriate. Should exclusions be granted the Secretary 
would consider at the time whether the quota or tariff for the 
remaining products needs to be adjusted to ensure that U.S. aluminum 
production meets target levels.

II. Legal Framework

A. Section 232 Requirements

    Section 232 provides the Secretary with the authority to conduct 
investigations to determine the effect on the national security of the 
United States of imports of any article. It authorizes the Secretary to 
conduct an investigation if requested by the head of any department or 
agency, upon application of an interested party, or upon his own 
motion. See 19 U.S.C. 1862(b)(1)(A).
    Section 232 directs the Secretary to submit to the President a 
report with recommendations for ``action or inaction under this 
section'' and requires the Secretary to advise the President if any 
article ``is being imported into the United States in such quantities 
or under such circumstances as to threaten to impair the national 
security.'' See 19 U.S.C. 1862(b)(3)(A).
    Section 232(d) directs the Secretary and the President to, in light 
of the requirements of national security and without excluding other 
relevant factors, give consideration to the domestic production needed 
for projected national defense requirements and the capacity of the 
United States to meet national security requirements. See 19 U.S.C. 
1862(d).
    Section 232(d) also directs the Secretary and the President to 
``recognize the close relation of the economic welfare of the Nation to 
our national security, and
    . . .take into consideration the impact of foreign competition on 
the economic welfare of individual domestic industries'' by examining 
whether any substantial unemployment, decrease in revenues of 
government, loss of skills or investment, or other serious effects 
resulting from the displacement of any domestic products by excessive 
imports,\5\ or other factors, result in a ``weakening of our internal 
economy'' that threaten to impair the national security. See 19 U.S.C. 
1862(d).
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    \5\ An investigation under Section 232 looks at excessive 
imports for their threat to the national security, rather than 
looking at unfair trade practices as in an antidumping 
investigation.
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    Once an investigation has been initiated, Section 232 mandates that 
the Secretary provide notice to the Secretary of Defense that such an 
investigation has been initiated. Section 232 also requires the 
Secretary to do the following:
    (1) ``Consult with the Secretary of Defense regarding the 
methodological and policy questions raised in [the] investigation;''
    (2) ``Seek information and advice from, and consult with, 
appropriate officers of the United States;'' and
    (3) ``If it is appropriate and after reasonable notice, hold public 
hearings or otherwise afford interested parties an opportunity to 
present information and advice relevant to such investigation.'' \6\ 
See 19 U.S.C. 1862(b)(2)(A)(i)-(iii).
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    \6\ Department regulations (i) set forth additional authority 
and specific procedures for such input from interested parties, see 
15 CFR 705.7 and 705.8, and (ii) provide that the Secretary may vary 
or dispense with those procedures ``in emergency situations, or when 
in the judgment of the Department, national security interests 
require it.'' Id., Sec.  705.9.
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    As detailed in Parts III and VI of this report, each of the legal 
requirements set forth above has been satisfied.
    In conducting the investigation, Section 232 permits the Secretary 
to request that the Secretary of Defense provide an assessment of the 
defense

[[Page 40512]]

requirements of the article that is the subject of the investigation. 
See 19 U.S.C. 1862(b)(2)(B).
    Upon completion of a Section 232 investigation, the Secretary is 
required to submit a report to the President no later than 270 days 
after the date on which the investigation was initiated. See 19 U.S.C. 
1862(b)(3)(A). The required report must:
    (1) Set forth ``the findings of such investigation with respect to 
the effect of the importation of such article in such quantities or 
under such circumstances upon the national security;''
    (2) Set forth, ``based on such findings, the recommendations of the 
Secretary for action or inaction under this section;'' and
    (3) ``If the Secretary finds that such article is being imported 
into the United States in such quantities or under such circumstances 
as to threaten to impair the national security . . . so advise the 
President.'' See 19 U.S.C. 1862(b)(3)(A)
    All unclassified and non-proprietary portions of the report 
submitted by the Secretary to the President must be published.
    Within 90 days after receiving a report in which the Secretary 
finds that an article is being imported into the United States in such 
quantities or under such circumstances as to threaten to impair the 
national security, the President shall:
    (1) ``Determine whether the President concurs with the finding of 
the Secretary''; and
    (2) ``If the President concurs, determine the nature and duration 
of the action that, in the judgment of the President, must be taken to 
adjust the imports of the article and its derivatives so that such 
imports will not threaten to impair the national security.'' See 19 
U.S.C. 1862(c)(1)(A).

B. Discussion

    While Section 232 does not contain a definition of ``national 
security,'' both Section 232, and its implementing regulations at 15 
CFR part 705, contain non-exclusive lists of factors that Commerce must 
consider in evaluating the effect of imports on national security.
    Congress in Section 232 explicitly determined that ``national 
security'' includes, but is not limited to, ``national defense'' 
requirements. See 19 U.S.C. 1862(d). The Department in 2001 determined 
that ``national defense'' includes both defense of the United States 
directly and the ``ability to project military capabilities globally.'' 
\7\
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    \7\ Id.
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    The Department also concluded in 2001 that ``in addition to the 
satisfaction of national defense requirements, the term ``national 
security'' can be interpreted more broadly to include the general 
security and welfare of certain industries, beyond those necessary to 
satisfy national defense requirements, which are critical to the 
minimum operations of the economy and government.'' The Department 
called these ``critical industries.'' \8\ This report once again uses 
these reasonable interpretations of ``national defense'' and ``national 
security.'' However, this report uses the more recent 16 critical 
infrastructure sectors identified in Presidential Policy Directive 21 
\9\ instead of the 28 critical industry sectors used by the Bureau of 
Export Administration in the 2001 Report.\10\
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    \8\ Id.
    \9\ Presidential Policy Directive 21; Critical Infrastructure 
Security and Resilience; February 12, 2013 (``PPD[hyphen]21'').
    \10\ See Op. Cit. at 16.
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    Section 232 directs the Secretary to determine whether imports of 
any article are being made ``in such quantities'' or ``under such 
circumstances'' that those imports ``threaten to impair the national 
security.'' See 19 U.S.C. 1862(b)(3)(A). The statutory construction 
makes clear that either the quantities or the circumstances, standing 
alone, may be sufficient to support an affirmative finding. They may 
also be considered together, particularly where the circumstances act 
to prolong or magnify the impact of the quantities being imported.
    The statute does not define a threshold for when ``such 
quantities'' of imports are sufficient to threaten to impair the 
national security, nor does it define the ``circumstances'' that might 
qualify.
    Likewise, the statute does not require a finding that the 
quantities or circumstances are impairing the national security. 
Instead, the threshold question under Section 232 is whether those 
quantities or circumstances ``threaten to impair the national 
security.'' See 19 U.S.C. 1862(b)(3)(A). This formulation leaves the 
matter to the Secretary's discretion, and makes evident that Congress 
expected an affirmative finding under Section 232 would occur before 
there is actual impairment of the national security.
    Section 232(d) contains a considerable list of factors for the 
Secretary to consider in determining if imports ``threaten to impair 
the national security'' \11\ of the United States, and this list is 
mirrored in the implementing regulations. See 19 U.S.C. 1862(d) and 15 
CFR 705.4. Congress was careful to note twice in Section 232(d) that 
the list they provided, while mandatory, is not exclusive.\12\ 
Congress' illustrative list is focused on the ability of the United 
States to maintain the domestic capacity to provide the articles in 
question as needed to maintain the national security of the United 
States.\13\ Congress broke the list of factors into two equal parts 
using two separate sentences. The first sentence focuses directly on 
``national defense'' requirements, thus making clear that ``national 
defense'' is a subset of the broader term ``national security.'' The 
second sentence focuses on the broader economy, and expressly directs 
that the Secretary and the President ``shall recognize the close 
relation of the economic welfare of the Nation to our national 
security.'' \14\ See 19 U.S.C. 1862(d).
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    \11\ 19 U.S.C. 1862(b)(3)(A).
    \12\ See 19 U.S.C. 1862(d) (``the Secretary and the President 
shall, in light of the requirements of national security and without 
excluding other relevant factors. . .'' and ``serious effects 
resulting from the displacement of any domestic products by 
excessive imports shall be considered, without excluding other 
factors. . .'').
    \13\ This reading is supported by Congressional findings in 
other statutes. See, e.g., 15 U.S.C. 271(a)(1)(``The future 
well[hyphen]being of the United States economy depends on a strong 
manufacturing base. . .'') and 50 U.S.C. 4502(a)(``Congress finds 
that--(1) the security of the United States is dependent on the 
ability of the domestic industrial base to supply materials and 
services. . . (2)(C) to provide for the protection and restoration 
of domestic critical infrastructure operations under emergency 
conditions. . . (3). . . the national defense preparedness effort of 
the United States government requires--(C) the development of 
domestic productive capacity to meet--(ii) unique technological 
requirements. . . (7) much of the industrial capacity that is relied 
upon by the United States Government for military production and 
other national defense purposes is deeply and directly influenced 
by--(A) the overall competitiveness of the industrial economy of the 
United States; and (B) the ability of industries in the United 
States, in general, to produce internationally competitive products 
and operate profitably while maintaining adequate research and 
development to preserve competitiveness with respect to military and 
civilian production; and (8) the inability of industries in the 
United States, especially smaller subcontractors and suppliers, to 
provide vital parts and components and other materials would impair 
the ability to sustain the Armed Forces of the United States in 
combat for longer than a short period.'').
    \14\ Accord 50 U.S.C. 4502(a).
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    Two of the factors listed in the second sentence of Section 232(d) 
are most relevant in this investigation. Both are directed at how 
``such quantities'' of imports threaten to impair national security. 
See 19 U.S.C. 1862(b)(3)(A). In administering Section 232, the 
Secretary and the President are required to ``take into consideration 
the impact of foreign competition on the economic welfare of individual 
domestic industries'' and any ``serious effects resulting from the

[[Page 40513]]

displacement of any domestic products by excessive imports'' in 
``determining whether such weakening of our internal economy may impair 
the national security.'' See 19 U.S.C. 1862(d).
    Another factor, not on the list, that the Secretary found to be a 
relevant is the presence of massive foreign excess capacity for 
producing aluminum. This excess capacity results in aluminum imports 
occurring ``under such circumstances'' that that they threaten to 
impair the national security. See 19 U.S.C. 1862(b)(3)(A). The 
circumstance of excess global aluminum production capacity is a factor 
because, while U.S. production capacity has declined dramatically in 
recent years, other nations have increased their production capacity, 
with China alone able to produce as much as the rest of the world 
combined. This overhang of excess capacity means that U.S. aluminum 
producers, for the foreseeable future, will face increasing competition 
from imported aluminum, often subsidized by foreign national 
governments, as other countries export more downstream products to the 
United States to bolster their own economic objectives and offset loss 
of markets to Chinese aluminum exports.
    It is these three factors--displacement of domestic aluminum by 
excessive imports and the consequent adverse impact on the economic 
welfare of the domestic aluminum industry, along with global (primarily 
Chinese) excess capacity in aluminum- that the Secretary has concluded 
are ``weakening. . .our internal economy'' and therefore ``threaten to 
impair'' the national security as defined in Section 232.\15\
---------------------------------------------------------------------------

    \15\ The 2001 Report used the phrase ``fundamentally threaten to 
impair'' when discussing how imports may threaten to impair national 
security. See 2001 Report at 7 and 37. Because the term 
``fundamentally'' is not included in the statutory text and could be 
perceived as establishing a higher threshold, the Secretary 
expressly does not use the qualifier in this report. The statutory 
threshold in Section 232(b)(3)(A) is unambiguously ``threaten to 
impair'' and the Secretary adopts that threshold without 
qualification. 19 U.S.C. 1862(b)(3)(A).
---------------------------------------------------------------------------

    The Secretary also considered whether or not the source of the 
imports affects the analysis under Section 232. The Department has 
previously determined ``imports can threaten to impair U.S. national 
security if the United States is excessively dependent on imports from 
unreliable or unsafe sources, and thereby is vulnerable to a supply 
disruption'' for an input or article.\16\ Such an analysis is 
permissible under the statutory command to consider whether articles 
are ``being imported into the United States. . . under such 
circumstances as to threaten to impair the national security.'' See 19 
U.S.C. 1862(b)(3)(A). Such an inquiry would be necessary and 
appropriate in ``such circumstances'' where the United States is 
dependent on imports to meet national security needs, for example when 
a mineral is not produced in the United States or domestic producers 
are unable to meet demand but imports from an unreliable source are 
preventing investment needed to increase domestic production.
---------------------------------------------------------------------------

    \16\ 2001 Report at 6. See also, 2001 Report at 7 (describing 
prior Department reports under Section 232 that considered supply 
vulnerability.
---------------------------------------------------------------------------

    The source of imports could also be a ``factor'' the Secretary 
considers under the analysis required by Section 232(d). See 19 U.S.C. 
1862(d). That is up to the Secretary's discretion. However, because 
Congress in Section 232 chose to explicitly direct the Secretary to 
consider whether the ``impact of foreign competition'' and ``the 
displacement of any domestic products by excessive imports'' are 
``weakening our internal economy'' yet made no reference whatsoever to 
an assessment of the sources of imports, it is evident that Congress 
recognized that those adverse impacts might well be caused by imports 
from allies or other reliable sources.\17\ As a result, the fact that 
some or all of the imports causing the harm are from reliable sources 
does not compel a finding that those imports do not threaten to impair 
national security.
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    \17\ When Congress adopted the text of section 232(d) in 1962 
the immediately preceding section was Section 231, 19 U.S.C. 1861, 
which required the President, as soon as practicable, to suspend 
most[hyphen]favored[hyphen]nation tariff treatment for imports from 
communist countries. Given the bipolar nature of the world at the 
time, the absence of a distinction between communist and 
non[hyphen]communist countries in Section 232 suggests that Congress 
expected Section 232 would be applied to imports from all 
countries--including allies and other ``reliable'' sources.
---------------------------------------------------------------------------

    The statute allows the Secretary to reasonably conclude that, in 
the absence of adequate domestic supply, imports from allies should not 
be relied upon in order to ensure domestic production facilities are 
sufficient to meet U.S. national security as defined in Section 232. 
Similarly, the statute also permits the Secretary to consider the 
availability of reliable imports as a factor that supports a conclusion 
that imports are not threatening to impair U.S. national security.

III. Investigation Process

A. Initiation of Investigation

    On April 26, 2017, U.S. Secretary of Commerce Wilbur Ross initiated 
an investigation to determine the effect of imported aluminum on 
national security under Section 232 of the Trade Expansion Act of 1962, 
as amended (19 U.S.C. 1862).
    Pursuant to Section 232, the Department notified the U.S. 
Department of Defense in an April 26, 2017 letter from Secretary Ross 
to Secretary James Mattis. On April 27, 2017, President Donald Trump 
signed a Presidential Memorandum directing Secretary Ross to proceed 
expeditiously in conducting his investigation and submit a report on 
his findings to the President.

B. Public Comment

    On May 3, 2017, the Department invited interested parties to submit 
written comments, opinions, data, information, or advice relevant to 
the criteria listed in Sec.  705.4 of the National Security Industrial 
Base Regulations (15 CFR 705.4) as they affect the requirements of 
national security, including the following:
    (a) Quantity of the articles subject to the investigation and other 
circumstances related to the importation of such articles;
    (b) Domestic production capacity needed for these articles to meet 
projected national defense requirements;
    (c) The capacity of domestic industries to meet projected national 
defense requirements;
    (d) Existing and anticipated availability of human resources, 
products, raw materials, production equipment, facilities, and other 
supplies and services essential to the national defense;
    (e) Growth requirements of domestic industries needed to meet 
national defense requirements and the supplies and services including 
the investment, exploration and development necessary to assure such 
growth;
    (f) The impact of foreign competition on the economic welfare of 
any domestic industry essential to our national security;
    (g) The displacement of any domestic products causing substantial 
unemployment, decrease in the revenues of government, loss of 
investment or specialized skills and productive capacity, or other 
serious effects;
    (h) Relevant factors that are causing or will cause a weakening of 
our national economy; and
    (i) Any other relevant factors. (See Federal Register, Vol. 82, No. 
88, Tuesday, May 9, 2017.)
    The public comment period ended on June 23, 2017. The Department 
received 91 written submissions concerning this investigation. These 
public comments are set forth in Appendix A.

[[Page 40514]]

C. Public Hearing

    The Department held a public hearing to elicit further information 
concerning this investigation in Washington, DC on June 22, 2017. The 
Department heard testimony from 32 witnesses at the hearing. A 
transcript of the testimonies given at the Public Hearing is included 
in Appendix B.

D. Interagency Consultation

    Pursuant to the requirements of Section 232, Commerce Secretary 
Ross notified Defense Secretary Mattis of this investigation on April 
26, 2017. In addition, Department of Commerce staff consulted with 
their counterparts in the Department of Defense regarding 
methodological and policy questions that arose during the 
investigation.
    The Department also consulted with other agencies of the U.S. 
Government with expertise and information regarding the aluminum 
industry, including the U.S. Geological Survey of the Department of the 
Interior and the U.S. International Trade Commission.\18\
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    \18\ The U.S. International Trade Commission conducted an 
investigation at the request of the Committee on Ways and Means of 
the U.S. House of Representatives entitled ``Aluminum: Competitive 
Conditions Affecting the U.S. Industry,'' Publication Number 4703, 
Investigation Number 332-557, June 2017. This report provided 
information useful and pertinent to this Section 232 investigation 
and is cited henceforth as ``USITC Report.''
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IV. Product Scope of the Investigation

    For this report, aluminum is defined at the Harmonized Tariff 
Schedule (HTS) 4-digit level. The HTS codes covered by this report are 
listed in Table 2. In addition, two HTS codes at the ten digit level 
are included, covering aluminum castings and forgings.
[GRAPHIC] [TIFF OMITTED] TN06JY20.039

    The scope of this investigation does not include bauxite or 
alumina, which are feedstocks for production of primary (unwrought) 
aluminum. Also excluded from analysis are aluminum waste and scrap (HTS 
7602) and aluminum powders and flakes (HTS 7603) as these represent 
different industrial sectors.

V. Background on the Aluminum Industry

    Aluminum is the most abundant naturally occurring metal in the 
earth's crust, and it is an essential element of modern life. Virtually 
every person in the United States, and indeed most of the world, uses 
aluminum every single day. More aluminum is consumed today than at any 
point in the 125-year history of the metal's commercial production. 
Lightweight, corrosion resistant, easily formed, highly conductive, 
highly reflective, durable and recyclable--aluminum is a highly useful 
material for manufacturers. It offers a wide range of options for 
product innovation and process improvements. Aluminum is critical to 
modern mobility, increasing sustainability, and the national economy.
    Aluminum is used in a wide variety of applications, and global 
demand for it is expected to grow at an annual rate of 3.8 percent.\19\ 
Transportation applications, including aircraft and automobiles, 
account for 40 percent of domestic consumption, followed by packaging 
with 20 percent, building construction with 15 percent, electrical with 
eight percent, and machinery with seven percent.\20\ One of the factors 
driving increasing demand for aluminum is its ability to reduce weight, 
thereby improving energy efficiency.
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    \19\ The Aluminum Association.
    \20\ U.S. Geological Survey, Mineral Commodity Series, January 
2017.
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    Aluminum originates from bauxite, an ore typically found in the 
topsoil of various tropical and subtropical regions; the United States 
is not a significant

[[Page 40515]]

source of bauxite as it cannot be economically extracted here. Once 
mined, aluminum within the bauxite ore is chemically extracted in a 
refinery into alumina, an aluminum oxide compound. In a second step, 
the alumina is smelted to produce pure aluminum metal.
    The industry can be divided into three basic segments: upstream, 
downstream, and secondary. The upstream segment includes primary or 
``unwrought'' aluminum production, in which aluminum is produced from 
raw materials. The products of the upstream industry segment are 
classified within HTS Code 7601.
    The majority of U.S. aluminum production today is based on recycled 
scrap, called secondary production, and is captured within HTS Code 
7602. The United States is the world's leading producer of secondary 
unwrought aluminum, due to its long established aluminum recycling 
industry. Secondary production increased from 22 percent of aluminum 
production in 1980, to 64 percent of domestic production in 2016.\21\ 
While aluminum produced through secondary production is an important 
feedstock for the U.S. aluminum industry, it is fundamentally a 
different industry sector and is not the focus of this report.
---------------------------------------------------------------------------

    \21\ Aluminum: The Element of Sustainability; The Aluminum 
Association, September 2011 and USGS Mineral Commodity Series.
---------------------------------------------------------------------------

    The processing of aluminum into semi-finished aluminum goods such 
as rods, bars, sheets, plates, castings, forgings and extrusions is the 
downstream segment of the industry. These aluminum products can be 
manufactured using primary aluminum, secondary aluminum, or a 
combination depending on the unique requirements or specifications. 
Aluminum products manufactured by the downstream segment of the 
industry are included in HTS Codes 7604, 7605, 7606, 7607, 7608, 7609, 
7616.99.51.60 and 7616.99.51.70.

(See Appendix C for a more detailed description of the aluminum 
industry)

VI. Findings

A. Aluminum Is Essential to U.S. National Security

    Aluminum products are used widely across U.S. society in a range of 
consumer products, commercial applications, and industrial products. 
The supply of aluminum ingot, bar, rod, coils, sheet, cable and wire, 
and plate products is essential to the functioning of the U.S. economy, 
critical infrastructure, and the national defense. This lightweight, 
electrically conductive, corrosion resistant material has widespread 
uses in consumer goods, commercial products, and in many industrial 
applications.
    From food packaging to advanced military aircraft, aluminum is a 
vital material used in industry and in infrastructure critical to U.S. 
economic growth. These sectors consume large quantities aluminum for 
new construction, production of aircraft, automobiles, bridges, 
building materials, heating and cooling systems, housing, power 
transmission cable, trucks and trailers and other applications.
    A predictable supply of this versatile metal is required for the 
supply of many types of products and systems supporting U.S. government 
civilian and defense operations. For economic stability and to support 
national security requirements for U.S. critical infrastructure and the 
national defense, the United States needs domestic capability to 
produce both primary aluminum and semi- finished aluminum products.
    Specifically, U.S. capability must be maintained for: 1) primary 
aluminum production, 2) processing of recycled aluminum into products, 
and 3) making bar and rod, plate and sheet, coils, extrusions, 
castings, forgings, pigments and powders, and other aluminum products. 
In 2016, imports of aluminum ingot and semi-finished aluminum products 
accounted for 64 percent of U.S. aluminum consumption.\22\ In 2016, the 
U.S. imported more than 90 percent of the primary aluminum it 
consumed.\23\
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    \22\ Based on Aluminum Association data.
    \23\ Based on U.S. Geological Survey data for the U.S. 
production and on U.S. Census data for exports and imports.
---------------------------------------------------------------------------

    Total reliance on imports cannot provide an assured supply of 
aluminum to meet U.S. critical infrastructure and defense needs in a 
national emergency--as production facilities are vulnerable and supply 
lines are easily disrupted. A significant shortfall in the flow of 
imported aluminum to U.S. manufacturers could disrupt essential 
commercial production in the absence of a domestic supply base for 
aluminum. Moreover, the aluminum smelting and downstream aluminum 
products industry are critical to the minimum operations of the economy 
and government.
    Critical infrastructure sectors where there is significant 
dependence on aluminum content include:
     Defense Industrial Base: Design, production, delivery, and 
maintenance of military weapons systems, subsystems, and components or 
parts to meet U.S. military requirements
     Energy: Electric power transmission and distribution (over 
6,000 power plants)
     Transportation: Aircraft, automobiles, railroad freight 
cars, boats, ships, trains, trucks, trailers, wheels
     Containers and Packaging: Cabinets, cans, foils, storage 
bins, storage tanks
     Construction: Bridges, structural supports, conduit, 
piping, siding, doors, windows, wiring
     Manufacturing: Machinery, stampings, castings, forgings, 
product components, consumer goods, heating and cooling devices, and 
utility lighting fixtures
1. Aluminum Is Required for U.S. National Defense
    The U.S. Department of Defense (DoD) and its contractors use a 
small percentage of U.S. aluminum production. The DoD ``Top Down'' 
estimate of average annual demand for aluminum during peacetime is 
[TEXT REDACTED], or [TEXT REDACTED] percent of total U.S. demand \24\ 
Despite the low percentage of aluminum consumed directly by the DoD, a 
healthy, vibrant commercial aluminum industry (both primary and 
downstream) is critical to U.S. national security.
---------------------------------------------------------------------------

    \24\ [TEXT REDACTED]
---------------------------------------------------------------------------

[TEXT REDACTED]25, 26, 27
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    \25\ [TEXT REDACTED]
    \26\ [TEXT REDACTED]
    \27\ [TEXT REDACTED]
---------------------------------------------------------------------------

    The following sections of the report describe the use of aluminum 
in U.S. military systems and in critical infrastructure.
Use of Aluminum in U.S. Military Systems
a. Ground Systems/Weapons
    In the area of ground weapons, cold-rolled thick aluminum plate is 
an integral part of the structure of armored vehicles such as tanks, 
personnel carriers, and amphibious vehicles. Such plate is classified 
within Harmonized Tariff Schedule (HTS) 7606. In these applications, 
aluminum provides outstanding ballistic protection and excellent 
corrosion resistance. Aluminum bar and other extrusions (HTS 7604) are 
used in cage armor on a number of vehicles. Aluminum cage armor is 
approximately 50 percent lighter than steel cage armor.
    The use of aluminum also allows the design of low-weight, reliable, 
and cost-efficient components for light-armored

[[Page 40516]]

civilian and tactical vehicles, as well as for heavy constructions like 
military bridges. Using aluminum plate in place of steel also improves 
the agility and transportability of defense and rescue vehicles and 
systems (by air transport, for example) into areas of conflict or 
disaster.
[GRAPHIC] [TIFF OMITTED] TN06JY20.040

b. Aircraft
    Aluminum alloys are the predominant choice for the fuselage, wing, 
and supporting structures of many military aircraft. These types of 
products are classified within HTS 7606 (aluminum sheet) as well 
aluminum casting and forgings classified within HTS 7616.99.51. The use 
of aluminum has been key to the success of advanced aircraft over the 
decades, including planes such as the Lockheed SR-71 Blackbird, C-17 
Globemaster, Boeing F-18--and today, the F-35 Joint Strike Fighter.
    Because of aluminum's light weight and excellent damage tolerance 
capability, it is used in a large number of aircraft applications: 
vertical stabilizers, horizontal stabilizers, plate for trailing edges, 
spars, ribs, fuselage frames, and air intake shells. A variety of 
aircraft-related systems, including bombs, decoy systems, and radar 
also require aluminum. The airframe of a military aircraft can be as 
much as 80 percent aluminum by weight. The military aircraft industry 
also demands high-strength aluminum products that can perform in harsh 
environments without cracking or outright failure.
    Aluminum products used in military aircraft are often highly 
engineered to meet specific performance attributes to facilitate 
machining complex aircraft parts. Structural components of U.S. 
military aircraft may be made of cast or fabricated wrought aluminum 
(forged, machined and assembled parts) as well as rolled sheet 
products.
    The supply of high-purity aluminum is critical to the production of 
high- performance aluminum alloys used in military aircraft and other 
applications. To meet aircraft component performance requirements, 
``Purity'' and ``High-purity'' grades of aluminum must be used to 
enable the manufacture of aluminum materials with greater tensile 
strength, fracture toughness, improved high-temperature operating 
ability, and corrosion resistance.\28\ These advanced aluminum 
materials are used not only in aircraft, but in space, naval, and 
ground vehicles as well. While the industry classifies aluminum by 
purity, U.S. government trade and industry statistics (such as 
Harmonized Tariff Schedule (HTS) and North American Industrial 
Classification (NAICS)) are not differentiated based on purity.
---------------------------------------------------------------------------

    \28\ High[hyphen]Purity aluminum grades are: P0406,P0405, P0404, 
P0305, P0304, P0303, and P0202. Source: Arconic, Century Aluminum, 
Harbor Aluminum, other industry sources. The average purity level of 
primary aluminum produced is 99.9 percent, compared to 
standard[hyphen]purity aluminum which is approximately 99.7 percent.
---------------------------------------------------------------------------

    Aircraft deployed by the DoD are expected to continue to use 
significant amounts of aluminum, even as composite materials replace 
parts traditionally made of aluminum or titanium. At least 36 types of 
U.S. military aircraft and related systems that require aluminum parts 
are in service today. These aircraft are purchased and used by the U.S. 
Government and foreign governments. In addition, there are 19 other 
military aircraft systems for which spare aluminum parts continue to be 
required or may be required (See Table 4).

[[Page 40517]]

[GRAPHIC] [TIFF OMITTED] TN06JY20.041

BILLING CODE 3510-33-C
    The U.S. manufacturers of products based on aluminum require 
250,000 metric tons of high-purity aluminum a year. Approximately 90 
percent of this is for commercial aerospace and other applications. Ten 
percent is used to support the manufacture of defense-related products. 
The United States produced annually, until recently, 125,000 metric 
tons of high-purity aluminum (Grades P0404, P0303, P0202). The balance 
is imported, principally from the UAE, but also small quantities from 
Canada, New Zealand, and Russia.
    Century Aluminum operates the only high-volume, pure aluminum 
smelter in the United States. Its Hawesville, Kentucky facility has 
demonstrated capability to produce at least 100,000 metric tons of 
high-purity aluminum a year (it manufactured 60,000 metric tons high-
purity aluminum in 2016). Arconic currently has an annual capability to 
produce approximately [TEXT REDACTED] of high-purity aluminum using 
standard aluminum ingot in a fractionalization crystallization process. 
All of its production is for internal consumption for the manufacture 
of company products; it supplements its own production with imported 
high-purity aluminum (from the UAE).
    Aluminum from Century's Hawesville smelter supplies the electrical

[[Page 40518]]

conductor, remelt ingot, and high-purity ingot markets, as well as the 
defense and aerospace industries. A large portion of Hawesville's 
specially configured facility provides the high-conductivity metal 
required by this facility's largest customer, Southwire. This company 
is a major manufacturer of electrical wire (including power 
transmission conductor), cable, and other electrical products.
[TEXT REDACTED] \29\
---------------------------------------------------------------------------

    \29\ [TEXT REDACTED]
---------------------------------------------------------------------------

    The actions of Century's customers are driven in part because of 
concerns about Century Aluminum's future financial viability. Century 
has been closing smelting facilities in response to reduced orders for 
aluminum product from traditional customers--a situation attributed to 
foreign government intervention in the aluminum industry with massive 
subsidies. This has produced a global aluminum supply glut and a 
collapse of world aluminum prices. In turn, it has driven up U.S. 
imports of aluminum, which have drastically reduced company production 
and income.
[TEXT REDACTED]
c. Space Applications
    There is a history of extensive use of aluminum in space 
applications, including launch vehicles, space capsules, satellites, 
and missiles. Aluminum has been a preferred material because of it is 
light weight, able to withstand stress, heat reflectance, and has other 
properties.
    For missile and space applications, aluminum has been the material 
used across a wide range of structures. Once again, its light weight 
and its ability to withstand the stresses that occur during launch and 
operation in space environments are why aluminum has been used on 
Apollo spacecraft, the Skylab, the space shuttles and the International 
Space Station, as well as in missiles.
[GRAPHIC] [TIFF OMITTED] TN06JY20.042

    Aluminum alloys consistently exceed other metals in such areas as 
mechanical stability, dampening, thermal management and reduced weight. 
Powdered aluminum is also used as the key ingredient in primary 
propellant for solid rocket booster motors for tactical missiles and 
space-launch platforms. The reason for this is because it has a high 
volumetric energy density and is difficult to ignite accidentally.
d. Naval Applications
    Military marine designers and naval engineers recognize that 
aluminum's low density, high strength, and corrosion resistance make it 
an advantageous material for some types of shipbuilding. Use of 
aluminum enhances ship speeds and enables operation in shallower water 
because of reduced draft. Increased fuel efficiency and higher cargo 
carrying capability also are enabled by vessel weight reductions 
achieved using aluminum.
    The greatest use of aluminum in the U.S. Navy is with four classes 
of ships: Expeditionary Fast Transport, Joint High Speed Vessel, 
Littoral Combat Ship--Monohull and the Littoral Combat Ship--Tirmarian. 
Smaller quantities of aluminum will be required for the construction of 
smaller craft--e.g., Dauntless Patrol Boats and the High Speed 
Maneuverable Surface Target (HSMST) boat. The HSMSTs will be used to 
support weapon systems testing and evaluation, and fleet training 
exercises.
    Although the cost of aluminum material is higher than for steel, 
and more labor hours are required to build the structure for aluminum 
ships, for some types of vessels there is an overall cost savings due 
to the life-cycle benefits of aluminum's significantly lower 
weight.\30\ The Navy's future fleet program anticipates the use of 
aluminum in new vessel platforms that are under development.
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    \30\ Lamb, Thomas, Nathaniel Beavers, Thomas Ingram and Anton 
Schmieman, ``The Benefits and Costs Impact of Aluminum Naval Ship 
Structure,'' accessed through sname.org.

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[[Page 40519]]

[GRAPHIC] [TIFF OMITTED] TN06JY20.043

e. Future DoD Aluminum Requirements
    DoD projects that its requirements for defense products and systems 
using aluminum will grow in the years ahead. DoD estimates that annual 
consumption for just wrought aluminum plate used in nine defense 
systems will climb from [TEXT REDACTED] in 2017 to more than [TEXT 
REDACTED] tons in 2020.
    Much of this increase for wrought aluminum plate is attributed to 
orders for the Joint Light Tactical Vehicle (JLTV), Armored Multi-
Purpose Vehicle (AMPV), M109 Paladin Artillery Vehicle, and the 
Amphibious Assault Vehicle (AAV), and the Littoral Combat Ship. 
Aluminum also is required for foreign military sales of Bradley 
Fighting Vehicles. These DoD aluminum projections do not include 
aluminum consumed for the production of spare parts for more than 70 
Army, Air Force, and Navy systems in use by DoD.
    In addition, ongoing research focused on improving sheet aluminum 
performance characteristics as well as casting and forging technology 
for aircraft and other defense application could result in greater use 
in DoD platforms. Indeed, R&D is expected to drive expanded use of the 
material--raising overall DoD tonnage requirements for production of 
defense systems.
    Yet the pace of expansion of aluminum use in defense and commercial 
markets may be slower than it might be were it not for the collapse of 
aluminum prices and loss of revenue at U.S. aluminum producers. At this 
time most aluminum companies cannot afford to fund research. The 
importance of research in this industry is clear, however. More than 90 
percent of all alloys currently used in the aerospace industry were 
developed through Alcoa's research.\31\
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    \31\ Alcoa, http://www.alcoa.com/global/en/home.asp
---------------------------------------------------------------------------

    Retention of domestic capacity to meet DoD production requirements 
for conventional aluminum plate, armor plate, and other aluminum 
production capacity is of concern to DoD. DoD does not keep any type of 
aluminum product, including armor plate, in the U.S. Government's 
national stockpile.\32\
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    \32\ In June 1966, the National Defense Stockpile contained 
920,000 short tons of aluminum. Over time, the Congress steadily 
reduced the stockpile's aluminum holding to zero. The purpose of the 
stockpile is to limit, if not preclude dependence by the United 
States upon foreign sources in times of a national emergency. U.S. 
Department of Defense requirements for aluminum in the stockpile 
have been reduced as a consequence of demand/supply modelling by the 
Institute for Defense Analysis. The accuracy of the modelling can be 
affected by assumptions on the duration and intensity of conflicts, 
capability to import materials in a time of war, expansion and 
contraction of the supplier base, and other factors. Sources: 
Congressional Record; Managing Materials for a Twenty[hyphen]First 
Century Military (2008), The National Academies Press.
---------------------------------------------------------------------------

    With U.S. commercial applications accounting for 90 percent of high 
performance aluminum consumption, limited commercial stockpiles located 
in the United States are not likely to be sufficient to support DoD 
aluminum requirements in a time of a major war. The ability to ship 
aluminum products across the ocean could be severely restricted, if not 
impossible.
    As of June 2017, there were approximately 295,000 metric tons of 
primary and alloy aluminum held in U.S. warehouses operated by the 
London Metals Exchange (LME). Based on 2016 U.S. consumption of 5.1 
million metric tons, the amount of aluminum held in LME warehouses in 
Baltimore, Detroit, and New Orleans represents three weeks of domestic 
industrial demand.\33\
---------------------------------------------------------------------------

    \33\ Sources: U.S. Department of Interior/USGS, U.S. Department 
of Commerce/BIS, and industry data sources.
---------------------------------------------------------------------------

[TEXT REDACTED] \34\
---------------------------------------------------------------------------

    \34\ Kaiser Aluminum.
---------------------------------------------------------------------------

    U.S. national security cannot be assured if the United States 
becomes entirely dependent on foreign suppliers for primary aluminum 
and high-purity aluminum. The U.S. in 2016 relied on imports for 89 
percent of its primary aluminum requirements, up from 64 percent in 
2012.\35\ Canada, which is highly integrated with the U.S. defense 
industrial base and considered a reliable supplier, is the leading 
source of imports. With Canadian smelters operating at near full 
capacity and with the vast majority of their production already going 
to customers in the United States, there is limited ability for Canada 
to replace other suppliers.
---------------------------------------------------------------------------

    \35\ Calculations were based on U.S. production of 840,000 
metric tons, imports of 4.26 million metric tons, and U.S. exports 
of 303,000 metric tons of primary aluminum (HTS 7601).
---------------------------------------------------------------------------

    In the future there is no assurance that some non-U.S. suppliers 
such as Russia (the largest supplier of primary aluminum to the U.S. 
after Canada) will provide all the necessary aluminum products on a 
timely basis and in the quantities requested, particularly in a time of 
war or national emergency. Shifts in the policies of the governments of 
offshore aluminum suppliers, many of them state- owned, could leave the 
United States stranded.
2. Aluminum Is Required for U.S. Critical Infrastructure
    The Department of Homeland Security has designated 16 critical 
infrastructure sectors in the United States, which are considered so 
vital that their incapacitation or destruction would have a 
debilitating effect on defense capability, national economic security, 
national public health or safety.\36\ Virtually all of these sectors 
rely on aluminum products as a part of their principal missions.
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    \36\ https://www.dhs.gov/critical-infrastructure-sectors
---------------------------------------------------------------------------

    Specifically, these sectors include chemical production, commercial 
facilities, communications, critical manufacturing, dams, defense 
industrial base, emergency services, energy, food and agriculture, 
government facilities, transportation systems, and water

[[Page 40520]]

management and waste water systems. No significant uses were identified 
for financial services and nuclear reactors and related waste 
management. Detailed information on the use and importance of aluminum 
in the various critical infrastructure sectors is described below.
Use of Aluminum in Critical Infrastructure Sectors
    Of particular importance to U.S. critical infrastructure are core 
manufacturing activities such as primary metals manufacturing, 
including aluminum production and processing.\37\ The manufacture and 
supply of primary aluminum (HTS 7601), secondary production (HTS 7602), 
bars, rods, (HTS 7604) plate, and sheet material (HTS 7606) are key to 
the creation of aluminum-based products employed across the U.S. 
economy (see Table 7).
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    \37\ https://www.dhs.gov/critical-manufacturing-sector#.
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    Although aluminum use for electrical applications accounted for 
approximately seven percent of total U.S. aluminum consumption in 2016 
(or about 836,000 metric tons),\38\ its importance to critical 
infrastructure cannot be overstated. Aluminum transmission cables 
(contained in HTS classification 7605) power the nation, delivering 
electricity from power-generation facilities across- long-haul 
transmission grids for distribution at the regional, state, and local 
level.
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    \38\ Aluminum Association, ``Fast Facts at Glance--2016,'' 
December 2017
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    The health of the U.S. economy hinges on functioning power 
transmission systems and the timely supply of reliable, durable 
aluminum cable for use by electric utilities. Predictable supply is 
especially important for recovery from storms and other natural 
disasters. Commercial office buildings also use large amounts of 
aluminum cable; and it is widely used as the primary service feed to 
residential power meters and breaker boxes.
    The sector consuming the largest amount of aluminum is 
transportation. The manufacture of aircraft, automobiles, buses, 
freight and subway cars, boats and ships, tractor trailers, and related 
components accounted for about 35 percent (about 4.2 million metric 
tons) of U.S. aluminum consumption in 2016, according to the Aluminum 
Association.
    The ready availability of high quality aluminum bar, rod, coils, 
plate, sheet, and extrusions is critical to the ability of 
manufacturers to deliver product to their customers in a timely way and 
to respond to national emergencies. For this reason, Boeing purchases 
[TEXT REDACTED] percent of the aluminum it uses for the manufacture of 
aircraft from suppliers in the United States.\39\
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    \39\ Source: Provided to the U.S. Department of Commerce/BIS by 
The Boeing Company.
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    The agriculture and food supply industries are another of the 
Department of Homeland Security's (DHS) 16 critical infrastructure 
sectors. This industry relies heavily on the availability of aluminum 
packaging, including canning materials and foils (HTS 7607). Aluminum 
containers and packaging accounted for about 18 percent of U.S. 
aluminum consumption in 2016 (about 2.2 million metric tons). Aluminum 
is also widely used in crop irrigation piping in fields.
    Building and construction, according to the Aluminum Association, 
was the third-largest major market for aluminum products in 2016, 
accounting for about 12 percent of total U.S. consumption (about 1.5 
million metric tons). Aluminum is used for structural supports; door, 
wall, and door framing; roofs and awnings; architectural trim; utility 
cabinets; air conditioning systems; drawbridges and portable emergency 
bridges; and many other applications. Many of these applications of 
aluminum are classified in HTS 7604 and HTS 7608.

[[Page 40521]]

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BILLING CODE 3510-33-C
    Excessive reliance on offshore producers as the primary suppliers 
of aluminum ingot, semi-finished, and finished products to sustain 
systems for critical infrastructure would pose risks. The ability of 
the United States to respond to national emergencies could be 
constrained by a lack of domestic production capability. Domestic 
inventories of aluminum products are often limited. Dependence on 
offshore manufacturers can hinder U.S. capabilities to respond to 
catastrophes and market surges.

B. Domestic Production of Aluminum is Essential to National Security

    Continued access to U.S.-based aluminum production is important to 
critical infrastructure and to the nation's overall defense objectives 
as well as economic security. All segments of the U.S. aluminum 
industry contribute, directly or indirectly, to the U.S. defense 
industrial base as aluminum is used in a variety of defense 
applications. High-strength aluminum alloys have become among the most 
commonly used materials to make military aircraft; and aluminum armor 
plate is used to protect against explosives and other threats. A number 
of U.S. Navy ships are now made with aluminum.
    The U.S. Department of Defense has a large and ongoing need for a 
range of aluminum products. These include:
     High-purity aluminum for the F-35 Joint Strike Fighter, 
the F-18, and the C-17.
     High-purity aluminum for the armor plate in military 
vehicles, littoral combat vessels, and missiles. The percentage of 
aluminum content in armor plate in military platforms is increasing and 
may reach as much as 60 percent in the next generation military 
vehicles.

[[Page 40522]]

     The U.S. Coast Guard employs aluminum-intensive 47-foot 
first- response lifeboats. The craft are self-bailing, self-righting 
and have a long cruising radius for their size.
    Reliance on foreign suppliers for essential aluminum and aluminum 
products is contrary to U.S. national security. Moreover, overreliance 
on assumed future U.S. production capacity without adequate analysis 
given to the financial health and viability of the U.S. aluminum 
industrial base can lead to shortfalls in needed production, 
capabilities and related skilled work force when called upon.
    To ensure U.S. national security response capability, the nation 
must have sufficient domestic aluminum production capacity to meet most 
commercial demand and to fulfill DoD contractor and critical 
infrastructure requirements. The economic stability of companies 
manufacturing aluminum in the United States is undermined by growing 
volumes of imported aluminum in key product sectors.
    Although the United States imports large quantities of aluminum 
products from foreign suppliers, historically U.S. aluminum 
manufacturers have been industry leaders. Innovation by U.S. aluminum 
producers has provided technological and cost advantages to many 
domestic industries that use aluminum, including the aerospace, 
automotive, and defense sectors.
    U.S. manufacturers have produced numerous high performance alloys 
to increase the strength, durability, performance of aluminum products. 
The wide- spread adoption of high-strength aluminum structural 
components and panels in automobiles, trucks, and aircraft are 
examples.
    To maintain the health of advanced aerospace and defense product 
lines, the domestic industry must have a strong aluminum manufacturing 
capability and commercial product portfolio (e.g., automotive, 
industrial, packaging). Without a robust level of commercial business, 
aluminum manufacturers cannot afford to conduct research and 
development, make capital investments, nor maintain their production 
infrastructure, including that needed for making products for critical 
infrastructure and national defense.

C. Domestic Aluminum Production Capacity Is Declining

1. Primary Aluminum Production Capacity
    In 2016, global aluminum smelter capacity totaled 72.5 million 
metric tons, which was approximately two percent higher than the 2015 
level.\40\ The top six aluminum-producing countries accounted for 
nearly 77 percent of the world's total aluminum capacity, with China 
alone accounting for 55 percent of total global production capacity and 
54 percent of global production. The United States' production capacity 
is ranked 6th in the world in 2016; in 2017 U.S. capacity has dwindled 
further.
    During World War II, aluminum was considered so important to U.S. 
national security that the U.S. government embarked on a program to 
expand U.S. production capacity, which in 1940 was limited to one 
producer (Alcoa). Through the government-owned Defense Plant 
Corporation, the U.S. expanded primary aluminum production capacity by 
building new smelters to meet military demands. The government-owned 
plants were ultimately sold to U.S. corporations Kaiser Aluminum and 
Reynolds Aluminum in 1950.\41\
    During the Korean War, the U.S. government sought to further expand 
U.S. primary aluminum capacity to meet military needs. This time, 
incentives were used including accelerated amortization (reducing or 
eliminating corporate taxes) and purchase contracts (in which the 
government purchased all unsold aluminum). Further expansion in U.S. 
production capacity took place in the 1960's, but during these years it 
was driven by increasing commercial demand.
    U.S. primary aluminum production and capacity was relatively stable 
at between 3.5 million and 4 million metric tons per year from 1970 to 
2000. Since 2000, there has been a steep decline in U.S. production. It 
corresponds with a large increase in U.S. imports of primary aluminum 
(see Figures 1 and 2 below).
    One of the main reasons for the decline in U.S. primary aluminum 
production capacity is that the United States is a relatively high cost 
producer. Because aluminum production is highly energy intensive, the 
world's leading producers are generally the countries with the lowest 
energy costs (including Canada, Russia, the United Arab Emirates (UAE), 
and Bahrain). The exception is China, where electricity costs are 
actually higher than those of the United States ($614 per metric ton of 
aluminum produced in China versus $532 per metric ton in the United 
States); China' overall production costs were equal to that of U.S. 
producers.\42\
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    \40\ U.S. Geological Survey, Mineral Commodity Summary, January 
2017.
    \41\ Routledge Revivals: The World Aluminum Industry in a 
Changing Energy Era, edited by Merton J. Peck, 2015.
    \42\ CRU Group, included US ITC Report, p. 110.
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BILLING CODE 3510-33-P

[[Page 40523]]

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[[Page 40524]]


[GRAPHIC] [TIFF OMITTED] TN06JY20.046

    Total U.S. primary aluminum production capacity and actual 
production for the most recent five-year period is shown in Table 9 
below. The decline in U.S. production and capacity utilization has been 
particularly dramatic in just the past two years, during which aluminum 
prices were at near record lows. The erosion of primary aluminum 
production capacity in the United States due to falling aluminum prices 
and subsequent closure of smelters has been precipitous.
    In 1981, the U.S. produced 30 percent of the world's primary 
aluminum and it remained the world's largest producer until 2000, when 
there were 23 smelters in operation. In 2016, the U.S. accounted for 
just 1.5 percent of global production.
    In the same timeframe, production of primary aluminum in China grew 
from less than 15 percent of global production in 2000 to about 55 
percent in 2016.

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[GRAPHIC] [TIFF OMITTED] TN06JY20.048


[[Page 40526]]


    In 2017, there are only two aluminum (upstream) producers in the 
United States that operate smelters: Alcoa and Century Aluminum. A 
third company, Noranda, is in bankruptcy and its idled smelter was sold 
to ARG International AG of Switzerland. Table 10 below lists the status 
of aluminum smelting in the United States. At the beginning of 2016, 
three companies operated eight primary aluminum smelters in six U.S. 
states. In November, 2017, domestic smelters were operating at about 43 
percent of capacity of about 1.8 million metric tons per year.\43\
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    \43\ https://minerals.usgs.gov/minerals/pubs/commodity/aluminum/mcs-2017-alumi.pdf; companies
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BILLING CODE 3510-33-C
[GRAPHIC] [TIFF OMITTED] TN06JY20.049

    There are five smelters in the United States currently producing at 
some level, of which only two are operating at full production 
capacity. Three others are operating, but have reduced output levels 
below capacity by shutting down pot lines. During periods of weak 
demand or low aluminum prices, firms often shut down individual pot 
lines rather than run them at reduced capacity due to the 24/7 nature 
of primary smelting operations.
    Industry leader Alcoa has just one fully operational smelter in the 
U.S.: Massena West (NY), with 130,000-ton-per-year capacity. It was 
saved from closure by $73 million in aid from New York State.\44\ 
Alcoa's Ferndale, Washington smelter was also set to be temporarily 
shut down, but in April 2016 the company reached an agreement with the 
Bonneville Power Administration that enabled it to continue operations 
at a reduced level until early 2018.\45\
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    \44\ https://www.northcountrypublicradio.org/news/story/33518/20170306/massena-hopeful-as-alcoa-deadline-hits-two-year-mark.
    \45\ http://www.bellinghamherald.com/news/local/article75151737.html
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    Although Alcoa announced in 2016 that its Warrick smelting 
operations in Evansville, Indiana would permanently close in July 2017 
the company reversed that position announcing that three of five pot 
lines would be restarted by the second quarter of 2018, providing 275 
jobs. Similarly, Century was close to idling one third of its Sebree, 
Kentucky smelter output in 2015, but made some organizational changes 
that enabled it to keep operating at full capacity.\46\
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    \46\ https://www.platts.com/latest-news/metals/louisville-kentucky/century-aluminum-shelves-plans-to-shut-one-third-21631114

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[[Page 40527]]

    Two additional smelters are currently shut down, although no formal 
announcement of their permanent closure has been made: Alcoa's 
Wenatchee, WA and Magnitude 7 Metals' New Madrid, Missouri smelter 
(formerly Noranda). On October 28, 2016, ARG International AG of 
Switzerland completed the purchase of Noranda's idle smelter and 
renamed it Magnitude 7 Metals; the new owner is attempting to negotiate 
a power contract that will enable it to restart operations.\47\
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    \47\ Testimony of Bob Prusak, CEO of Magnitude 7 Metals, June 
22, 2017.
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    Of the five smelters currently in operation at some level, only one 
is capable of producing high-purity aluminum needed for many advanced 
aerospace and defense applications: Century Aluminum's Hawesville, KY 
plant. Century attributes its production decline to Chinese 
overproduction of high-purity aluminum and associated increases in 
Chinese exports of aluminum products. This smelter is a major source of 
high-purity aluminum to product fabricators, including Constellium, and 
Kaiser. These companies use high-purity materials to produce aluminum 
products for DoD, including types of high-performance armor plate and 
aircraft-grade aluminum products used in upgrading F-18, F-35, and C-17 
aircraft.
Aluminum Smelters Permanently Shut Down
    Since 2012, six aluminum smelters have been permanently shut down, 
totaling 1.13 million metric tons of annual production capacity,\48\ 
and about 3,500 jobs. Excluded from these statistics is Alcoa's 
Evansville, IN plant (currently the largest U.S. smelter in existence), 
which was closed ``permanently'' in the first quarter of 2016,\49\ but 
which Alcoa later announced would be partially reopening in 2018.
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    \48\ U.S. Geological Survey, companies.
    \49\ http://www.businessinsider.com/r-alcoa-plans-to-close-largest-us-aluminum-smelter-amid-tumbling-prices-2016-1
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    In addition, the reopening of Noranda's Missouri smelter (now 
Magnitude 7 Metals) is in doubt. If these smelters were to make their 
closures permanent, total lost U.S. annual smelting capacity since 2012 
could reach 1.5 million metric tons, and a loss of over 4,000 jobs.
    The closures of these facilities have had a significant impact on 
the local economies that relied on them for high quality jobs. Even 
temporary idling of plants threatens the U.S. industry as there are 
significant financial costs with re- opening an aluminum plant. 
According to industry experts, it takes six to nine months to restart 
aluminum production at an idled smelter or pot line. The longer the 
facility is idled, the more difficult it is to bring back the highly 
skilled workforce needed to operate the facility, adding additional 
costs for worker training and production delays.
[GRAPHIC] [TIFF OMITTED] TN06JY20.050


[[Page 40528]]


Secondary Aluminum Production Capacity
    As has been noted, secondary aluminum production today accounts for 
a substantial portion of the total supply of aluminum in the United 
States. According to the Aluminum Association, about 75 percent of all 
the aluminum ever produced is still in use today. Table 12 below 
provides statistics on the recovery of aluminum from new and old scrap. 
In 2016, aluminum recovered from scrap was 3.6 million metric tons, 
which was over four times primary aluminum production that year 
(841,000 metric tons). This figure represents secondary production by 
merchant producers; captive secondary production by downstream aluminum 
companies is not included.
    The USITC study also included an estimate for change in U.S. 
production and production capacity for secondary unwrought aluminum. 
The ITC found thatU.S. secondary production capacity increased by 5.6 
percent between 2011 and 2015, while actual production increased by 
13.4 percent during that timeframe. The USITC report estimates that 
merchant secondary aluminum producers operated at about 80 percent of 
capacity in 2015.\50\
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    \50\ US ITC Report, p. 151.
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    Despite its increasing usage, there is insufficient recycled 
aluminum available to meet growing demand for aluminum. Most of the 
major downstream aluminum manufacturers rely on a combination of 
secondary aluminum and primary aluminum in their manufacturing 
operations. The amount of primary versus recycled aluminum used varies 
on the specific product and its applications; manufacturers must 
control the properties of the alloy precisely to meet product 
specifications, which often requires using primary aluminum.
    Moreover, as aluminum is repeatedly recycled, impurities from 
paint, labels and other metals build up, affecting product composition 
and performance. A study by materials scientists at the Massachusetts 
Institute of Technology\51\ found that as more and more aluminum scrap 
its recycled, there are likely to be more problems caused by 
impurities.
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    \51\ http://news.mit.edu/2012/aluminum-recycling-study-0306.
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    Specialized applications such as airplane parts and electronics 
require the cleanest materials, for which recycled aluminum is not 
suitable. The MIT scientists note that there is a need for more 
research on ways to reduce accumulated contaminants, and that this is 
an area in which there has been underinvestment to date. As U.S. 
aluminum capacity shifts away from primary to secondary production, 
developing methodologies to increase the usability of ever- decreasing 
quality scrap is of major importance. Since secondary scrap production 
in the United States is dominated by numerous smaller operations, their 
investment in R&D in this area is not likely to be sufficient.
[GRAPHIC] [TIFF OMITTED] TN06JY20.051


[[Page 40529]]


2. Canadian Primary Aluminum Capacity
    The U.S. and Canadian defense industrial bases are integrated. This 
cooperative relationship has existed since 1956 and is codified in a 
number of bilateral defense agreements. For example in 1987, DoD (all 
Services), the Defense Logistics Agency (DLA), the Office of the 
Secretary of Defense (OSD), and the Canadian Department of National 
Defence (DND) joined together to form a North American Technology and 
Industrial Base Organization (NATIBO). NATIBO is chartered to promote a 
cost effective, healthy technology and industrial base that is 
responsive to the national and economic security needs of the United 
States and Canada. Current policy calls for a national defense force 
that derives its strength and technical superiority from a unified 
commercial- military industrial base.
    While small compared to China's production, Canada is the third 
largest producer of primary aluminum in the world, with an estimated 
3.15 million metric tons produced in 2016, up from 2.83 million metric 
tons in 2015.\52\ There are 10 operational smelters in Canada owned by 
three companies: Alcoa, Rio Tinto Alcan, and Aluminerie Alouette.
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    \52\ USGS and Aluminum Association of Canada, January, 2017.
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    In 2016, Canada exported about 2.3 million metric tons of primary 
aluminum to the United States--which represents over 70 percent of its 
total production. Canadian primary aluminum production is important to 
the U.S. aluminum industry.
3. Downstream Aluminum Production
    There are over a thousand companies in the United States involved 
in the production of downstream aluminum products--such as bars, rods, 
sheet, plate, extrusions, tubes, pipes, forgings and castings. Many of 
these are small- and medium-sized businesses that serve specialized 
markets. The downstream industry is the largest segment of the overall 
aluminum industry in the United States, and is second in size only to 
that of China.\53\
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    \53\ USITC Report, page 142.
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    This industry segment is diverse--from production of large-volume 
commodity-grade articles such as can sheet for beverage cans, to high 
value added goods, including specialized products for the defense 
sector. Overall, downstream production is a capital-intensive process; 
some products require sophisticated manufacturing techniques. The U.S. 
industry is widely considered to be one of the world's most technically 
advanced.
    Due to its size and diversity, there is little publicly available 
information on the production of the downstream aluminum industry as a 
whole. According to the American Foundry Association, there are 130 
U.S. aluminum foundries in the defense casting supplier database 
maintained by the Defense Logistics Agency.
    These firms--many of which are small businesses--have been 
identified as qualified suppliers available to produce the over 10,000 
distinct aluminum cast components procured by the military.\54\
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    \54\ Written submission of Doug Kurkul, CEO of the American 
Foundry Society.
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    The U.S. International Trade Commission's report contains data from 
market research firm CRU Group for U.S. production of certain 
downstream aluminum products -flat rolled, extrusions, and wire and 
cable.
    For flat-rolled aluminum, which includes HTS categories 7606 
(plate, sheet and strip) and 7607 (foil), the U.S. is the world's 
second largest producer, after China. These types of products are used 
extensively in automobile and aerospace applications. While U.S. 
production has been essentially flat between 2012 and 2015, China's 
production has grown from 6.64 million metric tons in 2011 to 9.2 
million metric tons in 2015--a 38 percent increase in just four years. 
According to CRU, the U.S. flat-rolled aluminum sector is operating at 
about 70 percent of capacity throughout the period.
    Extruded aluminum products (including bars, rods and profiles in 
HTS 7604 as well as pipes and tubes in HTS 7608) are used mainly in 
building and construction applications. The U.S. produced 1.9 million 
metric tons of aluminum extrusions in 2015, with the sector showing 
modest growth in production over the past four years. U.S. production, 
while second in the world, is small compared to China's production, 
which topped 17 million metric tons in 2015. China's production of 
extrusions accounted for nearly two thirds of global production, and 
has been increasing year over year (due to demand for China's massive 
infrastructure development).
    U.S. production of aluminum wire and cable is small and declining 
(see Table 13), with just 129,000 metric tons produced in 2015 (ranking 
fifth in the world after China, India, Canada, and Russia).
    For comparison purposes, China produced nearly five million metric 
tons in 2015 (60 percent of global production). Wire and cable is used 
in building and construction, and also in electricity transmission and 
distribution systems.

[[Page 40530]]

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BILLING CODE 3510-33-P
    Additional data on the U.S. downstream aluminum industry are 
available based on the U.S. International Trade Commission's survey 
(which had a 64 percent response rate). While the survey did not 
capture the entire U.S. industry, the agency estimated total U.S. 
production based on these responses. The Table below shows data on U.S. 
production, capacity, and capacity utilization for downstream aluminum 
products, based on the responses to the USITC industry survey.
    USITC's survey results indicate that production rose 13 percent 
between 2011 and 2015. The biggest sector of the downstream industry in 
the United States is flat rolled products (62 percent), followed by 
extrusion (32 percent). The USITC study also reported on capacity 
utilization rates for the companies responding to their survey: 
overall, the downstream industry was operating at 78 percent of 
capacity. However, this figure varied significantly by product sector: 
99 percent for aluminum plate manufacturers (benefiting from strong 
demand from the auto sector); 62 percent for wire and cable; 72 percent 
for rod, bar and profile; and just 41 percent for tube and pipe 
producers.\55\
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    \55\ USITC Report, p. 152

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[[Page 40531]]

[GRAPHIC] [TIFF OMITTED] TN06JY20.053

BILLING CODE 3510-33-6
    While USITC survey respondents reported very high levels of 
capacity utilization in the plate, sheet and strip sector, this 
capacity utilization rate was markedly higher than the comparable 
number reported by CRU Group--69 percent in 2015 for flat rolled 
aluminum producers.
    CRU data, as reported in the USITC report, indicate that Chinese 
flat rolled products manufacturers are operating at only 62 percent of 
capacity. Although extruded products account for the highest percentage 
of Chinese wrought aluminum production, the largest amount of U.S. 
imports from China are in the flat-rolled product categories--plate, 
sheet and strip (HTS 7606) and foil (7607). It is likely that excess 
Chinese capacity and production in this segment, for which internal 
Chinese demand is insufficient, is being unloaded onto world markets, 
including the United States.
Major U.S. Downstream Aluminum Companies
    The leading integrated aluminum production companies in the United 
States making downstream products include Constellium, Novelis, Aleris, 
Kaiser, Arconic, and Sapa. While commercial/industrial sectors account 
for most of their sales, these companies are also major suppliers of 
aluminum products for the defense industry. While the defense-related 
production of these companies makes up a small portion of their 
business, the same equipment is used to make military as well as 
commercial production. It is large-volume standard products that enable 
the companies to invest in fixed equipment and capacity that support 
the production of high-value added products, including defense.
    With U.S. headquarters in Atlanta, Georgia, Novelis operates 24 
facilities in 10 countries; it is a subsidiary of Indian aluminum giant 
Hindalco. The company has 4,000 employees in the United States at seven 
production facilities and two research and development/engineering 
centers. Novelis is the world's largest producer of flat-rolled 
aluminum products (e.g., plate and sheet) that are used to make 
beverage cans, building and structural products, and components for 
cars and trucks; it is also a leading recycler of beverage cans. 
Novelis states that unfairly priced imports originating from China and 
elsewhere are putting its U.S. operations at risk. The company was 
forced to shutter a facility in Kentucky and exit the aluminum 
converter foil business in 2008; in 2014, it reduced activities at its 
Indiana facility, exiting the household aluminum foil market due to 
unfairly priced imports from China.
    Kaiser Aluminum, based in California, was founded in 1946 and was 
once a fully integrated aluminum producer with U.S. smelting 
operations. Its original smelter was purchased from the United States 
Government, which built it to satisfy World War II production needs. 
Kaiser's smelters were shut down in 2000, and the company underwent

[[Page 40532]]

bankruptcy in 2002. Today, Kaiser operates 11 fabricating facilities in 
the United States with 2,700 employees and is a leading producer of 
aluminum products (sheet, plate, extrusions, rod, bar) for defense, 
aerospace, satellite, automotive and custom industrial applications. 
The company has invested $630 million since 2006 to increase capacity, 
lower costs and improve quality.
    Constellium, a Netherlands company with U.S. headquarters in 
Baltimore, Maryland is also a major manufacturer of downstream aluminum 
products, with 12,000 employees worldwide. The company designs and 
manufactures aluminum products for the aerospace, automotive, packaging 
and defense markets. The United States market generates about 40 
percent of the company's $5 billion in revenue. Constellium invested 
$1.8 billion in its U.S. plants in the last five years, and opened a 
new R&D facility in Plymouth, Michigan.
    In Muscle Shoals, Alabama, Constellium produces cansheet for the 
packaging industry at its plant with 1,200 employees. Its Ravenswood, 
West Virginia facility, with 1,050 employees produces advanced alloyed 
plates for military aircraft, armored vehicles and U.S. Navy vessels. 
The company partners with the U.S. Army through the U.S. Army Tank 
Automotive Research Development and Engineering Center (TARDEC) in 
developing new aluminum solutions for combat vehicles of the future. 
Constellium states that it has been negatively affected by imports of 
low-price aluminum plate from China, which have displaced Constellium's 
products in the market.
    Arconic, headquartered in Pittsburgh, Pennsylvania, was created in 
2016 when Alcoa split into two companies, manufactures high-value added 
downstream aluminum products. The company has 22,750 employees in 45 
plants in the United States. While part of Alcoa, the company invested 
over $3.1 billion to modernize facilities since 2009. Arconic is a 
leading supplier of aluminum products to the DoD--including armor 
plate, aluminum bulkheads for aircraft, and marine applications. The 
company (again, as Alcoa), collaborated on R&D and manufacturing with 
the DoD to develop special alloys and manufacturing processes. 
Arconic's Davenport, Iowa rolling mill produces high-purity aluminum 
products needed for such defense programs as the Joint Strike Fighter 
and Joint Light Tactical Vehicle using a process called fractional 
crystallization.
    Aleris, headquartered in Beachwood, Ohio, is a leading producer of 
rolled aluminum and extruded aluminum products for the aerospace, 
automotive, defense, construction and packaging markets. It is also a 
producer of secondary aluminum made from recycled scrap. The company 
filed for Chapter 11 bankruptcy in 2009, emerging in 2010 as a 
privately held company. It has 12 production facilities (nine in the 
U.S.; two in Europe and one in China) and three ``innovation centers'' 
(two in Europe and one in Zhengjiang, China). The Chinese R&D center 
opened in 2014 to support development of aircraft and commercial plate 
products for Aleris's Chinese plant. Aleris recently completed an 
expansion of its rolling mill in Lewisport, Kentucky (capacity 220,000 
metric tons per year) and began commercial production of body sheet for 
the automotive industry. Chinese aluminum extrusion company Zhongwang 
sought to purchase Aleris, but the transaction was withdrawn in 
November, 2017 due to concerns of the federal Committee on Foreign 
Investment in the United States (CFIUS).
    Sapa Extrusions, a Norwegian company, is the world's leading 
producer of aluminum extruded profiles and aluminum tubing. Its 
products are used in many industry sectors, including automotive, 
heating and ventilation, and building and construction.
    The company has 22,800 employees in 40 countries; in North America 
there are 6,500 employees in 23 facilities. It has four R&D Centers--
three in Europe and one in Troy, MI. According to the company's 2016 
annual report, North American sales volume was 585,000 metric tons.

D. Domestic Production Is Well Below Demand

    In 2016, global primary aluminum consumption was 59.7 million 
metric tons, reflecting a 5.4 percent year-over-year increase. This was 
the seventh straight year of significant growth for aluminum 
consumption, and growth is forecast to continue at this rate.
    The world's top five leading consuming countries were responsible 
for more than 72 percent of total aluminum demand in 2016 (see Figure 
5). According to CRU International, the leading aluminum consuming 
markets in 2016 were China, the United States, and Germany.

[[Page 40533]]

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[GRAPHIC] [TIFF OMITTED] TN06JY20.055

BILLING CODE 3510-33-C
    Combined U.S. and Canadian shipments of all types of aluminum 
(primary, secondary, as well as downstream production of semi-
manufactures) totaled 12.0 million metric tons in 2016, according to 
the Aluminum Association.\56\ The transportation sector is the largest 
North American market for aluminum, accounting for 4.2 million metric 
tons or 35 percent of total consumption: this sector's use of aluminum 
is expected to continue to grow as automakers strive to make lighter 
and more fuel-efficient vehicles. Another major factor in demand from 
the transportation sector is aircraft; the International Aluminum 
Institute estimates that that 80 percent of an aircraft's weight is 
aluminum.
---------------------------------------------------------------------------

    \56\ U.S. Government statistics are not available for U.S. 
production or consumption of aluminum other than for primary 
aluminum; Aluminum Association figure is based on U.S. and Canadian 
Producer Shipments plus imports and are included in the ``Fact at a 
Glance[hyphen]2016,'' December, 2017 (converted to metric tons from 
pounds) and includes exports (except exports between the U.S. and 
Canada).
---------------------------------------------------------------------------

    U.S. consumption of primary aluminum has steadily increased rising

[[Page 40534]]

by 46 percent since 2000, according to the CRU International. In 2016, 
CRU estimates that the United States consumed nearly 5.4 million metric 
tons, or about nine percent of the world's total consumption of 60 
million metric tons of primary aluminum. While China is by far the 
leading consumer of primary aluminum, its consumption is well below its 
production level, whereas the United States production is substantially 
lower than consumption.
    The U.S. Geological Survey (USGS) statistics show increases in U.S. 
apparent consumption\57\ of aluminum from 4.13 million metric tons in 
2012 to 5.22 million metric tons in 2015 (a 26 percent increase over 
the 4-year period).\58\ U.S. production in 2015 (primary and secondary) 
totaled just over three million metric tons; domestic production fell 
even further in 2016, while demand for aluminum continued to increase.
---------------------------------------------------------------------------

    \57\ Defined as primary production + secondary production + net 
import reliance for crude aluminum and aluminum semi-manufactures 
(excluding imported scrap).
    \58\ USGS, Mineral Commodity Summaries, January 2017.
---------------------------------------------------------------------------

    Based on USGS production and U.S. Census statistics for U.S. 
exports and imports of primary aluminum, U.S. import dependence for 
primary aluminum was nearly 90 percent of apparent consumption in 2016, 
up from 64 percent in 2012.
    U.S. import reliance increased because domestic primary aluminum 
production decreased, so U.S. manufacturers by necessity filled their 
materials needs through imports. Since primary aluminum companies are 
globalized, some of the imported aluminum was from the foreign business 
units of U.S.-based companies.
    The Aluminum Association uses a different methodology to estimate 
U.S. consumption\59\ of aluminum (including unwrought and mill 
products). The Association's data show that U.S. aluminum consumption 
was nearly 10 million metric tons in 2006, before declining during the 
years of economic crisis that followed and not yet fully recovering. 
There has been a dramatic increase in the share of U.S. consumption 
that is satisfied through imports in just the past two years, rising 
from a stable 51 percent from 2011- 2013 to over 64 percent for 2016. 
This is a direct result of the decline in U.S. primary aluminum 
production driven by falling prices and expanding non-U.S. production. 
This increase in imports has occurred in both primary aluminum and 
downstream products.
---------------------------------------------------------------------------

    \59\ U.S. apparent aluminum consumption = primary aluminum 
production + recovery of secondary aluminum + imports of unwrought 
aluminum + imports of mill products - exports of unwrought aluminum 
- exports of mill products.
[GRAPHIC] [TIFF OMITTED] TN06JY20.056

BILLING CODE 3510-33-P

E. U.S. Imports of Aluminum are Increasing

1. Overview of Aluminum Imports in Aggregate
    Overall U.S. imports of the aluminum categories subject to this 
investigation combined (HTS #7601, 7604, 7605, 7606, 7607, 7608, 7609. 
7616.99.51.60 and 7616.99.51.70) were valued at $13.0 billion in 2016 - 
a 15 percent increase over 2013 import levels. For the first ten months 
of 2017, imports are up 30 percent on a value basis compared to the 
same period in 2016. These import figures are heavily influenced by 
changes in global aluminum prices. While imports on a value basis 
leveled off between 2014 and 2016, this is largely due to declining 
aluminum prices.
    Imports of aluminum on weight basis are a better indication of true 
trade

[[Page 40535]]

flows, because they are unaffected by fluctuations in prices. By 
weight, U.S. imports in these aluminum categories were 5.9 million 
metric tons in 2016, up 34 percent from 4.4 million metric tons in 
2013. For the first 10 months of 2017, imports are running 18 percent 
above 2016 levels on a tonnage basis. There is no leveling off in the 
level of imports on a volume basis; rather, there has been a consistent 
increase year over year.
    Canada is the leading source of aluminum imports into the United 
States, accounting for about 43 percent of total imports by both value 
and weight in 2016. Imports from Canada have been at consistent level 
over the four-year period at about 2.6 million metric tons per year.
    In contrast, imports from the second leading source (by value), 
China, increased by 70 percent by value and 75 percent by weight 
between 2013 and 2015. Imports from China by weight were 531,000 metric 
tons valued at $1.3 billion in 2016, a slight decline from 2015 levels. 
However, imports from China in all aluminum categories are up by about 
33 percent by value and 25 percent by weight for the first 10 months of 
2017 compared with the same period last year.
    By product category, unwrought aluminum (primary) makes up by far 
the largest portion of imports--63 percent of the total by value. The 
second largest category - aluminum plates, sheets and strips--accounts 
for an additional 19 percent of imports.
    The following subsections present detailed information on U.S. 
imports of aluminum in specific product categories, as the source of 
the imports varies significantly. In general, the import data are 
provided in metric tons, which allows for a true picture of trends in 
import levels (versus import data by value, which fluctuate based on 
aluminum prices).
[GRAPHIC] [TIFF OMITTED] TN06JY20.057


[[Page 40536]]


[GRAPHIC] [TIFF OMITTED] TN06JY20.058


[[Page 40537]]


[GRAPHIC] [TIFF OMITTED] TN06JY20.059


[[Page 40538]]


[GRAPHIC] [TIFF OMITTED] TN06JY20.060


[[Page 40539]]


[GRAPHIC] [TIFF OMITTED] TN06JY20.061

2. Unwrought Aluminum Imports
    Of total U.S. aluminum imports, unwrought (primary) aluminum 
accounted for the bulk by weight (4.3 of 6.5 million metric tons), with 
a total value of $7.9 billion. U.S. imports of unwrought aluminum have 
increased dramatically in recent years--nearly 40 percent by weight 
since 2014. In 2016, of the total U.S. imports of 4.3 million metric 
tons, the majority was from Canada (54 percent), followed by Russia (16 
percent), United Arab Emirates (13 percent), Argentina (4 percent), 
Qatar (3 percent); the rest of the world accounted for 10 percent. 
While still not among the top sources, imports from Oman, South Africa 
and Venezuela have shown tremendous growth in the past year.

[[Page 40540]]

[GRAPHIC] [TIFF OMITTED] TN06JY20.062

Aluminum Bars, Rods and Profiles
    For aluminum bars, rods and profiles (HTS 7604) the total value of 
U.S. imports (from all sources) in this category was $801 million in 
2016, down slightly from $804 million in 2015. By weight, there was a 
slight increase in import levels in 2016 over 2015 levels (200,000 
metric tons). Canada and Mexico are major players in this category. 
Imports from China fell off beginning in 2015 from earlier levels. 
Imports from Vietnam increased dramatically during the period, rising 
by over 800 percent between 2013 and 2016, with the trend continuing in 
2017. Some industry analysts have observed that a portion of the 
imports in this category from Vietnam are likely Chinese products that 
are being transshipped to avoid duties.

[[Page 40541]]

[GRAPHIC] [TIFF OMITTED] TN06JY20.063

Aluminum Plate, Sheet and Strip
    Aluminum plates, sheets and strip (HTS 7606) are the second largest 
category of imports (after unwrought aluminum) with a total value of 
$2.5 billion in 2016. On a weight basis, imports were essentially 
unchanged in 2016 compared to 2015 levels, but data for the first 10 
months of 2017 show a nearly 20 percent increase over the same period 
in 2017.
    Over a third of total imports came from China, and imports from 
China are on the rise again (after tapering off in 2016). Canada, South 
Africa, Bahrain and Germany also supply significant amounts of plates, 
sheet and strip. Imports from Indonesia are on the rise in this 
category, double in 2017 over 2016 levels.

[[Page 40542]]

[GRAPHIC] [TIFF OMITTED] TN06JY20.064

3. Aluminum Foil
    Aluminum foil imports are presented in the table below. The total 
value of imports in this category was $910 million in 2016, of which 
$475 million was from China.
    On a weight basis, China dominates, accounting for two thirds of 
the total imports to the United States in 2016. (Note: Aluminum foil 
imports from China are the subject of an ongoing antidumping/
countervailing duty investigation). See Appendix D for more information 
on trade actions related to aluminum.

[[Page 40543]]

[GRAPHIC] [TIFF OMITTED] TN06JY20.065

4. Aluminum Pipe and Tubes
    The table below presents data on imports of aluminum pipes and 
tubes (HTS 7608) as well as pipe and tube fittings (HTS 7609). Unlike 
the other sectors, imports were down slightly in this category in 2016, 
but are growing in 2017 due to increases in imports from Mexico. Mexico 
is the largest supplier in the segment, followed by Canada, China, and 
Japan.

[[Page 40544]]

[GRAPHIC] [TIFF OMITTED] TN06JY20.066

5. Aluminum Castings & Forgings
    Aluminum castings and forgings, the final category addressed in the 
report, also are an area where imports are on the rise (see Table 
below). Overall, imports are up 11 percent in 2017 (January-October) 
compared with 2016. China is the leading source of imports; while 
imports from China fell in 2016 from 2015 levels, they increased thus 
far in 2017.

[[Page 40545]]

[GRAPHIC] [TIFF OMITTED] TN06JY20.067

F. United States Aluminum Exports

    In 2016, the United States exported a total of $ 6.4 billion in the 
aluminum product categories subject to this investigation (HTS 7601, 
7604-7609, 7616.99.51.60; 7616.99.51.70). The value of U.S. exports 
fell each year between 2013 and 2016. Exports for the first ten months 
of 2017 also show a slight decline from the same period in 2016.
    The largest category for U.S. exports is aluminum plates sheets and 
strip ($3.4 billion), followed by aluminum bars, rods and profiles 
($1.0 billion) and then unwrought, primary aluminum with $640 million.

[[Page 40546]]

[GRAPHIC] [TIFF OMITTED] TN06JY20.068

    By country, the vast majority of U.S. exports of aluminum products 
go to neighboring countries and NAFTA partners, Mexico and Canada. By 
value, these two countries accounted for nearly two thirds of U.S. 
exports.
    U.S. exports to Vietnam had a spike in 2016 that did not occur in 
any other year (including 2017); a closer look at these exports shows 
that they were primarily in HTS category 7604, and in particular, HTS 
760421, which is ``Aluminum Alloy Hollow Profiles.'' The U.S. also saw 
a spike in imports from Vietnam in 2016.
    The composition of U.S. aluminum exports varies significantly by 
product category. For unwrought (primary) aluminum, exports to Mexico 
and Canada account for 92 percent of total U.S. exports by value and 95 
percent by weight. Currently, Mexico does not have a primary aluminum 
smelter due to its inability to provide reliable, steady energy.

[[Page 40547]]

[GRAPHIC] [TIFF OMITTED] TN06JY20.069


[[Page 40548]]


[GRAPHIC] [TIFF OMITTED] TN06JY20.070


[[Page 40549]]


[GRAPHIC] [TIFF OMITTED] TN06JY20.071

    The aluminum plate, sheet, and strip industry segment (HTS 7606) 
accounts for the biggest portion of U.S. exports of aluminum products 
subject to this investigation--nearly 900,000 tons valued at over $3.4 
billion dollars in 2016. Once again, NAFTA partners Canada and Mexico 
account for the majority of exports.
    Exports in the first 10 months of 2017 are down slightly from 2016 
levels, continuing a declining trend that occurred throughout the 2013-
2017 period. Overall, since 2013, U.S. exports are down 10 percent by 
value and weight.

[[Page 40550]]

[GRAPHIC] [TIFF OMITTED] TN06JY20.072


[[Page 40551]]


[GRAPHIC] [TIFF OMITTED] TN06JY20.073

    A category of aluminum products that is a significant source of 
exports for the United States is bars, rods and profiles (HTS 7604) 
which are most commonly extrusions. Total U.S. exports in these 
aluminum products were just over one billion dollars in 2016. The 
export of 82,000 metric tons of these items valued at $233 million to 
Vietnam in 2016 appears to have been an anomaly.
    After increasing significantly in 2016 over 2015 levels, exports of 
these items were down by a quarter in value in the first ten months of 
2017 compared to the same period in 2016; the decline in exports on a 
weight basis is even greater (42 percent), largely due to the return of 
exports to Vietnam to typical levels in 2017. Canada and Mexico again 
account for the bulk of U.S. exports.

[[Page 40552]]

[GRAPHIC] [TIFF OMITTED] TN06JY20.074


[[Page 40553]]


[GRAPHIC] [TIFF OMITTED] TN06JY20.075

    U.S. exports of aluminum castings and forgings, a relatively small 
category, were steady for the period 2013 to 2015, before rising in 
2016 (see table below). Again, this increase in exports is attributed 
to an anomalous surge in exports to Vietnam. Data for the first ten 
months of 2017 show increased exports on a weight basis.

[[Page 40554]]

[GRAPHIC] [TIFF OMITTED] TN06JY20.076

G. High Import to Export Ratio

    Overall, for the aluminum product categories subject to this 
investigation (HTS 7601, 7604-7609), 7616.99.51.60; 7616.99.51.70), the 
United States ran a trade deficit of $7.1 billion in 2016. These data 
suggest that the trade deficit in aluminum will be larger in 2017.
    The table below shows the U.S. trade balance by major trading 
partners. The U.S. runs substantial trade deficits in aluminum products 
with Canada, China, Russia, the United Arab Emirates and Bahrain, and 
the deficit is growing. For the first 10 months of 2017, the total 
trade deficit is nearly double what it was for the same period in 2016. 
The U.S. runs a large trade surplus with Mexico in aluminum products--
about $2.1 billion in 2016, and a smaller trade surplus with the United 
Kingdom, Japan and South Korea.

[[Page 40555]]

[GRAPHIC] [TIFF OMITTED] TN06JY20.077

    The U.S. runs a substantial trade deficit with China, totaling $1.6 
billion in 2016; the trade deficit with China in aluminum categories. 
Unlike the other countries with which the U.S. runs a trade deficit in 
aluminum (e.g., Canada, Russia, UAE, Bahrain), the imports from China 
are not in the form of primary aluminum but rather downstream products.
    Included in the table is the U.S. trade balance with Hong Kong and 
Vietnam; while not large in an absolute sense, the trade balance with 
these countries is volatile from year to year, reflective in unusual 
trade patterns that may indicate transshipments.
    By industry sector, the U.S. trade balance varies: there is a trade 
surplus in a number of sectors such as hollow profiles and plate, sheet 
and strip. However, these surpluses are by far overshadowed by the 
categories in which the U.S. runs a trade deficit--primary aluminum and 
aluminum powders, foil, and wire.

[[Page 40556]]

[GRAPHIC] [TIFF OMITTED] TN06JY20.078


[[Page 40557]]


[GRAPHIC] [TIFF OMITTED] TN06JY20.079

    The U.S. trade deficit is particularly pronounced in the primary 
(unwrought) aluminum industry segment. The deficit for this category 
reached nearly $7 billion in 2016, and data for the initial six months 
indicate that it will be even greater in 2017.
    The United States exported very little unwrought aluminum, but 
imported large amounts from Canada, Russia and other countries. On a 
weight basis, the U.S. deficit was nearly 4 million metric tons in 
2016.

[[Page 40558]]

[GRAPHIC] [TIFF OMITTED] TN06JY20.080

    In the area of semi-finished aluminum products (including bars, 
rods, plates, sheet and strip), the United States ran a trade surplus 
in 2016 of $2.2 billion. However, there are certain countries with 
which the U.S. ran a trade deficit, including China, South Africa, 
Germany and Bahrain.
    The trade deficit with China in particular is substantial and 
growing in 2017 over 2016 levels. Countries with which the United 
States ran a trade surplus in are NAFTA partners Mexico and Canada, as 
well as South Korea, Japan and the United Kingdom.

[[Page 40559]]

[GRAPHIC] [TIFF OMITTED] TN06JY20.081

BILLING CODE 3510-33-C

H. Impact of Imports on the Welfare of the U.S. Aluminum Industry

1. Declining Employment
    The table below presents a snapshot of direct employment in the 
U.S. aluminum industry, by sector, based on data collected for the 
Aluminum Association. The loss of jobs in the primary aluminum sector 
has been precipitous between 2013 and 2016, falling 58 percent as 
several smelters were either permanently shut down or temporarily 
idled.
    Other (older) data from the association indicated that in 2010, 
employment in the Alumina Refining/Primary Aluminum sector totaled 
21,600; employment in that sector declined by 75 percent in just six 
years. Employment in secondary production was 6,400 in 2010, so that 
segment of the industry has nearly doubled in employment by 2013, but 
has not increased substantially since then.
    Employment in the other segments of industry has seen moderate 
growth over the past three years as demand for aluminum has grown, with 
aluminum foundries and manufacturers of semi-finished goods such as 
plates, sheets, and extrusions showing the strongest growth (and also 
accounting for the largest level of employment). Data from 2010 found 
that employment in ``semi-fabrication'' facilities was 101,000, and in 
Service Centers, 27,000.

[[Page 40560]]

[GRAPHIC] [TIFF OMITTED] TN06JY20.082

    Information on employment in the domestic aluminum industry is also 
available from the Bureau of the Census' Annual Survey of Manufactures, 
which includes data on the Alumina and Aluminum Production and 
Processing industry (North American Industry Classification System 
(NAICS # 33131)). The table below presents employment data from the 
Annual Survey of Manufactures for 2013-2015, the latest year for which 
data are available. The employment data, too, show declining employment 
in the primary aluminum sector between 2013 and 2015, but do not 
reflect the jobs lost in 2016 as additional smelters closed. These data 
also show relatively stable/slightly growing employment in other 
industry sectors.
    Modern aluminum production--particularly production of high-purity 
aluminum needed for critical infrastructure and military applications--
is a complex and technical process. It requires a trained, skilled 
workforce that in some cases requires a decade or more of experience. 
As smelting facilities close, the loss of this skill-base is eroding 
and the workforce will become increasingly difficult to bring back.
    While the primary aluminum industry sector has seen dramatic job 
losses in recent years, the downstream industry is likely to suffer as 
well in the future as foreign aluminum overcapacity drives into the 
domestic value-added industry sectors. This is already happening as 
evidenced by growing imports of aluminum semi-manufactured products.
[GRAPHIC] [TIFF OMITTED] TN06JY20.083

2. Poor Financial Status of the U.S. Aluminum Industry
Upstream Industry Sector
    Low global aluminum prices and soaring imports due to overcapacity 
in the aluminum sector have damaged U.S. aluminum companies. See 
Appendix E for more information on global excess aluminum production. 
High costs for electricity are also a major factor affecting the U.S. 
aluminum industry, which is energy- intensive. As a result of adverse 
market conditions, in 2017, there are only two major players in 
remaining the domestic primary aluminum industry: Alcoa and Century 
Aluminum. Three other companies have declared bankruptcy in recent 
years and no longer have any operating aluminum smelters in the United 
States.
    Noranda Aluminum (a Canadian company with U.S. smelting operations) 
filed for Chapter 11 bankruptcy in February 2016, citing high power 
prices and low prices for aluminum and the bauxite from its mine in 
Jamaica. Its New Madrid, Missouri smelter was shut down in March 2016. 
The facility was recently purchased by ARG International, a Swiss 
holding company, but its future as an aluminum smelter

[[Page 40561]]

(now known as Magnitude 7 Metals) is uncertain.\60\
---------------------------------------------------------------------------

    \60\ http://www.reuters.com/article/us-bankruptcy-noranda-aluminum-idUSKCN1212T7.
---------------------------------------------------------------------------

    Another former participant in the primary U.S. aluminum industry, 
Ormet, declared bankruptcy and sold its shuttered aluminum plant to a 
land developer in 2014. Ormet cited lower aluminum prices, Chinese 
competition, and high energy costs as the reasons for its financial 
problems.\61\ One more casualty of poor market conditions was Columbia 
Falls Aluminum Company of Montana (owned by Glencore AG of 
Switzerland), which permanently closed and demolished its plant 
facilities in 2015; its smelter had been mothballed since 2009.\62\
---------------------------------------------------------------------------

    \61\ http://www.peoplesworld.org/article/shutdown-of-ohio-aluminum-giant-ormet-appears-final/.
    \62\ http://www.dailyinterlake.com/archive/article-a06557e8-c1bc-11e4-ab8c-d7b2b1bc3deb.html.
---------------------------------------------------------------------------

    Financial performance of upstream aluminum companies was 
particularly poor between 2013 and 2016, when aluminum prices began to 
fall sharply.
    Chinese production of aluminum soared, and imports into the United 
States surged. The three publicly traded companies posted negative net 
incomes for much of those years. Alcoa and Noranda operated at a loss 
in three of the five years, including the two most recent years. 
Century Aluminum only had positive net income in one of the five years 
(2014). In 2016, the three remaining primary aluminum companies 
reported operating losses totaling $912 million. See the Table below.
    While the two smaller aluminum manufactures posted relatively 
stable sales/revenue during the period, the biggest player, Alcoa, saw 
sales drop drastically between 2014 and 2015. That trend continued in 
2016. Over the past several years, Alcoa attempted to adjust to the 
market realities facing the aluminum sector by shutting down or selling 
high cost upstream assets and investing in assets that produce value 
added products. In 2015, Alcoa announced planned production 
curtailments of 503,000 metric tons of aluminum and 1.2 million metric 
tons of alumina to ensure continued competitiveness amid deteriorating 
market conditions.\63\
---------------------------------------------------------------------------

    \63\ https://www.alcoa.com/global/en/who-we-are/history/default.asp.
---------------------------------------------------------------------------

    As part of this strategy, in 2016, after 128 years of operating as 
a vertically integrated aluminum company, Alcoa split the company into 
two separate entities. Alcoa Corp. retained the upstream commodity 
assets including primary aluminum smelters, bauxite mines, alumina 
refineries, and power plants. Arconic, Inc. owns the downstream, value-
added fabrication businesses, including rolling mills and associated 
secondary aluminum capacity, as well as specialty metal, aerospace and 
automobile product assets.
    Financial analysts are bullish on the restructured Alcoa, 
predicting its sales revenues to grow by 25 percent in 2017 and by 
single digits in 2018. This optimism is predicated on improving market 
conditions in alumina and aluminum sectors based on strong demand and 
higher aluminum metal prices. However, the majority of Alcoa's 
production operations are no longer in the United States, and its 
financial success is based on its global operations in bauxite, 
alumina, aluminum smelting, and limited rolling and casting.
    The domestic upstream industry showed improved financial 
performance in the first quarter of 2017, largely due to improved 
market pricing of aluminum.
    Alcoa's First Quarter 2017 results (its first full quarter since 
spinning off its downstream businesses) showed a positive Net Income of 
$225 million ($1.21/share); Earnings Before Interest, Taxes, 
Depreciation and Amortization (EBITDA) was $533 million, up 59 percent 
due to higher alumina and aluminum pricing. The company expects its 
full year 2017 adjusted EBITDA of between $2.1 and $2.3 billion.
    Century Aluminum Company (CENX), too, reported improved First 
Quarter 2017 results, although it still posted a net income loss. The 
company had an Adjusted EBITDA of $22 million 1Q17 vs. $12 in 4Q16. The 
company's net loss in 1Q17 was $5 million, compared to $12 million loss 
in 4Q16. As a whole, the three primary aluminum companies together had 
EBITDA of $2.273 billion in 2012, but this figure decreased to $1.114 
billion for 2016, a 50 percent decline.
    While the U.S. industry is seeing an uptick in demand and better 
pricing, it is not clear that this can be maintained given the rise of 
imported aluminum products, which are steadily eroding the customer 
base for domestic production. A sustained improvement in profitability 
over many quarters is needed for companies to stabilize and recover 
from financial losses suffered over the past 10 years.

[[Page 40562]]

[GRAPHIC] [TIFF OMITTED] TN06JY20.084

Financial Performance of Downstream Aluminum Companies
    The downstream sector as a whole experienced modest job growth 
across a range of industrial sectors between 2013 and 2016 based on 
increased demand for their products (such as the growing automotive 
sector). Downstream manufacturers of aluminum products have made 
investments in capital equipment to improve their manufacturing 
capabilities. According to the Aluminum Association, their member 
companies have invested $2.3 billion since 2013 in facilities to 
produce aluminum products--including aluminum sheet for automotive 
applications.
    To date, the downstream sector has largely remained profitable by 
shifting production to markets not yet affected imports. Some formerly 
vertically- integrated companies have shifted to production of higher 
value-added products (e.g., Arconic, Kaiser). Among the sectors hardest 
hit by soaring aluminum imports is the U.S. foil industry, which has 
all but disappeared. Alpha Aluminum closed its North Carolina foil 
facility in July, 2015 and Novelis idled its Terre Haute, IN foil plant 
in April, 2014.
    While the impact of imports on the downstream industry sector has 
so far been limited to certain product categories, the USITC noted that 
Chinese firms are striving to enter the more profitable automotive and 
aerospace markets.\64\
---------------------------------------------------------------------------

    \64\ USITC Report, p. 148.
---------------------------------------------------------------------------

3. Research and Development (R&D) Expenditures
    Research and development in the aluminum sector is important--it 
has made possible new applications for this material and has enabled 
more effective manufacturing processes. Because aluminum is 
lightweight, resistant to corrosion, high strength and recyclable, it 
is an essential material for modern economies. Exploiting the 
material's properties required focused R&D.
    Some areas of research that are important include reducing the high 
energy usage in smelting (which accounts for an estimated 30 to 40 
percent of the cost of production) and reducing the undesirable by-
products of smelting, such as pollution. R&D is also important to meet 
regulatory requirements; and developing new markets, processes, and 
products for various market sectors, including automotive, aerospace, 
packaging, and construction.
    Arconic (formerly a part of Alcoa) is a leader in research and 
development in the aluminum industry. After establishing its first 
facility dedicated to improving production processes and finding new 
applications for aluminum in 1930, Alcoa established the Alcoa 
Technical Center outside of Pittsburgh in 1965 as a center for 
innovation. A success story of innovation, in 2005 Alcoa (now Arconic) 
signed a $1.1 billion, 10-year agreement with jet engine maker Pratt & 
Whitney to supply key engine parts. This supply pact included forging 
for the first-ever aluminum fan blades for jet engines.
    As recently as 2015, Alcoa undertook a $60 million expansion of its 
Technical Center to pursue the development of advanced 3D printing 
materials and manufacturing processes to meet increasing demand for 
complex, high- performance 3D-printed parts for aerospace, automotive, 
medical, building and construction and other high-growth markets.
    Of the three remaining companies with U.S. smelting operations in 
2016, Alcoa is the only company to report spending on Research and 
Development over the past five years in its financial statements; 
Century Aluminum and Noranda reported zero spending on R&D since 2012.
    Despite its long history of innovation in the aluminum industry, 
poor market conditions and financial health have apparently 
significantly affected both Alcoa's and Arconic's research and 
development efforts. Alcoa's R&D expenditures plunged from $95 million 
in 2014 to $33 million in 2016.\65\ In the first quarter of 2017, 
Alcoa's R&D spending was $7 million (an annualized $28 million), a 
reduction attributable to the creation of Arconic as a completely 
separate business, and declining aluminum earnings.
---------------------------------------------------------------------------

    \65\ Alcoa Corp., 2016 10[hyphen]K Securities and Exchange 
Commission financial report, Statement of Consolidated Operations.

---------------------------------------------------------------------------

[[Page 40563]]

    Most of Alcoa's R&D assets went to Arconic in the split. In 2016, 
Alcoa eliminated 90 positions at its technical center as part of an 
efficiency initiative; this followed a previous elimination of 50 
workers in 2015. Alcoa is leasing a single R&D building at Arconic's 
New Kensington, PA R&D campus (previously Alcoa's R&D complex) for 
three years. Arconic reported R&D expenditures of $100 million for 
2015, $132 million for 2016, and the company projects spending of [TEXT 
REDACTED] in 2017.\66\
---------------------------------------------------------------------------

    \66\ Arconic R&D figures are extrapolated from Alcoa's R&D 
program prior to Arconic's formation. Anne McInerney, Director of 
Federal Affairs, Arconic.
---------------------------------------------------------------------------

    Limitations on the funding of research and development caused by 
sliding revenues could have serious implications for development of 
next-generation aluminum-based products, including those required for 
U.S. national security. U.S. defense programs continue to rely on 
strong, lightweight aluminum for use in engine parts and structural 
components for aircraft, military vehicles, equipment, armor and many 
other applications. Aluminum is a critical part of any armor solution 
because it has better blast absorption characteristics. More than 90 
percent of all alloys currently used in the aerospace industry were 
developed through Alcoa's research.
    While downstream aluminum companies continue to conduct R&D in 
specific areas, the absence of fully integrated aluminum companies in 
the United States may be an inhibiting factor in development of next 
generation aluminum technologies.
4. Capital Expenditures
    According to the Aluminum Association, since 2013 their member 
companies have invested $2.3 billion in facilities to produce 
downstream aluminum products. The USITC's survey of downstream aluminum 
companies indicated that capital investment was on the increase, rising 
by 65 percent from 2011 to 2015; much of this investment was by 
companies involved in the plate, sheet and strip industry segment.\67\
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    \67\ USITC Report, p. 146-147.
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    In the secondary aluminum industry, the ITC's survey found an 
average of
    $291 million per year of investments, with merchant producers 
accounting for 60 percent of the investments. There was also a 
significant greenfield construction by a foreign firm (Shandong Nanshan 
Aluminum Co.), which built a captive secondary aluminum/extrusion mill 
in Lafayette, IN.\68\ Foreign investors that increased capacity through 
capital investment include Toyota Tsusho America, which purchased U.S.-
based merchant producer Bermco in 2015.
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    \68\ USITC Report, p. 141-142.
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    In the downstream wrought aluminum industry, the US ITC survey 
indicated that capital spending rose 65 percent between 2011 and 2015, 
to $995.3 million. Two thirds of this investment was by the flat rolled 
plate sector, which is due to the fact that the sector is experiencing 
demand growth and the high costs associated with rolling mill equipment 
compared to extrusion presses.\69\
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    \69\ USITC Report, p. 147.
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    Information on capital expenditures by the U.S. aluminum industry 
is available through the Bureau of Census' Annual Survey of 
Manufactures (NAICS #33131--Alumina and Aluminum Production and 
Processing) and is presented in the Table below.
[GRAPHIC] [TIFF OMITTED] TN06JY20.085

    These data include the total new and used capital expenditures 
reported by establishments in operation, including any known plants 
under construction, permanent additions, and major alterations to 
manufacturing and mining establishments, and new and used machinery and 
equipment. The table above shows that capital expenditures by the 
industry as a whole have been largely consistent over the three-year 
period. Capital investment by the primary and secondary aluminum 
smelting sectors account for a relatively small percentage of the 
total. The majority of capital expenditures are made by establishments 
in the downstream sector of the industry. As noted previously, 2015 is 
the most recent year for which this information is available; data for 
2016 would likely show a decline in capital expenditures by the primary 
aluminum sector.
    The USITC report on the Competitive Conditions Affecting the U.S. 
Aluminum Industry noted that several U.S. firms planned upgrades to 
smelting operations, but did not proceed due to financial 
considerations and market conditions. For example, in 2012 Alcoa 
announced plans to replace antiquated pot lines at its Massena East 
smelter, but cancelled the modernization plan in 2015--and instead shut 
down the facility. Noranda also planned to

[[Page 40564]]

upgrade its New Madrid, MO smelter, prior to the company declaring 
bankruptcy in 2016.\70\
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    \70\ USITC Report, p. 137.
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5. Aluminum Prices
    Aluminum is an exchange-traded commodity and global market prices 
for aluminum are determined on the basis of global supply and demand. 
The London Metal Exchange (LME) is the world's largest exchange for 
base and other metals, including aluminum. In Asia, the Shanghai 
Futures Exchange (SHFE) is a major commodity exchange for unwrought 
aluminum contracts. Aluminum contracts for the United States and Europe 
are traded on the LME. Aluminum prices in China are set on the SHFE. 
The LME price of aluminum is used as the global reference point both in 
the metal industry and in the investment community.
    The price chart for aluminum on the LME illustrates the price 
weakness seen over recent years. The fundamental reason for the price 
drop is chronic oversupply, despite healthy growth in global demand for 
aluminum and stable costs of production. In fact, demand has increased 
by over nine times over the past decade and a half.
    The oversupply situation in the global market is primarily caused 
by developments in the Chinese aluminum industry. Chinese consumption 
rose from 3.2 million metric tons in 2001 to 29.2 million metric tons 
in 2015. At the same time, production in the country increased by 
almost 14 times.
    In 2016 the world produced a total of 57.6 million tons of aluminum 
of which 31 million (54 percent) came from China. The result is that in 
2015, there were huge stockpiles of aluminum in the world with nearly 3 
million tons on the London Metal Exchange, the world's primary market 
for trading in nonferrous metals. Since then, there has been a drawdown 
in global LME warehouse inventories to just over 2 million tons.
    The figures below show prices on the London Metals Exchange for 
aluminum. First, the recession of 2008 is readily evident in the 
figure. After bottoming out in 2008-2009, the price of aluminum 
recovered, only to fall dramatically between 2011 and 2016 in response 
to global oversupply. The price drop for aluminum was particularly 
dramatic in 2015. In November, 2014 the LME price for aluminum was as 
high as $2,100 per metric ton; one year later the price was less than 
$1,500 per metric ton. Aluminum prices on the LME fell 18.6 percent in 
2015 reaching a six-year low at $1,475 per ton, or an average of 75 
cents per pound, and less than 73 cents per pound on average for 2016.
    The sharp drop in aluminum prices had a devastating effect on the 
U.S. industry--a number of U.S. smelters were forced to either 
temporarily or permanently halt operations during 2014-2016; two 
primary aluminum producers declared bankruptcy.
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[[Page 40565]]


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    In recent months, the LME price for aluminum has rebounded to more 
typical levels, and reached a five-year high in October, 2017 at nearly 
$2,200 per ton. Despite the improvement in the market, U.S. smelter 
operators have no confidence that prices will remain at or above 
current levels that are needed in order for them to operate profitably.
    Low aluminum prices, rising inventories and continued supply growth 
in China and other countries have caused many producers to close or 
curtail their U.S. smelting operations. While aluminum prices are 
beginning to rise from their historic low, it is not clear how readily 
the U.S. primary aluminum industry will rebound. Indeed, global 
aluminum production capacity continues to expand, which may mean that 
the increase in aluminum prices seen thus far in 2017 may not be 
sustained. While there has been a modest reduction in Chinese aluminum 
production in recent months, this trend, too, may be temporary. 
According to analysts at Bloomberg Intelligence, despite cuts to 
China's aluminum capacity earlier in 2017, Chinese aluminum makers 
added 4 million metric tons net capacity in 2017 and may add an 
additional 3 million metric tons in 2018.\71\
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    \71\ https://www.bloomberg.com/professional/blog/aluminum-landscape-may-get-interesting-winter-passed/
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VII. Conclusion

    Based on these findings, the Secretary of Commerce concludes that 
the present quantities and circumstance of aluminum imports (wrought 
and unwrought) are ``weakening our internal economy'' and threaten to 
impair the national security as defined in Section 232. The Secretary 
has determined that to remove the threat of impairment, it is necessary 
to reduce imports to a level that will provide the opportunity for U.S. 
primary aluminum producers to restart idled capacity. This will 
increase and stabilize U.S. production of aluminum at the minimal level 
needed to meet current and future national security needs. If no action 
is taken, the United States is in danger of losing the capability to 
smelt primary aluminum altogether.
    A quota or tariff on downstream products is also necessary because 
global overcapacity, coupled with industrial policies that promote 
exports of downstream products, have had a negative impact on the U.S. 
primary aluminum industry through reduced demand for inputs from 
downstream companies, as well as directly on the downstream companies 
which face increased import penetration in many aluminum product 
sectors.
    The continued rise in levels of imports of foreign aluminum 
threatens to impair the national security by placing the U.S. aluminum 
industry at substantial risk of losing the capacity to produce aluminum 
and aluminum products needed to support critical infrastructure and 
national defense.
    A major factor contributing to the decline in domestic aluminum 
production and loss of domestic production capacity has been excess 
production and capacity in China, which now accounts for over half of 
global aluminum production. This is despite the fact that China has no 
natural competitive advantage for aluminum production. Chinese excess 
production, unresponsive to market forces, flooded world markets and 
caused a steep decline in global aluminum prices between 2014 and 2016. 
During this time of low prices, a number of U.S. aluminum smelters were 
forced to permanently shut down, while

[[Page 40566]]

others were temporarily idled or curtailed their production.
    Although global aluminum prices have regained lost ground in recent 
months, the damage to U.S. aluminum production capability was 
significant and irreversible. U.S. ability to smelt primary aluminum, 
including high-purity aluminum needed for the most sophisticated 
commercial and defense applications, has been reduced to minimal 
levels. Imports of primary aluminum now account for nearly 90 percent 
of domestic consumption. Imports of downstream aluminum products are 
surging as well, up 30 percent in 2017 over 2016 levels.
    Since defense and critical infrastructure requirements alone are 
not sufficient to support a robust aluminum industry, U.S. primary and 
downstream aluminum producers must be financially viable and 
competitive in commercial markets to be able to produce the needed 
output. In fact, it is the ability to quickly shift production capacity 
used for commercial products to defense and critical infrastructure 
production that provides the United States a surge capability that is 
vital to national security, especially in an unexpected or extended 
conflict or national emergency. It is that capability that is now at 
serious risk.
    In addition, it is in the interest of U.S. national security and 
overall economic welfare that the United States retains an aluminum 
industry that is financially viable and able to invest in research and 
development of the latest technologies. This is especially important 
given the growing role that aluminum plays in both commercial and 
defense applications.
    The Secretary has determined that to remove the threat of 
impairment, it is necessary to reduce imports to a level that will 
provide the opportunity for U.S. primary aluminum producers to restart 
idled capacity. If no action is taken, the United States is in danger 
of losing the capability to smelt primary aluminum altogether.
    Moreover, the Secretary has concluded that action to adjust imports 
must apply to imported downstream (wrought) aluminum products as well 
as primary (unwrought) aluminum. The reason for this is threefold. 
First, the downstream industry has been also adversely affected by 
surging imports. Foreign industrial policies that promote exports of 
downstream products while discouraging exports of primary aluminum have 
resulted in increased import penetration in many aluminum product 
sectors. Second, reducing imports of downstream products and their 
replacement by domestic production will serve to increase domestic 
demand for primary aluminum. Lastly, import relief to downstream 
producers is necessary in order to compensate for the increase in 
primary aluminum prices that they will face. If the raw materials costs 
are increased for U.S. downstream producers, a tariff on imported 
downstream products is necessary so as not to adversely affect them vis 
a vis their foreign competitors.

VIII. Recommendation

    Due to the threat, as defined in Section 232, to national security 
from aluminum imports, the Secretary recommends that the President take 
immediate action by adjusting the level of these imports. There are a 
few different means by which import restrictions could help address the 
threat to U.S. national security. Under alternatives 1 and 2, the 
quotas or tariffs would be designed, even after any exemptions (if 
granted), to enable U.S. aluminum producers to utilize an average of 80 
percent of their production capacity. The quotas and tariffs described 
below should be sufficient to enable U.S. aluminum producers to operate 
profitably under current market prices for aluminum and will allow them 
to reopen idled capacity.
    Two alternatives for achieving this objective are described below. 
In each alternative, quotas or tariffs would be imposed on imports of: 
1) unwrought aluminum (Harmonized Tariff Schedule (HTS) Code 7601); 2) 
aluminum castings and forgings (HTS Codes 7616.99.51.60 and 
7616.99.51.70); 3) aluminum plate, sheet, strip, and foil (flat rolled 
products) (HTS Codes 7606 and 7607); 4) aluminum wire (HTS Code 7605); 
5) aluminum bars, rods and profiles (HTS Code 7604); 6) aluminum tubes 
and pipes (HTS Code 7608); and 7) aluminum tube and pipe fittings (HTS 
Code 7609) based on 2017 annualized imports in those categories.
    In either alternative, the Secretary recommends that the action 
taken to adjust the level of imports must be in effect for a duration 
sufficient to allow sufficient time and assurances to stabilize the 
U.S. industry. It takes up to nine months to restart idled smelting 
capacity. Market certainty is needed to build case flow to pay down 
debt and to raise capital for plant modernization to improve 
manufacturing efficiency.
    The Department of Commerce, in consultation with other appropriate 
departments and agencies, will monitor the status of the U.S. aluminum 
industry and the effectiveness of the remedies to determine if the 
remedies should be terminated or extended.

Alternative 1--Worldwide Quota or Tariff

Quota
    A worldwide quota of 86.7 percent on imports described above would 
restrict aluminum imports sufficiently to allow U.S. primary aluminum 
producers to increase production by about 669,000 metric tons, bringing 
total production to about 1.45 million metric tons, or about 80 percent 
of existing U.S. primary aluminum production capacity. This quota would 
also be applied to the five other aluminum product categories listed 
above and would help ensure the viability of those U.S. producers to 
meet national security needs.
Tariff
    A tariff rate of 7.7 percent on imports of unwrought aluminum and 
the other aluminum product categories listed above should have the same 
impact as the 86.7 percent quota. This tariff rate would be in addition 
to any antidumping or countervailing duty collections applicable to any 
product.
    This tariff rate also will adequately adjust for the price 
distortions in downstream aluminum product sectors that are caused by 
global overcapacity and overproduction being exported in the form of 
downstream products.

Alternative 2--Tariffs on a Subset of Countries

Tariff
    A tariff rate of 23.6 percent on imports of aluminum products from 
China, Hong Kong, Russia, Venezuela, and Vietnam should also restrict 
aluminum imports sufficiently to allow U.S. aluminum producers to 
utilize an average of 80 percent of their capacity. These five 
countries are the source of substantial imports due to significant 
overcapacity and potential unreliable suppliers or likely sources of 
transshipped aluminum from China.
    As in Alternative 1 above, this tariff rate would be in addition to 
any antidumping or countervailing duty collections applicable to any 
product. For the targeted tariff, all other countries would be limited 
to 100 percent of their 2017 import volumes.

Exemptions

    In selecting an alternative, the President could determine that 
specific countries should be exempted from the proposed quota by 
granting those specific countries 100 percent of their prior imports in 
2017 or exempting them entirely, based on an overriding

[[Page 40567]]

economic or security interest of the United States, which could include 
their willingness to work with the United States to address global 
excess capacity and other challenges facing the U.S. aluminum industry. 
The Secretary recommends that any such determination should be made at 
the outset and a corresponding adjustment be made to the final quota or 
tariff imposed on the remaining countries. This would ensure that 
overall imports of aluminum to the United States remain at or below the 
level needed to enable the domestic aluminum industry to return to 2012 
production and import penetration levels.

Exclusions

    The Secretary recommends an appeal process by which affected U.S. 
parties could seek an exclusion from the tariff or quota imposed. The 
Secretary would grant exclusions based on a demonstrated: (1) Lack of 
sufficient U.S. production capacity of comparable products; or (2) 
specific national security based considerations. This appeal process 
would include a public comment period on each exclusion request, and in 
general, would be completed within 90 days of a completed application 
being filed with the Secretary.
    An exclusion may be granted for a period to be determined by the 
Secretary and may be terminated if the conditions that gave rise to the 
exclusion change. The U.S. Department of Commerce will lead the appeal 
process in coordination with the Department of Defense and other 
agencies as appropriate. Should exclusions be granted the Secretary 
would consider at the time whether the quota or tariff for the 
remaining products needs to be adjusted to ensure that U.S. aluminum 
production meets targeted levels.

Richard E. Ashooh,
Assistant Secretary for Export Administration.
[FR Doc. 2020-14358 Filed 7-2-20; 8:45 am]
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