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Bush shrugs off trade war over steel decision

Domestic steel interests have lauded, and steel exporters panned, the US move to ratchet up import duties on steel products, a decision in which  internal political considerations likely played a key part.

by Tim Shorrock


WASHINGTON: President George W. Bush’s decision to impose tariffs as high as 30% on imported steel has infuriated key US trade partners. South Korea and the European Union, two of the hardest hit, will appeal the decision to the World Trade Organization, a move that Japan also is considering.

“The US decision to go down the route of protectionism is a major setback for the world trading system,” said EU Trade Commissioner Pascal Lamy, who added that the European bloc would avoid unilateral actions and remain within the WTO.

The package, which combines tariffs and quotas and leaves most developing countries out of the equation, reflects a particular sense of domestic and global politics on the part of the president and his political advisers. It was announced on 5 March after weeks of intense deliberations with steel producers, trade unions, importers and users of steel products.

The tariffs are the strongest action taken by a US administration to protect a domestic industry since President Ronald Reagan pressured South Korea, Japan and other countries to implement voluntary export restraints on steel and automobiles in the mid-1980s. Both actions were taken by Republican presidents firmly committed - rhetorically at least - to open markets and free trade.

Bush shrugged off the possibility of a trade war. “We’re a free-trading nation, and in order to remain a free-trading nation, we must enforce law,” he said. The tariffs and quotas, he added, are imposed because imports were “severely affecting an important industry” and the safeguards would help the beleaguered US industry restructure.

US Trade Representative Robert Zoellick added that Bush “recognizes that some industries, workers and communities can’t respond as quickly as one might wish to the changes of a fast-moving global economy.”

More than 20,000 jobs have been lost in the US steel industry over the past four years and 30 companies have gone bankrupt.

The highest tariffs of 30% will provide three years of protection to the high-value industrial steel made by the huge integrated steel mills that joined with their unions in demanding government assistance. Those mills happen to be in key Midwest states - including West Virginia, Pennsylvania and Ohio - that will figure large in the 2004 presidential election. Bush badly needs the support of their lawmakers for trade promotion authority to negotiate more free trade agreements.

By imposing a quota on raw slab steel, the largest export product for Brazil and Russia, the administration has mitigated the concerns of two large trading partners whose support is badly needed in future trade negotiations, such as the Free Trade Area of the Americas and the US push to expand WTO rules on trade in services.

By avoiding tariffs altogether on Argentina, Thailand and Turkey, the administration can say it is maintaining WTO rules towards developing countries - and possibly keep them from joining the opposition at the next WTO session.

Products in line for the heaviest tariffs are plates, hot- and cold-rolled sheet steel, and coated sheet used in cars and appliances, furniture, farm equipment, and other machines. Tin mill, used to make containers for food and beverage cans, also received the maximum tariff, which will be lowered to 18% by the third year. Most affected will be South Korea, Japan, Taiwan, China and the EU.

In the US, these products are primarily made by the large integrated steel mills, such as USX and Bethlehem Steel, which compete head-on with South Korea’s Pohang Iron and Steel, Germany’s Thyssen Krupp and other big producers in Asia and Europe. Tin mill is the key product of Weirton Steel in West Virginia and competes primarily with Korean producers.

Reactions

“They lived up to their word,” said John Walker, Weirton’s CEO. “We would have liked more, yes. We would have liked the tariffs to last longer, yes. But it gives us some breathing room.”

Leo Gerard, president of the United Steelworkers of America union, was in the thick of last-minute industry lobbying and applauded Bush’s action. “It’s not as comprehensive as we had hoped, but it certainly is the first time we’ve seen some light at the end of a long, dark tunnel,” he said.

Many of the large US producers also make the second category, including rebar used in highway construction and stainless bar used in capital goods, which was hit with 15% tariffs. The lowest tariffs of 8% will be applied to stainless steel, which is made primarily by smaller companies.

The Wall Street Journal noted the anomaly in its coverage. “While rewarding the powerful, unionized old-line steel mills in key electoral states such as West Virginia and Pennsylvania, the Bush decision offers less protection to the more modern but non-unionized companies making high-end products such as stainless steel.”

Also unhappy was South Korea, which exports 15% of its steel to the US. In Seoul, Shin Kook-hwan, the commerce minister, called the Bush decision “disappointing” and said South Korea had already been taking steps to reduce excess capacity through the Organization for Economic Cooperation and Development (OECD).

The Japanese government expressed “regret”, while the powerful Japan Iron and Steel Federation issued an angry statement saying the “unfair decision” would shift “the burden of the problems being experienced by the US steel industry to foreign steel importers, thus forcing foreign steel producers and domestic steel users to endure unwanted, painful sacrifices to rescue the US steel industry from its own mistakes.”

US importers of steel denounced the decision. “There are thousands of small-business owners across the country who depend on steel, who are wondering what happened to the open-trade, no-taxes-over-my-dead-body president they thought they elected,” said Jon Jenson, chairman of the Consuming Industries Trade Action Coalition. It published a report last year showing that over 75,000 jobs depended on US steel imports. The Japan Iron and Steel Federation funded the study.

The decision to cap bulk steel imports at 5.4 million tons per year reflects the reality of the US industry, which is highly dependent on foreign sources for slab, which is used in practically all products made of metal.

US officials said Brazil would be allowed to export half of the quota, while Russia will be allotted 25%. When importers exceed the quota, 30% tariffs will be applied to further imports. Last year, slab imports totalled 5.7 million tons.

The limited measures did not mollify the two countries. Gherman Gref, the Russian minister of economics and trade, said Moscow could not rule out “retaliatory measures,” while Brazilian Development, Industry and Trade Minister Sergio Amaral said Brazil might join a WTO appeal. (IPS)                                   

From TWE  No. 275 (15-28 February 2002)

 

 

 


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