The Steel decision

["Ian Murray" <seamus2001@xxxxxxxxx>]

< http://www.atimes.com >

Bush shrugs off trade war over steel tariffs decision

WASHINGTON and RIO DE JANEIRO - US President George W Bush's
decision to impose tariffs as high as 30 percent on imported
steel has infuriated key US trade partners. South Korea and the
European Union (EU), two of the hardest hit, will appeal the
decision to the World Trade Organization (WTO), 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
Tuesday 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 import 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.

The new tariffs, which affect 10 steel byproducts, range from 8
to 30 percent, and will remain in effect for three years,
starting on March 20.

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 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 percent 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 (FTAA) and the US push to expand WTO
rules to include trade in services. By avoiding tariffs
altogether on Argentina, Thailand and Turkey, the administration
can say it is maintaining WTO rules toward 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 percent
by the third year. Most affected will be South Korea, Japan,
Taiwan, China and the EU.

In the United States, 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.

"They lived up to their word," said John Walker, Weirton's chief
executive officer. "We would we 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 percent tariffs.
The lowest tariffs of 8 percent will be applied to stainless
steel, which is made primarily by smaller companies.

The Wall Street Journal, which ordinarily keeps editorial
comments out of its news stories, 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 percent of its
steel to the United States. 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 percent. When importers
exceed the quota, 30 percent tariffs will be applied to further
imports. Last year, slab imports totaled 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 Trade
and Industry Minister Sergio Amaral said Brazil might join a WTO
appeal.

Brazil fears knock-on effect
The United States government's decision to raise tariffs on
steel imports could spur other countries and regional blocs to
implement similar trade barriers, says Brazil.

Brazil's steel exports to the United States, which amounted to
$730 million last year, will drop 10-15 percent this year as a
consequence of the measures announced on Tuesday by Washington,
predicted Development Minister Sergio Amaral. The new package of
protectionist measures adopted by the Bush administration will
also stand in the way of the growth of Brazil's iron and
steelworks industry, complained industry representatives.

Washington assigned Brazil a quota of 2.54 million tons of
semi-finished steel, higher than last year's sales of 2.3
million tons. However, this year's earnings will be lower than
last year's, because the new restrictions in the US market will
weaken international prices. Furthermore, any sales above 2.54
million tons will pay a 30 percent duty, which will effectively
limit exports to the set quota. The quota will rise by 10
percent over the next two years - slower growth than was
expected by Brazil's steelworks industry, which hoped to see its
exports to the United States increase by 20 to 30 percent, said
Jose Armando de Campos, president of the Compania Siderurgica de
Tubarao, one of the companies that will be hardest hit.

Brazil is the only Latin American country that will be affected
by the Bush administration decision. Mexico, the region's other
large steel exporter, is protected by its membership in the
North American Free Trade Agreement (NAFTA), and crisis-stricken
Argentina was excluded from the list of affected countries.

With total production amounting to 27 million tons a year and
the capacity to produce 32 million tons, Brazil's iron and
steelworks industry will only be able to grow by boosting
exports, because domestic consumption stands at just 18 million
tons. That route looked like the natural one to take, since the
industry, which was privatized nearly a decade ago, has achieved
high levels of productivity and international competitiveness,
even though Brazil is a medium-size producer, with production
levels far below the nearly 100 million tons a year produced by
Japan or the United States.

Besides seeing its future growth limited, Brazil fears a wave of
protectionism in other markets, and a fall in international
prices, because the cut in imports by the United States will
lead to a surplus in the nations that supply it with steel.

The president of the Brazilian Steelworks Institute, Maria
Silvia Bastos Marques, had already warned six months ago that
any unilateral measure could trigger a chain reaction, with
other countries attempting to protect their own markets to ward
off a flood of products unable to enter the United States. The
risk is real, given the fact that the global steel industry has
a capacity to out-produce demand, a problem which a movement
headed by Washington is trying to overcome through voluntary
production cuts in several countries. However, that initiative
is now threatened by the trade war that might break out.

If the EU and other importers take reprisals and protect their
markets, Brazil's losses will increase. The United States
absorbs about 36 percent of the exports of Latin America's
giant, while the EU and the rest of Latin America combined
import another 40 percent. The foreign ministry and Brazil's
trade authorities have not ruled out the possibility of joining
the appeal to the WTO against the US measure, after carefully
assessing the damages to the national steel industry and the
reaction of other countries.

Minister Amaral and Brazil's chief trade negotiator Alfredo de
Graca Lima also warned that the situation created by the US
decision endangered the negotations for the FTAA.

Tension has been building up in trade relations between Brazil
and the United States for several decades. The Brazilian steel
industry and diplomats accuse Washington of closing its market
to Brazilian exports of finished steel on the argument that
Brazil was "dumping" its products on the US market at
artificially low prices. Now Brazil's semi-finished products
will also face restrictions. The US government says this South
American country of 162 million was included in the new measures
because of subsidies it supposedly shells out to its steel
industry, despite the fact that the industry was privatized in
the early 1990s.

But according to the secretary of Brazil's inter-ministerial
Chamber of Foreign Commerce, Roberto Giannetti da Fonseca,
Washington is practicing "geriatric protectionism" aimed at
ensuring the survival of the "decrepit and inefficient" US steel
industry.

Other highly competitive Brazilian products such as sugar and
orange juice also face barriers such as quotas and tariffs in
the US market. For that reason, the Brazilian government, driven
by the need to obtain a trade surplus because of the imbalance
in its external accounts, had already decided to file a
complaint before the WTO against subsidies with which the United
States bolsters soybean production, as well as a tariff that the
state of Florida imposes on Brazilian orange juice. The revenues
from the tariff are used to promote Florida orange juice, in
violation of WTO rules, and the subsidies for soybean farmers,
which were recently increased, depress international prices,
Brazil argues.

In the past, disputes have arisen from US pressure on Brazil to
repeal laws standing in the way of computer imports, for
intance, or to enact legislation protecting patents.

Chile, meanwhile, which does not export steel but produces
enough nearly to cover its own internal demand, fears that the
37 million tons that will be kept out of the US market as a
result of the new quotas will drive prices down to a level with
which it will be unable to compete. This month, the Chilean
government plans to study requests by the national steel
industry for tariff safeguards, which could go into effect for
one year, and possibly two, to give local companies time to
adapt to the stiffer competition, Chilean Minister of Economy
and Mining Jorge Rodriguez said on Wednesday.

(Inter Press Service)