Troubleshooting Trade

May 26, 2017, 17:39 PM
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May-June 2017

By Kent Kiser

In its 30-year history, ISRI has built connections with foreign governments, international regulatory bodies, other trade associations, and even the FBI to facilitate the free and fair trade of scrap around the world

30th Anniversary_TRADE_MJ17Recyclers have traded scrap commodities internationally for centuries, but the global scrap business is much broader and larger now than in the past. ISRI’s role as the industry’s international advocate also has broadened and grown extensively since its founding in 1987. In its early years, ISRI focused primarily on domestic legislative and regulatory threats such as Superfund and flow control. Steadily, though, global issues began to assert themselves and demand more attention from U.S. recyclers and ISRI. Through it all, ISRI has represented the industry’s interests on the worldwide stage during some of the most significant international developments—and battles—in the past 30 years.

Basel and Beyond

One of the biggest threats to emerge in the early 1990s was the Basel Convention on the Control of Transboundary Movement of Hazardous Wastes and Their Disposal, an international treaty that sought to reduce the movement of hazardous waste between nations and, specifically, to prevent the transfer of hazardous waste from developed to less-developed countries. “In theory, this should have little effect on the recycling of scrap metal, paper, plastics, glass, and textiles,” Andrew McElwaine, then ISRI’s director of congressional affairs, wrote in Scrap in 1991. “In practice, however, international trade in these essentials is directly threatened by the broad terms and vague definitions of the convention.”

The Basel Convention classified many types of scrap materials as wastes, even hazardous wastes, and equated shipping such materials for recycling with disposal. Participating Basel countries have to follow specific conditions on the import and export of Basel-defined waste materials, and they can ban the import of certain items, with other participating countries obligated to honor such bans. In addition, the trade of Basel-defined wastes across national boundaries of Basel countries involves meeting strict requirements regarding notification, consent, and tracking.

Although the Basel Convention essentially prohibits the shipment of wastes between parties and non-parties, the United States—which signed the treaty but never ratified it or passed implementing legislation—established trade agreements with Basel signatories to prevent problems with scrap shipments. That doesn’t mean the treaty is trouble-free for U.S. scrap shippers or for ISRI, however. “It [has been] horrifically confusing because of the different jurisdictional responsibilities and conflicts and confusion among the EU, the OECD, the United Nations, signatories, [and] nonsignatories,” says Bob Stein, retired senior vice president of nonferrous marketing for Alter Trading Corp. (St. Louis) and a former Non-Ferrous Metals Division president for the Bureau of International Recycling (Brussels).

In the treaty’s early years, ISRI’s government affairs staff attended Basel Convention meetings to offer input on the agreement’s appendices, which specify the materials that can and cannot move freely from developed to developing countries. “It was good ISRI was involved at that time because many of the materials our members handled could have ended up on Annex A, which is the list of materials that can’t move,” says Scott Horne, ISRI’s former general counsel and vice president of government relations, now retired.

As the treaty has matured, ISRI has stepped up its Basel role because the organization has expanded its reach into best practices and guides for various materials, such as lead-acid batteries, electronics, and end-of-life vehicles. ISRI staff members attend numerous meetings in Geneva—home of the Basel secretariat—and around the world, including gatherings of the Basel Council of the Parties and related groups. “The real work happens in the working groups as well as the technical and expert committees, and we attended scores of those meetings over the past 20 years,” Horne says. Why is ISRI’s presence at these meetings so important? “It’s the old saying—‘If you’re not at the table, you’re going to wind up on the menu,’” he says. “Anything and everything can come up at those meetings, so we’ve got to be there.”

The biggest challenge for ISRI in its Basel Convention work, Horne says, is that the United States has only observer status at the meetings since it is not a full party to the treaty. “From an advocacy point of view, it made our work more difficult because we could ask the U.S. delegation to push a point, but they were always the last to speak,” he says. As a result, ISRI has cultivated relationships with the delegations from other countries that are full parties to the convention, including Canada, Australia, Japan, and the United Kingdom. Those relationships allow ISRI to expand its voice and protect the industry in Basel discussions.

Beyond the Basel Convention, ISRI has kept a vigilant watch over the years on several European Union regulations best known by their acronyms, such as the WEEE, RoHS, REACH, and ELV directives on waste electronic and electrical equipment; the regulation of hazardous substances; the registration, evaluation, authorization, and restriction of chemicals; and end-of-life vehicles, respectively. Although those regulatory regimes have had little effect on North American scrap shippers, the ISRI staff has spent numerous hours attending EU meetings, reviewing documents, and seeking explanations about the directives’ details to make sure there are no threats hiding between the lines.

The China Phenomenon

When ISRI formed in 1987, China was a small presence in the international scrap world, importing less than 200,000 mt of U.S. scrap annually. The sleeping giant started to stir in the 1990s, steadily increasing its scrap consumption. “It is only a matter of time before China’s economy and industrial base mature, enabling it to join—and perhaps surpass—other countries as a strong, reliable consumer of U.S. scrap,” wrote Si Wakesberg, Scrap’s New York bureau chief, in 1993.

Those words were prophetic. By 2000, China was importing about 3.4 million mt of U.S. scrap—more than 17 times its 1989 volume. Then the sleeping giant bolted awake, boosting its imports of U.S. scrap more than sixfold over the next 11 years, reaching a peak of 22.2 million mt in 2011.

China’s growth brought unprecedented boom times—and new challenges—to U.S. scrap recyclers and to ISRI. One of those challenges came in 2004, when the Chinese government announced it would require all shippers of scrap into China to get an official license under its General Administration of Quality Supervision, Inspection, and Quarantine. The problem was that the Chinese government “was not and still is not very transparent when it comes to legislation or regulation, so we learned quickly that we had to develop relationships to get the heads-up” on the licensing requirements, Horne says.

ISRI volunteer leaders and staff started forging connections with Chinese recycling associations and government agencies, beginning with groups such as the Metal Recycling Branch of the China Nonferrous Metals Industry Association (Beijing), dubbed CMRA. Through that group, ISRI secured a copy of the proposed AQSIQ licensing rules and translated them into English. “When I read the rules, my jaw dropped because I realized why our members were really, really concerned,” Horne says. Under the proposed rules, shippers had to provide a significant number of documents—including some, such as tax returns, containing sensitive information—as well as photos of their offices and facilities.

The licensing regime was supposed to take effect in late 2004, but “AQSIQ—which was short-staffed—hadn’t approved the first license by then,” Horne says, which “caused panic in the industry. … Recyclers were wondering what they needed to do. So many things were happening at the last minute, and it was driving our members crazy.”

Randy Goodman, executive vice president of Greenland (America) (Roswell, Ga.) and former chair of ISRI’s Trade Committee, recalls the fear and confusion he felt at the time. “It was a lot of trying to understand why they wanted all the information they did, plus everything had to be submitted in Chinese,” he says.

ISRI used its relationship with CMRA to establish connections in AQSIQ. Through several in-person meetings and numerous e-mails with CMRA and AQSIQ, ISRI brought clarity to the situation and persuaded AQSIQ to extend the application and implementation deadlines.

From 2004 to 2010, ISRI also helped members address issues related to CCIC, the for-profit group affiliated with the Chinese government that conducts preshipment inspections of scrap cargoes in the United States. ISRI members had several complaints about CCIC. For one, Goodman says, “depending on who the inspector was and whether they liked you, you might or might not get CCIC approval.” Members also claimed CCIC inspectors would visit scrapyards to inspect loads for shipment but then try to make a deal to buy scrap.

ISRI raised the matter to the head of CCIC North America in California, who requested details of specific incidents. ISRI members were reticent to provide such details, fearing possible retribution from CCIC, but a member in the Midwest eventually came forward to describe a particularly maddening incident. Horne passed the details on to the CCIC contact, who investigated the situation, fired the inspector and his supervisor, and told others in his office that such behavior was not allowed. While CCIC problems haven’t disappeared, the number of complaints has dwindled, Horne says.

Some of the biggest and most vexing bumps in the road regarding U.S. scrap trade with China came during the market crash in late 2008 and 2009, when numerous Chinese buyers reneged on deals or renegotiated contracts after the scrap was already en route. Unfortunately, “the vast majority of our members had agreements that didn’t protect them very well in the crash,” Horne says. Compounding the problem, Stein explains, was the Chinese government, which didn’t allow an “orderly liquidation” of contracts on the Shanghai Metal Exchange. “It forced traders to maintain their hedged positions, so the losses were huge.”

Since the conflicts involved private commercial transactions, ISRI was limited in what it could do. Even so, the association talked with various groups—from the U.S. Embassy and trade development representatives in China to CMRA and other Chinese recycling associations and government agencies—in an attempt to get the reneging companies to honor their contracts. “We tried to make the associations understand that their members wouldn’t be able to source anywhere near the amount of material they bought prior to the crash if these deals weren’t straightened out,” Horne says.

In such an exasperating situation, ISRI’s greatest value may have been on the education front, teaching members how to make their contracts better, in part by including arbitration clauses so they wouldn’t have to seek redress in the Chinese courts. ISRI held webinars and a 2009 convention program on international contracts and the Chinese legal system, and it offered information about U.S. government services and assistance for exporters. If there was any silver lining from the Great Recession period, Stein says, it’s that “now many companies trading scrap with China have adopted a very strict method of doing business, with larger deposits required.”

Additional turbulence in the China scrap trade arose in early 2013, when the Chinese government implemented Operation Green Fence, which increased the scrutiny of scrap imports due to concerns about the presence of waste and contaminants. Green Fence “was implemented with no notice and came down like a ton of bricks,” Horne says. From roughly March to early July 2013, China Customs reportedly inspected every incoming recycling-related container, and “they found a lot of waste included in the shipments,” especially in recyclables from single-stream collection programs, Horne says. Aside from the obvious drawback of having numerous loads rejected and sent back at the shipper’s expense, Green Fence slowed port operations, creating backups that led to demurrage charges. In addition to talking with the shipping lines—to no avail—ISRI consulted with China Customs and AQSIQ, asking them to consider a scaled-back inspection approach that would be less disruptive. Customs ultimately reduced its inspections of metal shipments to less than 10 percent, Horne recalls, but it continued inspecting all shipments of paper and plastics. By November 2013, however, Customs had scaled back its inspections of those shipments as well.

Even as ISRI helped recyclers scale the Green Fence obstacle, the industry faced yet another sobering and perplexing problem—thefts of scrap from sealed shipping containers, primarily in shipments to China. As a scrap trader, Stein says, “you never really knew who the enemy was, except for maybe everybody. It was rampant.” As more and more members suffered such losses, ISRI reached out for help to the shipping lines, international shipping and law-enforcement organizations, as well as the U.S. government, contacting the FBI, Coast Guard, and Commerce and State departments. Many of these groups asked ISRI a question it couldn’t answer: How big is the problem in terms of volume stolen and value lost?

To find out, ISRI conducted a survey that received enough responses to identify some theft patterns. Then, thanks to the legwork and connections of Brady Mills, ISRI’s director of law enforcement outreach, an FBI intelligence analyst in California wrote about the cargo-theft problem in a document on international issues that reached law enforcers throughout the country. ISRI also discussed the issue with contacts in the Chinese government and recycling associations. The latter groups notified their members, which brought the problem out of the shadows and made it clear the industry intended to stop such crimes. “The thefts diminished because people knew we were finally gaining some traction,” Horne says. The thefts also decreased, Goodman adds, because scrap shippers have invested a “tremendous amount” in new protective measures. “Now, if you look at a container, it could have bolt seals, cable seals, tape seals, and sometimes bar seals just to prevent anything from happening to the doors.”

Promise and Politics in India

India started the 1990s with great promise as a scrap destination as its government made a series of reforms to open up its historically closed, protectionist economy and spur internal growth. India was “definitely a player” as an international scrap buyer, especially of copper, brass, stainless, and shredded ferrous, Stein says. In 1990, for instance, India imported roughly 1.9 million mt of U.S. scrap—more than 10 times the volume China imported that year. Several factors have limited India’s promise, however, including its ponderous bureaucracy, extensive trade controls on imported scrap, licensing requirements for scrap importers, infrastructure problems, and wide currency fluctuations. In the 28 years from 1989 to 2016, India’s imports of U.S. scrap have only tripled—from 1 million to 2.9 million mt—while China’s imports grew to 84 times their 1989 volume in that period. “I’ve been hearing about India’s fantastic potential since the 1970s, but at some point you need to get beyond the potential and say you’ve arrived,” Stein says.

India’s unrealized potential has not prevented it from looming large in recyclers’ imaginations—and on ISRI’s international radar. In fact, after its first study mission to China in 2005, ISRI selected India for its second mission, in 2007. As part of the preparations for that trip, Scott Horne and ISRI President Robin Wiener visited India [in late 2006?] to meet with the director general of foreign trade and two of his assistants. During the meeting, the director general said the Indian government was interested in establishing a licensing program for exporters of scrap to India modeled after China’s AQSIQ approach. He asked Wiener and Horne for their views. “We proceeded to tell them every problem we encountered with the Chinese system,” Horne recalls, “and by the end of the meeting, they were looking at each other and clearly thinking, ‘We don’t want any part of that.’ We effectively cut off [the imposition of] an AQSIQ-like licensing regime.”

The next big India-related challenge involved its preshipment inspection program for international scrap shippers. In contrast to China, which has one exclusive inspectorate—CCIC—in North America, India authorized roughly 10 preshipment inspection agencies to inspect cargoes in North America, Horne says. After several incidents in which radioactive or explosive materials appeared in imported scrap, India proposed changes to its inspection rules that would have required the inspection companies to equip their inspectors with hand-held radiation detectors and train them how to identify potentially explosive items in the scrap stream. Recognizing that the inspectorate companies had little time to meet the new requirements by the implementation date, ISRI conducted an informal survey of manufacturers of radiation detection equipment and found there weren’t enough hand-held detectors available in the short term to meet India’s deadline. Working with BIR and the Metal Recycling Association of India (Mumbai), ISRI persuaded the Indian government to extend the deadline.

ISRI also made the case that shredded scrap should be free of the preshipment inspection requirements. “We explained that any processor of any size has at least portal radiation monitoring,” Horne says. “We also convinced them that if the material is shredded, it’s not going to have any radioactive or explosive material in it.” The result? The Indian government modified its inspection requirements to allow shredder operators to self-certify their shredded scrap after posting a bond. 

Kent Kiser is publisher of Scrap and assistant vice president of industry communications for ISRI.


The Ongoing Battle Against Export Controls

In the modern scrap era—from 1900 onward—U.S. recyclers have faced one international issue more times than any other: export controls. One landmark case occurred in the early 1970s, when the federal government—at the behest of the U.S. steel industry—set limits on the amount of ferrous scrap recyclers could export. “U.S. steel producers argued that scrap exports were creating a domestic scrap shortage and that foreign scrap buyers were thereby raising the cost of U.S. steel to domestic industries,” wrote ISRI’s Scott Horne in a 2015 letter on export controls. “The objective of the restrictions was to retard the outflow of scrap to foreign users to protect the supply available for domestic users and reduce the level of scrap price increases.”

Despite the restrictions—which started in early 1973 and extended into 1974—U.S. ferrous scrap prices continued to rise, a phenomenon called control reversal. As Horne explained in his letter, “global ferrous scrap purchasers were agreeing to prices substantially above the U.S. domestic market level because the rising demand for steel and the restricted supply of scrap caused foreign buyers to compete vigorously for the available supply.”

In his 1977 study titled Control Reversal in Economics: U.S. Scrap Export Restrictions, Robert Shriner concluded that the controls caused domestic scrap prices to rise more—and forced U.S. steelmakers to spend roughly $2 billion more for scrap—than they would have without the restrictions in 1973 and 1974.

Despite the economic arguments against export controls, U.S. steelmakers and other industries have revived the issue several times in ISRI’s 30-year history. The most notable case arose in 2004, when the Copper and Brass Fabricators Council and the Non-Ferrous Founders’ Society filed a petition seeking export controls on copper and copper-alloy scrap. In addition to claiming that such scrap was in short supply in the domestic market, the groups noted the dramatic rise in copper scrap prices in the previous year and attributed the market challenges to China’s unfair trade practices. ISRI launched an aggressive defense, retaining Patton Boggs, a Washington, D.C., law firm with expertise in export-control matters, and filing comments with the Department of Commerce, countering each of the petition’s claims and promoting the industry’s free and fair trade policy. “When we put everything together,” Horne says, “it became evident that there was a more-than-adequate supply of material available; however, it was available at a higher cost than the plaintiffs wanted to pay.” In the end, the Commerce Department rejected the petition.

History suggests domestic scrap consumers will make more attempts to impose export controls on scrap in the future. For any government willing to listen, Horne offered this advice in a 2014 column in Scrap: “It’s the responsibility of all governments to understand the economics of the global scrap economy before they take any trade-limiting action. They must realize that even the slightest barriers to the free and fair trade of scrap recyclables can, and almost certainly will, result in a host of unintended consequences.”



Caveats and Thanks

This article attempts to hit the most notable issues ISRI has addressed in the international arena over the past 30 years, but ISRI’s global work on behalf of the scrap recycling industry is much broader, covering countries from South Africa to Russia—literally anywhere an issue threatens the international trade of scrap commodities. In addition, ISRI would be remiss not to recognize fellow recycling associations—such as the Bureau of International Recycling (Brussels) and the Canadian Association of Recycling Industries (Ottawa)—that have joined it in advocating for the recycling industry’s interests around the world. ISRI looks forward to continuing to fight together for recycling over the next 30 years.

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