FREE TRADE VS. PROTECTIONISM

Which Way for the US Steel Industry?

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TRADE WARS

As expected, the imposition of Section 201 tariff measures by the president was vehemently opposed by the major US trading partners including European Union (EU), Japan, Brazil, South Korea and other countries and they complained to the WTO Appellate Body. The EU even threatened to impose tariffs up to 100 percent on US imports valued at $435 million unless the US government dropped the tariffs. The EU claimed that the tariff measures violated WTO Agreement on Safeguards because the US could not prove that imports had increased; the relief was more than what was required to prevent the damage; developing countries such as Czech Republic, Poland and Slovakia were included in the safeguard measures though imports from these countries were less than 3% and the US violated the non-discrimination obligation of Agreement on Safeguards by excluding Canada and Mexico.

In July 2003, the WTO Appellate Body gave its ruling that the Section 201 tariff measures violated the international trade rules. After this ruling it became possible for the EU, Japan and other countries which had complained to the WTO to impose retaliatory duties on imports from the US. In August the US government appealed to the WTO and the Appellate Body was expected to release its report in November 2003. In November 2003, the WTO gave its 'definitive' ruling that the safeguard tariffs imposed by the US in 2002 were illegal. After this ruling, if the US government did not drop the tariffs, the EU could slap retaliatory duties on US products imported in to the EU countries.

There were a few options available to the president after the WTO ruling. The first was to drop the tariffs; the second was to defy the WTO but this would lead to retaliation from the EU and other countries; and the third was to find a way that would pacify both the domestic steel industry and the foreign steel exporters. This could be made possible by reducing tariffs and increasing exemptions or dropping the tariffs but ensuring some protection by changing the US anti-dumping rules.

Economists were of the opinion that dropping of tariffs would hurt the US steel companies but they also felt that because of tariffs many jobs were lost in industries such as automobile which before the imposition of tariffs used to depend on lower priced imported steel. Said Kent A. Jones, chairman, economics division, Babson College, Wellesley, "The tariffs have raised prices for steel used by many US firms and have probably caused many more job losses in those sectors than the number of jobs saved by the steel tariffs." ¹³

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[7]Blustein Paul, U.S steel firms lose another import battle dumping duties rejected after tariff setback, Washington Post Online, August 28, 2002.

[8]Blustein Paul, U.S steel firms lose another import battle dumping duties rejected after tariff setback, Washington Post Online, August 28, 2002.

[9]Pittsburgh Business Times, November 10, 2003.

[10]Violated Article 2 (1)

[11]Violated Articles 5 (1) and 7 (1)

[12]Violated Article 2 (2)

[13]Washington Wayne, Bush lifts steel import duties, Industry angry; trade war averted, The Boston Globe, December 5, 2003.

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