Customs Update: Will Steel Tariffs Make a Difference?
(Published in the Journal of Commerce on 3/25/02)

The protective steel tariffs announced by President Bush on March 7 are designed to salve the ills of the domestic steel industry, and although imports from Canada, Mexico, Jordan and Israel were excluded, the scope of products covered by the measures raise as many questions as the cure itself.

In announcing the higher duty rates, Mr. Bush excluded certain sources of steel products, i.e., those from what are described as "developing countries" which are WTO members, provided the quantity of products imported from an individual developing country does not exceed 3% of imports, or the developing countries as a whole do not account for more than 9% percent of all imports. Exempt from the safeguards are such countries as Argentina, Bulgaria, The Czech Republic, Hungary, India, Indonesia, Moldova, Poland, Romania, Slovakia, South Africa, Thailand and Turkey. Kazakhstan, Russia and Ukraine are covered by the safeguards because they are not WTO members. Data is to be reviewed on a quarterly basis and the United States Trade Representative is instructed to initiate consultations with countries whose quantities increase. If quantitative reductions do not follow, the USTR is authorized to modify the safeguards accordingly. Imports from Generalized System of Preferences (GSP) eligible countries are accorded similar treatment. Therefore, China is not exempt as it is not GSP eligible. In total, it is estimated that 35% of the steel-producing market was excluded from the Bush safeguard measures.

The safeguard measures apply to certain flat steel, hot-rolled bar, cold-finished bar, rebar, certain welded tubular products, carbon and alloy fittings, stainless steel bar, stainless steel rod, tin mill products, and stainless steel wire. Because the safeguards are imposed under Section 202 of the Trade Act of 1974, the President was able to impose the higher rates of duty for a definite period of time, in total three years. Had the safeguards been imposed under the anti-dumping rules, these cases could have dragged on for years. As such, while the higher rates of duty apply over a three-year period, the rates drop progressively each year. For example, any finished flat plates over the established quota amount will be subject to a 30% rate of duty in year one, 24% in year two and 18% in the final year. Rebar is subject to a 15% tariff in the first year, 12% in the second and 9% in the third year. The Secretary of Commerce is also directed to create an import license procedure.

The higher duty rates took effect on March 20, 2002. However, no sooner was Mr. Bush's announcement made than the European Union filed a formal complaint at the World Trade Organization. Australia, New Zealand, Japan, Korea, Switzerland, Norway, Taiwan and Brazil also filed complaints. In his remarks announcing the safeguards, U.S. Trade Representative Robert Zoellick made the point that Japan, Korea, India, the European Union and Brazil have all employed safeguard measures at one time or another. Ambassador Zoellick set the total at "about 21" as the number of safeguard measures currently in effect throughout the world.

In the American press, one of the major criticisms of Mr. Bush's actions is that they seem aimed at trying to help Republicans in the 2002 elections in such states as West Virginia and traditional labor strongholds throughout the country, especially in states like
Illinois and Indiana. However, by doing so, the President also angered some of his traditional supporters. For example, the Louisiana Congressional delegation was opposed to steel tariffs and contains a number of key Republicans. Some of those and other members have signaled they may stop supporting Mr. Bush on Trade Promotion Authority because they see the imposition of these higher duties as harming businesses, such as the Port of New Orleans, in their local communities.

To date, the Commerce Department had received about 1,000 requests for exemptions from the higher tariffs, mainly from small manufacturing concerns claiming they are unable to obtain the specialized steel they need to make their products without importing. So far, about 150 exemptions have been granted, including some to foreign steelmakers, further angering the U.S. steel companies. The Zoellick's office and the Commerce Department have until July 3 to act on all such requests.

Further complicating matters was a Federal Register announcement on March 20 deferring the payment of the higher duty rates until April 19, 2002. The stated reason for the deferral is to allow the U.S. more time to consult with its foreign trading partners. Not waiting for the U.S. to act, the EU has developed a list of products on which retaliatory duty rates may be imposed. Supposedly this list is intended to cause political harm to Mr. Bush and the Republicans in this year's elections. The list is rumored to include such products as Florida orange juice, Pennsylvania and West Virginia steel, textiles from the Carolinas, Harley Davidson motorcycles, rice, paper products, prefabricated buildings and thermometers. Further confounding things is the recent announcement by Commerce that it will impose anti-dumping tariffs averaging 29% on Canadian softwood lumber.

A major impetus for action by the Bush Administration was the alarming number of steel companies which have filed for bankruptcy protection. Since 1998, the figure is estimated to account for approximately 30% of U.S. steel-making capacity. Those workers remain unhappy because a large concern for them is their health and pension benefits which, because their companies are bankrupt, are no longer being funded. These benefits have been referred to as legacy costs and remain a festering problem. Mr. Bush chose not to deal with this issue in fashioning the remedy he selected, but Congress may still act.

Against this backdrop, the obvious question to ponder: how these actions effect the ability of the U.S. to keep together the coalition of governments which are fighting terrorism? If the primary goal of the U.S. government is to secure our borders, what are the long-term implications of these ongoing trade wars with our trading partners? Returning to the more narrow focus of the steel industry, one of the goals of Mr. Bush's action is to get the steel producing countries to agree to reduce production so the overcapacity problem is reduced. Does the Administration really think imposing high rates of duty is the way to bring our trading partners to our point of view? Really now!