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President Trump announced on Tuesday, January 24, 2017, that he had signed Executive Orders designed to promote construction of the Keystone XL and Dakota Access pipelines which were long blocked by the Obama Administration. According to Mr. Trump, construction of the pipeline could mean 28,000 jobs.
The Keystone XL pipeline would carry oil from the tar sands area of Canada into the United States. As mentioned in the last edition of the Five Star Standard, this could be beneficial to WTI pricing as condensate is needed to refine those dirty crude products and thereby increases demand for light, sweet crude.
But what makes Mr. Trump’s executive order even more interesting is his corresponding order directed to the Secretary of Commerce. Mr. Trump’s order requires the Secretary to develop a plan to ensure all pipelines built, repaired or upgraded in the United States use domestically made steel.
The secretary was ordered to submit a plan within 180 days "under which all new pipelines, as well as retrofitted, repaired, or expanded pipelines, inside the borders of the United States ... use materials and equipment produced in the United States."
Thus, it appears Mr. Trump has created a bit of a quid pro quo – I will give you your pipeline but you help me create jobs. But there is a hitch. As many of you know, almost all trade between countries (approximately $20 trillion in 2015) move under the rules of the World Trade Organization (or its predecessor – the General Agreement on Tariffs and Trade). The WTO was created through a series of agreements, and effectively has jurisdiction over world trade as prescribed by those agreements. 164 Countries are members of the WTO, and through ratification in their various bodies, have agreed to abide by the rules set forth in the trade agreements. The United States is a signatory member.
At the heart of the agreement is the non-discrimination principal: that is, member countries are required to give the same treatment to imports from all other members and they may not discriminate against foreign producers (however, there are many exceptions to this rule – such as anti-dumping penalties). Trump's plan to require U.S. pipelines to be built with U.S. steel is clearly inconsistent with the national treatment obligation set out in Article III:4.
"The products of the territory of any contracting party imported into the territory of any other contracting party shall be accorded treatment no less favorable than that accorded to like products of national origin in respect of all laws, regulations and requirements affecting their internal sale, offering for sale, purchase, transportation, distribution or use."
The bigger problem is that the United States challenged Canada’s attempt to tie governmental approvals of projects to use of domestically sourced goods. And the U.S. won. In fact, the United States has brought numerous successful challenges to local content requirements applied by: India (solar cells), Argentina (import licenses), China (tax refunds, auto parts), Turkey (rice), Canada (wheat, auto parts) and the Philippines (auto parts) among others.
We at Five Star certainly applaud Mr. Trump’s attention to the U.S. Steel Industry. Having a strong steel industry is not only good for business, but in the author’s opinion, vital to the National Security of the United States of America. While I am not sure this particular order is legal and will ultimately have any impact, I believe that it is overall positive that Mr. Trump recognizes the important role steel plays in our economy and security.