FREE TRADE VS. PROTECTIONISM

Which Way for the US Steel Industry?

continued from: GOVERNMENT PROTECTION

The industry was also lobbying the government to fund its legacy costs-pension and health care benefits for employees who lost their jobs after the companies filed for bankruptcy and shut down plants. According to analysts, the estimated cost of funding the legacy costs would be between $10 billion and $13 billion.

THE PRESIDENT'S STEEL PROGRAM

In June 2001, the president of the Unites States, George W. Bush announced the Steel Program. The president's steel program consisted of three parts: Start negotiating with trading partners to eliminate inefficient excess capacity in the steel industry worldwide; Start negotiating with trading partners to eliminate the market distorting practices including subsidies that resulted in excess capacity; and start investigation under Section 201 to determine whether the industry was harmed by low-priced steel imports.

Eliminate Inefficient Excess Capacity

According to the US government officials, there was an excess capacity of 200 million metric tons of steel worldwide. There was a need for multilateral government-to-government steel talks to eliminate the excess capacity. These talks would take place under the aegis of the Organization for Economic Co-Operation and Development (OECD). In December 2002, senior government officials from 37 major steel manufacturing countries and the European Commission participated in the OECD steel meeting in Paris. In this meeting, it was decided that the ongoing intergovernmental peer review of steel capacity developments and restructuring of the steel industry in the respective countries would continue and steps would be taken to ensure more accurate, complete and timely reporting. It was also decided to evaluate the feasibility of options for plant closures and the assistance required in meeting the costs associated with permanent closures if the costs act as hindrance to such closures.

Countries participating in the OECD meeting including the US felt that excess capacity was one of the principal reasons for the crisis being faced by domestic and global steel manufacturers for decades. Analysts felt that while the initial talks have shown some progress, what was required was a concerted effort on the part of the participating countries to eliminate the entire 200 MT excess capacity. A piecemeal effort would not have a real impact on the market. There were also many proposals for a 'capacity closure fund' that would be used to help countries and steel manufacturers close facilities. It could be funded by governments, international organizations, and/or levies on production or imports

Eliminate the Market Distorting Practices

One of the objectives of the president's steel program was to initiate international efforts to eliminate the market distorting practices including government's involvement in the steel sector and subsidies to the sector. Talks relating to such efforts would also take place under the aegis of the OECD. In the December 2002 OECD meeting it was agreed that the steel manufacturing countries would start working on an agreement to eliminate or reduce trade-distorting subsidies. The US government was of the opinion that any agreement on subsidies and other trade distorting practices must have the full support of all steel manufacturing countries; must be enforceable and must put restraints on cartels and other private anti-competitive practices as well. It was of the view that, like subsidies, cartels and other private-competitive practices were also responsible for market distortions.

More >>