H.R. 5265

To provide for the temporary suspension of duty on the importation of fluorspar

U.S. INTERNATIONAL TRADE COMMISSION

PURPOSE OF THE BILL

H.R. 5265, if enacted, would amend the Tariff Schedules of the United States (TSUS) to suspend, until June 30, 1978, the column 1 rates of duty on all fluorspar (i.e., that provided for in items 522.21 and 522.24 of the TSUS). This would be accomplished by inserting a new item, 912.15, into the Appendix to the TSUS.

DESCRIPTION AND USE

Fluorspar, or fluorite, is a nonmetallic mineral composed of calcium fluoride. It occurs in both vein and bedded deposits and is mined by both open pit and underground mining. Most domestic production now has to be beneficiated prior to use. Fluorspar is marketed in acid grade, containing over 97 percent calcium fluoride and metallurgical grade, containing not over 97 percent calcium fluoride. The production of steel, aluminum and fluorocarbon chemicals are all basically dependent on fluorspar. In steel making, it serves as a flux. Aluminum fluoride, a derivative of fluorspar also serves as a flux in aluminum metal manufacture. The chemical and petroleum industries require hydrofluoric acid, made from fluorspar, in the synthesis of fluorocarbon polymers. Fluorspar is also used as a opacifier in glass and ceramics.

TARIFF TREATMENT

Under the provisions of item 522.21 of the TSUS, fluorspar containing over 97 percent by weight of calcium fluoride (commonly called acidgrade fluorspar) is dutiable in column 1 at the rate of $2.10 per long ton ($1.875 per short ton).2 This rate, reduced from $5.60 per long ton ($5.00 per short ton), is in effect pursuant to a concession granted in the General Agreement on Tariffs and Trade (GATT). Under the provisions of item 522.24 of the TSUS, fluorspar containing not over 97 percent by weight of calcium fluoride (commonly called metallurgical grade fluorspar) is dutiable in column 1 at the rate of $8.40 per long ton ($7.50 per short ton).3 This rate of duty is the same as the rate established in the Tariff Act of 1930. However, from 1943 through 1950 a reduced rate of $6.30 per long ton ($5.625 per short ton) was in effect pursuant to a trade agreement with Mexico. The trade agreement with Mexico was terminated January 1, 1951, and the statutory rate has been in effect since that date. No trade agreement concession is presently in effect on item 522.24.

Fluorspar is not eligible for duty-free entry under the Generalized System of Preferences (GSP).

U.S. FLUORSPAR-PRODUCING INDUSTRY

The U.S. fluorspar-producing industry in 1976 consisted of about 10 companies operating 15 mines and 7 plants-in Kentucky, Illinois, Montana, New Mexico, Nevada, Texas, and Utah. Two producers in the Illinois-Kentucky district who accounted for approximately 80 percent of domestic production were each acquired (in 1973 and 1974) by large multinational chemical corporations, Pennwelt Corp., and Allied Chemical Corp., who in addition to being major fluorspar consumers, also have interests in foreign fluorspar mines.

1 The respective duties in rate column 2 of the TSUS would continue to apply to products of most Communist-dominated countries (except Poland, Romania, and Yugoslavia). There have been no significant imports of fluorspar from these countries in recent years.

2 The column 2 rate for item 522.21 is $5.60 per long ton.

3 The column 2 rate for item 522.24 is $8.40 per long ton.

A new producer began operations in Kentucky in the first quarter of 1977 and development of a large ore body in Tennessee is being held in abeyance pending improved market conditions.

There are currently about 300 mine and 200 mill employees engaged in the production of fluorspar.

Expansion of fluorspar production in the Illinois-Kentucky area has been affected by stringent environmental standards.

DOMESTIC PRODUCTION

U.S. production (shipments) of all grades of fluorspar combined decreased from 272,000 tons in 1972 to a low of 118,000 tons in 1975. Production then increased again in 1976 to 164,000 tons (see table 1).

In addition to fluorspar production, fluosilicic acid in an amount equivalent to an estimated 80,000 tons of fluorspar was recovered us a by-product from phosphoric acid manufacture.

In 1976 the fluorspar industry continued to operate at less than two-thirds capacity.

Domestic production was affected by a 3-month labor strike at one facility early in 1976.

U.S. EXPORTS

Exports of fluorspar are nominal.

U.S. IMPORTS

Annual U.S. imports of fluorspar decreased from about 1.2 million tons in 1972-73 to 895 thousand tons in 1976 (see table 2).

Mexico is by far the largest supplier of fluorspar to the United States and hence would be the major beneficiary of the proposed duty suspension.

APPARENT U.S. CONSUMPTION

Annual U.S. consumption of fluorspar increased from 1.4 million tons in 1972 to 1.5 million tons in 1974 (see table 1); then decreased to 1.1 million tons in 1976. About 45 percent of the fluorspar consumed in the United States is used in the steel industry; about 31 percent is used in the chemical industry and about 22 percent is used in the aluminum industry. In 1976 the fluorspar market was depressed because of a slack market in these industries.

U.S. GOVERNMENT STOCKPILING

Fluorspar has long been classified as a strategic and critical material. The U.S. Government stockpiled large quantities of bath tariff-defined grades of fluorspar until the early 1960's. At present, the consists of about 1.3 million tons of flourspar, of which 0.4 million tons is metallurgical grade, the balance is acid grade.

TECHNICAL COMMENTS

In order to maintain the proper numerical sequence in the Appendix to the TSUS, is is suggested that the item number for the new provision be changed from "912.15" to "909.10". Should this suggestion be adopted, it would be appropriate to delete line 5 and 6 of page 1 of the bill and substitute the following phrase in lieu thereof: "by inserting in numerical sequence the following new item.".

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POTENTIAL LOSS OF REVENUE

The following tabulation shows imports for consumption of fluorspar (in thousands of short tons) by kind from 1972-76.

The calculated duty on 1976 imports of both grades of fluorspar totaled $3.4 million. It is estimated that the Government will lose more than $6.8 million in revenues if duties are suspended during a 2-year period on both tariff grades of fluorspar.

REGULATORY IMPACT OF PROPOSED LEGISLATION

It does not appear that the statement of H.R. 5265 would have a significant regulatory impact.

TABLE 1.-FLUORSPAR: U.S. PRODUCTION, IMPORTS FOR CONSUMPTION EXPORTS OF DOMESTIC MERCHANDISE APPARENT CONSUMPTION, AND RATIO (PERCENT) OF IMPORTS TO APPARENT CONSUMPTION, 1972-76

Source: Production compiled from official statistics of the U.S. Department of the Interior; imports and exports compiled from official statistics of the U.S. Department of Commerce.

TABLE 2.-FLUORSPAR: U.S. IMPORTS FOR CONSUMPTION, BY PRINCIPAL SOURCES, 1972-76

Source: Compiled from official statistics of the U.S. Department of Commerce.

DEPARTMENT OF COMMERCE

This is in response to your request for the views of this Department with respect to H.R. 5265, a bill “To provide for the temporary suspension of duty on the importation of fluorspar."

H.R. 5265 would suspend through June 30, 1978, the column-1 duties, applicable to imports from countries accorded most-favored-nation tariff treatment, for tariff item 522.21, which provides for fluorspar containing over 97 percent calcium fluoride (acid grade), and for item 522.24, which provides for fluorspar containing not over 97 percent calcium fluoride (metallurgical grade). The present column-1 duties for items 522.21 and 522.24 are $2.10 and $8.40 per ton, respectively. On the basis of 1976 trade data, the ad valorem equivalents for these duties are 2.8 percent and 13.6 percent, respectively. The column-2 duties applicable to imports of fluorspar from other countries would not be affected. The Department of Commerce favors enactment of H.R. 5265.

We believe that the proposed temporary suspension of duties on fluorspar would would have a net beneficial effect on the domestic interests involved. The U.S. steel, aluminum, and chemical industries are largely dependent on imports to meet their needs for fluorspar and the cost savings resulting from the proposed duty-free treatment would contribute toward efforts of these industries to reduce costs and increase their competitive position against foreign producers. At the same time we believe that the proposed suspension of duties would not have a significant effect on U.S. production of fluorspar.

U.S. consumption of acid and metallurgical grades of fluorspar increased from about 600,000 tons in 1961 to 1.4 million tons in 1974 and then decreased to 1.2 million tons in 1976. Because domestic production of fluorspar has remained fairly stable (180,000 tons in 1976) domestic industrial consumers have become increasingly dependent on imports to meet their needs. In this regard, U.S. imports during 1976 totaled 895,000 tons (valued at $57 million) or about 75 percent of estimated reported U.S. consumption. The calculated duty applicable to these imports amounted to $3.4 million.

In spite of the fact that U.S. demand for fluorspar dropped in 1975 and 1976, due largely to decreases in steel, aluminum and fluorocarbon production, domestic users of fluorspar had to turn to imports for 81 and 75 percent, respectively, of their needs. It is estimated that, at best, using all known resources, including the lower grade, less accessible deposits, U.S. production of fluorspar can only be expanded moderately, i.e.. by approximately 90,000 tons. Thus, as in the past, the gap between demand and U.S. supplies will have to be filled by imports. Moreover, imports have apparently had very little, if any, effect on prices or sales of domestically produced fluorspar. U.S. average prices have consistently been higher than import prices and have increased steadily since 1973. At the same time, analysis of mine and consumer stock levels indicates that virtually all domestically mined and milled fluorspar is being sold. We believe that market conditions of fluorspar will not change significantly in the next year, and that there will be no significant effect on domestic production from the proposed suspension of duties.

In addition to the fact that domestic production can only be increased moderately, world supplies of fluorspar are limited. In these circumstances, suspension of the duties on fluorspar would not only reduce the costs of the domestic consuming industries but also would thereby improve their competitive position against foreign consumers in purchasing fluorspar. These foreign consumers, whose demand for fluorspar has also increased, pay no duties or lower duties than U.S. purchasers of fluorspar.

While the Department of Commerce generally prefers that the removal or reduction of duties be accomplished as a result of a trade agreement in which the United States has the opportunity to seek reciprocal benefits for U.S. exports, in the present case, we believe that our current high dependence on imports of fluorspar greatly diminishes the negotiating value of this item. In addition, we believe that the overall advantage to the U.S. economy to be gained by a reduction of industrial costs with no likely effect on domestic production outweighs the marginal benefits which might be gained by reserving removal of the duties for use in trade negotiations.

In the event this legislation were enacted, it would have no impact on the revenues to, or administrative costs of, this Department.

We have been advised by the Office of Management and Budget that there would be no objection to the submission of this report to the Congress from the standpoint of the Administration's program.

DEPARTMENT OF STATE

The Secretary has asked me to reply to your letter requesting the views of the Department of State on H.R. 5265, a bill providing temporary duty free entry for fluorspar.

The Department of State has no objection to the enactment of the proposed legislation. More than 85 percent of United States consumption of fluorspar is supplied by imports. The proposed legislation would, in effect, relieve fluorspar end use industries of a cost burden thereby helping to put such industries on a firmer competitive footing in supplying steel, chemicals, aluminum and magnesium to the market.

United States imports of fluorspar are classified for customs purposes under either of two items of nomenclature provided in the Tariff Schedules of the United States, 522.21 or 522.24. If the fluorspar contains over 97 percent by weight calcium fluoride, it is classified under Item 522.21 and dutiable at $2.10 per ton; otherwise, under Item 522.24 and dutiable at $8.40 per ton. Imports entering under either item from countries whose products are not accorded most-favorednation treatment are dutiable at $5.60 and $8.40 per ton, respectively. In 1976, on the basis of the average unit value of imports from all countries, the specific tariffs of $2.10 and $8.40 per ton were equivalent to duties of 2.8 percent ad valorem and 13.6 percent, respectively. Nearly two-thirds of our aggregate imports of fluorspar entered subject to duty at $2.10 per ton under Item 522.21.

Virtually all fluorspar containing over 97 percent calcium fluoride is used in the manufacture of hydrofluoric acid and its derivatives, materials required by the chemical and aluminium industries; fluorspar containing less calcium fluoride, principally as a fluxing agent in the production of open hearth, oxygen furnace and electrolytic steel. During the five year period 1972-76, United States consumption of fluorspar averaged about 1,360,000 tons annually, of which slightly more than half was in the form of material containing more than 97 percent calcium fluoride.

In the same five year period, imports averaged 1,156,000 tons annually, of which around 61 percent comprised material containing more than 97 percent calcium fluoride. Mexico, accounting for about 75 percent of total imports, was by far the most important source of supply; Spain, Italy and South Africa were noteworthy secondary sources.

The Office of Management and Budget advises that, from the standpoint of the Administration's program, there is no objection to the submission of this report.

DEPARTMENT OF THE TREASURY

Reference is made to your request for the views of this Department on H.R. 5265, "To provide for the temporary suspension of duty on the importation of fluorspar."

The proposed legislation would amend subpart B of part 1 of the Appendix to the Tariff Schedules of the United States (TSUS), by adding immediately after item 912.10 a new item 912.15, TSUS, which would allow free entry until June 30, 1978 in the case of column 1 countries for fluorspar.

This Department supports the bill. In the absence of significant adverse effects, tariff suspensions tend to encourage trade and benefit consumers. There is little evidence that substantial adverse effects would result from enactment of the proposed legislation and its enactment could be beneficial to United States users of these items.

The proposed legislation, if enacted, would not materially affect the manpower or workload of the U.S. Customs Service. No unusual administrative difficulties 'are anticipated should the legislation be enacted.

The Office of Management and Budget has advised that there is no objection from the standpoint of the Administration's program to the submission of this report to your Committee.