TRADE: Bush Bows to Pressure on Steel Tariffs

By Emad Mekay Reprint | | Print |

Emad Mekay

WASHINGTON, Dec 4 2003 (IPS) - U.S. President George W. Bush said Thursday he is lifting controversial tariffs imposed on steel imports well before schedule because of international pressure.

Instead, Washington will maintain steel import licensing and monitoring programmes that could allow the United States to halt future surges of steel imports that could damage its own steel industry.

The decision helps subvert a trade war between the world’s biggest trade blocs: the United States and the European Union (EU).

While some economists saluted the decision as finally demonstrating that Washington is willing to abide by its own free-trade rhetoric, others said the United States surrendered its sovereignty to a global trade body hoping other countries will follow suit, in which case U.S. exports would find more open markets.

After Bush slapped tariffs on steel imports in March 2002, the EU said the move broke international trade rules, and lodged a complaint with the World Trade Organisation (WTO). The duties ranged from eight percent to 30 percent.

A host of other countries also protested the tariffs – including Japan, Brazil, Australia and South Korea – imposed by Bush to protect U.S. companies and steelworkers, many of whom had lost their jobs before because of cheap imports.

In November, a three-member WTO panel made a final ruling against a U.S. appeal, finding that the duties breached trade rules.

Japan, South Korea and the EU immediately asked the United States to scrap its ”safeguards” on imported steel or face the possibility of retaliatory measures that could cost Washington billions of dollars. China, too, said at the time it was considering punitive action if Washington did not comply.

Such moves by those nations would have meant that some U.S. imports would be effectively priced out of their markets. U.S. goods like cigarettes, frozen vegetables and paper products are made in other politically crucial states and a drop in exports could affect Bush’s hopes for re-election in 2004.

The steel tariffs were scheduled to remain in place until March 2005, giving the ailing U.S. industry a three-year window to consolidate and gain a stronger, competitive place in the global marketplace.

Bush says he has reversed course now because he had already fulfilled his promise to grant the industry time to adjust. He also argued Thursday that the United States is committed to a higher trade principle – competing freely with the rest of the world.

”America’s consumers, the American economy, is better off with a world that trades freely and a world that trades fairly,” he told reporters at the White House.

”I acted to give the steel industry time to adjust. I acted in time for us to say to the world that we will trade, but we want to trade in a fair way.”

Later Thursday, Bush said in a statement that he had succeeded to ”give relief to the workers and communities that depend on steel for their jobs and livelihoods”.

U.S. steel workers have been lobbying the administration stridently to maintain the tariffs.

As Bush visited the steel industry capital Pittsburgh last week, dozens of workers demonstrated, carrying banners warning the president that he could lose the 2004 elections if he rescinded the tariffs.

Some industry lobby groups, keen to buy cheaper steel, say the safeguards actually resulted in higher prices and a net loss to U.S. businesses of some 680 million dollars in decreased returns on capital.

The Consuming Industries Trade Action Coalition Steel Task Force says the tariffs resulted in more jobs lost to overseas competition than they saved at home.

Some economists greeted the step Thursday as a benefit to the world’s so-called free trade architecture.

”They (tariffs) were – as all safeguards actions are – an exception and departure from the rules of the game on trade,” said Sherman Katz, Scholl chair in international business at the Centre for Strategic and International Studies (CSIS) in Washington.

Katz argued that Bush did the right thing for the international trade system by recognising the authority of the Geneva-based WTO.

”After all, we are the most open economy in the world, and we benefit by other countries obeying those rules more than any other country, given all our (large) exports. So to support the system by obeying the rules is the right thing to do,” he said.

Others gave qualified approval, adding that some damage has already been done.

”Better late than never,” said Dan Ikenson, a trade policy expert at the conservative Cato Institute here.

”While the decision to revoke these measures was the right one both economically and politically, a great deal of damage has already been done – to U.S. steel-using businesses and to American credibility on trade issues,” he said.

”The tariffs were a terrible, short-sighted, politically motivated decision that backfired, plain and simple.”

Many economists and groups have argued the measures discredited Washington’s free economy rhetoric by exposing U.S. calls for open markets abroad to charges of hypocrisy, and that they demonstrated a shallow U.S. commitment to its trade agreements.

The situation was further compounded when the administration took weeks to decide whether to follow the WTO ruling after the initial decision came out in September.

”The steel tariffs certainly energised protection-seeking constituencies in the U.S. and around the world … this is hardly a recipe for encouraging other countries to remain steadfast to their own WTO obligations,” Ikenson said.

But Lori M. Wallach, director of global trade watch at the consumer and advocacy group Public Citizen, which has campaigned against the western-dictated global trade rules, said the decision indicates how the White House is willing to surrender U.S. sovereignty over local trade policies to a foreign body to encourage other countries to do the same.

”After the WTO ruled that U.S. trade law violated WTO rules, President Bush had an opportunity to stand up for the superiority of U.S. law over WTO dictates,” she said, pointing out that the EU refused to implement an earlier WTO ruling that its countries accept imports of beef grown with artificial hormones.

”But unlike the EU, the White House bowed to the power of the WTO,” she added.