The various trade instruments
The U.S. has an arsenal of trade instruments available to them to redress domestic grievances about unfair competition abroad.
* Quotas – begun in 1969, allowed some imports to continue.
* voluntary export restraints/import agreements – quota-like voluntary agreements used by Nixon, Reagan and Bush 41.
* minimum price (“trigger price”) undertakings – a certain amount of steel was allowed into the country if it was sold at or above a trigger price.
* antidumping measures – deal specifically with unfair trade; if a union or group of domestic steel makers believed a steel product was being imported at an unfair price (“dumped”), it could obligate Commerce to initiate an investigation. If injury was found, a margin of dumping was determined and a case made before the ITC to prove injury to the industry. If the foreign company was guilty, it had to pay duties equal to the margin. During the 12-18 month period to determine findings, the foreign company had to post a bond for the dumping margin.
* countervailing duty measures – brought when domestic companies believed a government subsidy in a foreign country was giving an industry in that country an unfair advantage; included long-term imposition of tariffs or quotas, interest free loans, assumption of pension and health care costs. If the ITC found injury, Commerce would have the US Customs impose an offsetting duty on the imports equal to the subsidy.
* Section 201 action – expensive, less common, higher injury standard, harder to prove, but had broad ramifications as it could target all steel imports from all countries
o Relief was at the discretion of the President. He could take/implement no action, Tariff, Quota, Tariff-rate quota, or Trade adjustment
Bilateral trade initiatives – to manage imports and exports
Was the U.S. steel industry justified in its request for protection?
Several factors justified the U.S. steel industry and related interests to ask for protective measures:
* Closed markets, i.e. Japan
* State-owned and supported steel enterprises, i.e. Soviet Union
* Government subsidies such as the assumption of pension and health care costs, i.e. European governments.
* Stringent labor and environmental regulations in the U.S.
* Foreign demand dropped, currency devaluations in S.Korea and Japan cut prices further…
However, the dumping laws were plaintiff-friendly as 80 percent of all cases brought in the U.S. during trough and peak years (1980-1997) were successful.
All agreed about the diagnosis that the steel industry is ailing, but the prescription of more trade barriers is no cure at all.
Policymakers need greater understanding of the full facts of the steel import question, rather than bowing to the incessant claims of the demise of America’s domestic steel industry at the hands of “unfair” and “illegal” imports. Stigmatizing imports as unfair is a useful smokescreen for protectionism as usual. It is a misnomer to say that steel is being “dumped” on the U.S. market. Virtually every ton of steel that enters the United States has been ordered by a willing American buyer, often months in advance of its actual delivery. Antidumping duties not only stop foreign producers from selling in the U.S. market; they stop American citizens from buying the type and amount of steel they need at prices that benefit them most as shareholders, workers and consumers.
The industry and its handlers have relied on factual distortions and mass hysteria to conceal the truth. For instance, complaining of job losses numbering around 10ooo in the late 90s at the same time when 2.5 million new jobs were being created puts their “facts” into perspective.
Over the past three decades, U.S. steel producers have been shielded from foreign competition by quotas, voluntary export restraints, minimum price undertakings, and many antidumping, countervailing duty, and safeguard measures. Yet the industry’s problems persist. Rather than strengthen the industry, protectionism fosters uneconomic capacity and discourages unsuccessful firms from the otherwise rational decision to exit the market. Continued operation of inefficient mills produces excess output, which suppresses prices, and jeopardizes prospects for healthier firms and their employees.
Steel protectionism is incapable of saving steel jobs. Employment in the steel sector has declined by more than 60 percent since 1980 largely because productivity growth – driven primarily by the success of America’s mini-mill producers – has outpaced demand growth. Rising productivity is good for the economy; it provides workers with opportunities for higher paying jobs. Trade protection defers and complicates this process. It distorts market signals and efficiencies that might otherwise encourage the re-allocation of capital into new industries, and it discourages workers from seeking opportunities these investments provide.
Consumers and producers in steel-using industries pay a heavy price for steel protection. Workers in the major steel-using sectors–transportation equipment, industrial machinery, fabricated metal products, and construction–outnumber workers in the steel industry by 57 to 1. These industries accounted for 13.1 percent of GDP in 2000, while steel producers accounted for only 0.5 percent. Protecting one industry – particularly a less economically significant one – at the expense of others is simply foolish policy.
The solution is consolidation. The obstacle is that most would-be targets have unattractive balance sheets, dogged by huge liabilities, known as legacy costs. Legacy costs are the billions of dollars of benefits promised to retired union steelworkers. They are the legacy of greed: demands made by the United Steelworkers union that were economically irrational, but agreed upon because management assumed it could pawn off its obligations on taxpayers. Unfortunately, that assumption may ultimately prove correct. (insert note…)
Since import restrictions won’t solve the problem, why make matters worse for the economy by restricting trade? In its relentless pursuit of protectionism and subsidies, the steel industry’s trade agenda threatens the well-being of many major economic interests. Chief among them are steel-using industries, like automobile, machinery, and appliance manufacturers that are forced to endure higher input prices. These industries employ 50 times the merely 200,000 employed in steel production.
U.S. exporters are also major victims of a steel-centric trade policy. Foreign governments have begun mimicking the U.S. antidumping law, a protectionist weapon honed to perfection by years of steel-industry lobbying, and promulgating retaliatory measures as a result.
New import restraints will delay necessary steel industry reforms, raise the costs to consumers and consuming industries, and will further threaten prospects for exporters.
Describe the politics of U.S. trade policy as it applies in this case to steel. Who were the participants in the trade debate and what were their respective interests/positions?
The U.S. steel industry was facing an economic downturn, job losses, depressed prices, falling profits and potential bankruptcies. Because of the tumultuous and tenuous situation, many interested parties engaged in a debate about U.S. trade policy as it applied to the steel industry.
The United Steelworkers Union of America union – job losses, strengthening its political power base (had 1000+ members in 150 congressional districts)
Industry lobbyists – paid to advocate…
Congressional Steel Caucus – a coalition of powerful members of Congress who did not want to see massive job losses in home states or loss of political support from unions, members, voters
US steelmakers – depressed prices, falling profits and job losses, looking for a bailout from bad balance sheets
Neutral to Semi-neutral
Congress – in March 1999, the “Republican-controlled” House passed a quota bill by a 289-141 vote
U.S. Commerce Department – accedes to political pressure, instituted “critical circumstances” policy of retroactive duties, wanted to pursue all legal mechanisms that might help the industry.
USTR – looking for negotiated settlement with EU, Russia, Japan vs. market-closing measures, wanted to pursue all legal mechanisms that might help the industry.
International Trade Commission (ITC)
Vested self-interest, political agenda
The Clinton Administration – worried about political interests, legacy while attempting to support traditional political allies with money, votes and power; constrained by foreign policy considerations. “Had” industry but didn’t want to hand Bush an issue.
Speaker Dennis Hastert – allowed the quota bill up for a vote to put Clinton in a position to veto a union-backed bill
The Bush 43 Administration – willing to take advantage of split within Democrat party during presidential elections and compromise on free-trade stance, hoping to pick up electoral votes in traditional ‘steel’ states; constrained by foreign policy considerations. You can’t govern if you don’t get elected. Leveraged 201 for tax cut, education reform, trade promotion authority (fast-track)…