The
Steel Tariffs and U.S. Trade Negotiations: Reasons for
Hope and Despair
by
Russell L. Smith, Willkie Farr & Gallagher
WASHINGTON
(KWR) -- In June 2001 the Bush Administration
set in motion a sweeping and politically-charged
trade investigation by the U.S. International
Trade Commission under Section 201 of U.S.
trade law concerning virtually all steel imports
entering the United States. The result was
a March 2002 decision by President Bush to
impose prohibitive tariffs and other trade
restraints on billions of dollars of steel
imports from a wide range of U.S. trading partners.
It was one of the most significant acts of
trade protection undertaken by a U.S. President
since the last major round of comprehensive
steel protection was effected almost two decades
ago.
Twenty-one months later, this episode in U.S. protectionism came to an abrupt
end. On December 4, 2003, President Bush proclaimed that the steel tariffs
would be terminated immediately. The decision was no doubt facilitated by
a finding of the World Trade Organization Appellate Body that the U.S. steel
measure was inconsistent with U.S. international obligations, threats of
WTO-sanctioned retaliation by key U.S. trading partners and, more cynically,
a change in the White House political calculus ahead of the 2004 elections.
The White House would only state that the last twenty-one months had provided
the breathing space needed for the U.S. steel industry to adjust to import
competition, and that the decision to terminate the steel tariffs was not
founded on these other considerations.
Is there a deeper significance to the termination of steel safeguard tariffs?
Where does the Bush Administration go from here on trade? To the former question
the answer is probably “maybe,” and to the latter perhaps “from
the frying pan into the fire.” The termination of the steel tariffs,
with no other concrete assistance of any kind to replace them save an administrative
import monitoring system, appears to be a dramatic repudiation of the political
power of “Big Steel,” that army of executives, lobbyists, lawyers,
and their political allies in Congress and the bureaucracy that speak for
the U.S. domestic steel industry and the steelworkers unions. The history
of Big Steel in Washington over the last-quarter century has been one of
virtually uninterrupted success in obtaining import protection in one form
or another.
The apex of that power was the 2002 steel safeguards. The domestic industry
worked for months to define imports as the sole cause of their financial
and operational problems, and import protection as the key to solving those
problems. Once the Administration initiated the steel safeguards investigation,
the industry and the Congressional Steel Caucus brought enormous pressure
to bear on the International Trade Commission to ignore the facts, the basic
requirements of U.S. law, and the WTO rules to produce a finding of injury.
This created a drumbeat for protection that resulted in a determination by
the President to embrace a remedy at the extreme end of the spectrum.
At that point, Big Steel claimed that the 30 percent tariffs were insufficient
to revive the industry. The domestic industry complained that the exceptions
granted to exports from developing countries and the exemptions for products
in short supply would undermine the tariffs. They demanded that the Federal
government finance the medical insurance coverage of all troubled steel companies,
at an estimated cost of $12 billion. This latter demand came at the same
time the U.S. Pension Benefit Guaranty Corporation was reporting that steel
companies’ abandonment of their pension plans had drained its multi-billion
dollar reserves. Big Steel also sought extensions and expansions of the steel
loan guarantee program.
When it came time for the statutory mid-term review of the tariffs, and the
International Trade Commission report assessing whether the tariffs had helped
achieve industry restructuring, Big Steel threw itself into a new frenzy
of letters, speeches, press conferences, meetings with the Administration
and Congressional hearings to condemn even the hint that the tariffs might
be adjusted at the mid-term. It is this author’s opinion that the unrelenting
post-safeguard demands of the U.S. steel industry and labor unions ultimately
produced the fabled syndrome of “steel fatigue.” In short, key
opinion leaders and decision makers in Washington came to understand that
the United States was risking a trade war over steel, coupled with continuing
adverse economic effects of import restrictions in the United States. When
this situation was coupled with the realization that no amount of trade protection
and economic assistance would satisfy Big Steel the political impetus to
do so vanished.
This is the deeper significance of the end of the steel tariffs--that powerful
sectoral interests may finally be wearing out their welcome in Washington.
As a further example, while many observers regarded the announcement of the
Bush Administration of its intention to limit exports of certain textile
and apparel products from China as a negative development, they failed to
take into account that the domestic textile industry demanded such protection
many months before the Administration took action, and that the demand was
for much broader import restrictions than those finally proposed. China had
a significant period in which to increase its exports, and at this writing
is still in negotiation with the United States as to the terms of any import
quotas. This is a far cry from the automatic quota system that has been in
place for textiles and apparel for decades and is now being phased out pursuant
to the Uruguay Round agreements. While these sectoral-specific developments
are certainly not definitive, they present a hopeful prospect that the United
States is emerging for the syndrome of preaching free trade in theory and
embracing sectoral protection in reality whenever the political pressure
becomes too great.
If the United States now may have lost its stomach aggressive sectoral /
unilateral trade actions, where is the trade issue headed? Unfortunately
this potentially positive development is now being overwhelmed by a set of
adverse circumstances. In recent months, the Bush Administration’s
initiatives for reaching multilateral and bilateral trade liberalization
have come upon extraordinarily hard times. The Cancun Ministerial a few months
ago demonstrated that the United States is no longer in a position to move
the international community to accept its trade positions, and that many
countries, particularly those in the developing world, are willing to walk
away from multilateral negotiations that they perceive as inadequately protecting
their interests. While U.S. negotiations on a free trade agreement with Australia
seem to be progressing, the outcome is not certain. Other FTA negotiations,
particularly those with Central and South American nations, are not going
well, and U.S. trading partners in these regions have also become bolder
and more demanding with regard to U.S. market access issues.
At home, the deterioration of the broad national consensus that supported
free trade in the past has continued and has accelerated. The claim is now
that international trade is to blame for changes in the overall U.S. manufacturing
sector. This attack incorporates a variety of allegations, including currency
manipulation, labor and environmental issues, and lack of reciprocal market
access. No amount of empirical analysis of the conditions that have resulted
in a loss of U.S. manufacturing jobs (increased productivity through technology,
domestic price pressures from customers, recession, etc.) has so far changed
the minds of those who have seized on this issue as a basis for attacking
any new U.S. trade agreement.
The reasons for this are far more complex than the factors that led to the
imposition of steel tariffs and to their removal. Decades of attacks on open
trade, U.S. losses in the WTO, and certainly competitive pressures from imports
have cumulatively soured U.S. policymakers, especially those in Congress,
on the idea that open trade is beneficial for the overall United States economy,
despite the temporary dislocations it may cause in some discrete cases. The
prevailing point of view is now highly suspicious of trade liberalization,
and extremely reluctant to accept regional and bilateral free trade agreements,
and certainly multilateral agreements, as inherently “good” for
the United States.
The steel tariffs have highlighted just how detrimental unilateral trade
protectionism can be, but if some key politicians are turning away from this
approach, they are instead turning to a form of economic isolationism that
is more subtle, but ultimately just as harmful, as product-specific trade
restrictions. It may require a long period of strong economic performance,
nationally and globally, before the national consensus again supports multilateral,
regional and bilateral free trade.
