July 11, 2003

WTO Says U.S. Steel Tariffs Are Illegal

Surprise, surprise:

WSJ.com - WTO Says U.S. Tariffs On Steel Are Illegal: GENEVA -- The World Trade Organization ruled Friday against heavy import duties on steel imposed by the Bush administration, saying they violate global trade rules. The European Union and seven other countries had complained that the duties -- supposed to protect the U.S. steel industry from cheap imports -- were unfairly hurting their own producers.

"This is not just a partial victory, this is a full victory. We have been given satisfaction on all accounts," said EU spokeswoman Arancha Gonzalez. In a joint statement, the eight complainants called on the U.S. to remove the measures "without delay." The EU said it was ready to impose $2.2 billion in retaliatory duties on U.S. imports.

Mr. Bush introduced the "safeguard" duties of as much as 30% on steel products in March of last year. The administration argued the tariffs met WTO provisions allowing temporary duties for as long as three years to protect a domestic industry from a flood of cheap imports and give it time to restructure. Mr. Bush, during his 2000 presidential campaign, had vowed to protect the domestic steel industry -- a pledge seen as pivotal to his victory. But the European Union and its allies complained the move breached a raft of WTO rules and threatened to raise import tariffs in response. There was no immediate reaction from Washington to the ruling, which confirmed an interim ruling released in March. At that time, officials said they would appeal, which would allow the duties to remain a while longer.

In its ruling, the WTO panel, headed by Stefan Johannesson of Iceland, said Washington failed to prove its measures were necessary because of "unseen developments" in the world steel market. The United States said the unforeseen developments were created by the combination of the Russian and Asian financial crises, the strong U.S. dollar and the strong U.S. economy. On Friday, the panel said Washington hadn't shown how these events led to a sudden increase in imports -- the primary requirement before safeguard duties can be imposed. It also said the U.S. had acted illegally by exempting imports from certain countries from the duties. Canada and Mexico -- Washington's partners in the North American Trade Agreement -- were excluded, as were Israel and Jordan.

Ms. Gonzalez said the European Union was ready to introduce wide-ranging duties on U.S. imports unless the U.S. removes the duties within five days of the WTO's adopting the report. The duties could be imposed on items ranging from footwear to fruit and vegetables. The other countries that appealed the U.S. action were Japan, South Korea, China, Switzerland, Norway, New Zealand and Brazil. It was the first time China or Switzerland had taken a complaint to the WTO.

I wonder if it ever occurred to the Bush administration that it should have kept its WTO treaty obligations? That in the long run we gain enormously from free trade? That it is bad to sacrifice the long-run national interests of the United States for short run political advantage?

Naaaahhhh... Posted by DeLong at July 11, 2003 07:42 AM | TrackBack

Comments

Bush knew that the steel tarriffs would be struck down, that's why he let them go through.

An opportunity to pet his friends in the steel industry without actually giving anything away.

Duplicitous doesn't even begin to describe this administration.

Posted by: J.Goodwin on July 11, 2003 08:18 AM

Yes, I'm very inclined to accept J. Goodwin's reading of the Bush admin's actions. Exceptionally duplicitous, yes, but I think this sort of thing is basic Washington politics. Not to this degree, but it's a common tactic.

Posted by: Keith M Ellis on July 11, 2003 08:34 AM

"Duplicitous doesn't even begin to describe this administration."

Well said! Take a look at the House of Representatives version of Medicare reform and really be afraid.

Posted by: jd on July 11, 2003 08:35 AM

"I wonder if it ever occurred to the Bush administration that it should have kept its WTO treaty obligations?"

Not to worry, who needs the rest when we have colonized Iraq? Let's see, the occupation is costing $3.9 a month and should take about 4 years. A bargain, really.

Posted by: emma on July 11, 2003 09:01 AM

Passing laws or putting out regulation that you know will be struck down by the courts is done by all political parties.

Just to give an example, as part of a summer job working for a Mass state senator while in college during the mid-80s I wrote up an analysis of Mass state legislation which impaired the ability of financial firms to force clients into manditory arbitration. My main point was that anything Mass. did in this area would be struck down as preempted by federal law. In the end I discovered that a) all relevant actors in the Mass legislative didn't seem to think this had any relevance to what they were doing, b) the law passed, c) it was struck down as preempted by federal legislation about two years later. It did make papers (in the very back pages). This is just a way of legislators showing that they are responsive to their (highly motivated) constituents.

In many ways federal goverment politics actual strikes me as less duplicitous that state policics, as least for the states I know, and they don't have bad reputations. This is one reason to be for federal goverment power.

Posted by: stefan on July 11, 2003 09:03 AM

I agree with Stefan. I worked for a Congressional Dem when the Bush steel tariffs came up and my boss supported them wholeheartedly, knowing that they probably would be struck down by WTO.

Not that I agree with Bush's actions, but they are definitely not unprecedented.

Posted by: Javier on July 11, 2003 09:29 AM

The problem with the sort of short-range, politically motivated decision-making process that Bush and other politicians engage in is that it weakens organizations like the WTO when it's rules are basically flaunted. This in turn encourages other nations to take retaliatory actions which result in further harm to free trade. Obtaining a temporary domestic political advantage at the cost of international ill-will is not a Good Idea.

BTW, right now the Canadians are beginning to get upset over how the U.S. is prolonging its ban on beef imported from Canada.

Posted by: David W. on July 11, 2003 09:55 AM

What binds us to the WTO ruling? I want to hear Bush tell his unilateralist supporters that we are going to change policy because of a WTO ruling. If he fails to do this what will be the implications for the fantasy that the Republicans are for free-trade.

Republicans support huge agricultural subsidies, voted against fast-track trade negotiations throughout the 90's and voted for the steel tariffs.

Posted by: Dan on July 11, 2003 10:26 AM

One positive aspect of all of this (maybe the only benefit of these tariffs that were always clearly illegal) is that the WTO has delivered some real and concrete benefits to China, validating their decision to participate in the treaty.

Posted by: Dan Ryan on July 11, 2003 10:28 AM

One positive aspect of all of this (maybe the only benefit of these tariffs that were always clearly illegal) is that the WTO has delivered some real and concrete benefits to China, validating their decision to participate in the treaty.

Posted by: Dan Ryan on July 11, 2003 10:31 AM

China's economy is soaring, and becoming incrasingly competitive with our economy. There is a flood of international investment in China, and it is investment that will allow for significant continuing technical advance. The selective decline in the value of the dollar appears to be helping China, more than America!

Posted by: anne on July 11, 2003 11:02 AM

http://www.nytimes.com/2003/07/11/business/worldbusiness/11EXPO.html

SARS Does Little to Slow China's Growth
By CHRIS BUCKLEY

BEIJING -— Surging exports and industrial production last month showed that China's economy was still bounding ahead, apparently little damaged by the SARS epidemic.

Some economists, however, warned that the indirect damage from SARS might begin to surface only in the coming months.

China's exports soared last month, despite a sluggish world economy and orders canceled because of SARS. In June, exports were up 32.6 percent over the previous year, reaching $34.5 billion, according to the Ministry of Commerce. Imports grew even more rapidly, jumping 40.1 percent year on year, to $32.3 billion. China's trade surplus narrowed, however, to $2.1 billion, down about a quarter from a year ago.

Industrial output in June was up 16.9 percent from a year earlier, according to the national statistics agency....

Posted by: anne on July 11, 2003 11:08 AM

Aren't those steel tariffs also harmful to manufacturers in the US who would otherwise use the cheaper imported steel as an input to their manufacturing processes? Although some employees of steel manufacturers might have benefited from the tariff, the structure of the industry is such that a dozen workers are responsible for the manufacture of tens or hundreds of tons of low-grade steel every day. Manufacturing businesses which use steel to produce consumer goods, buildings, and manufacturing equipment would seem likely to employ more people per ton of steel than the businesses protected by the tariffs.

It seems to me that tariffing a raw material in a time of recession and unemployment is likely to reduce the total number of people on payrolls largely to the benefit of people who own shares in steel vendors. If so, then removing the tariffs without waiting for them to be ruled illegal by the WTO would have been a move to help stimulate the economy at the level of wage earners rather than coupon clippers.

Posted by: Bob Webber on July 11, 2003 11:46 AM

Aren't those steel tariffs also harmful to manufacturers in the US who would otherwise use the cheaper imported steel as an input to their manufacturing processes? Although some employees of steel manufacturers might have benefited from the tariff, the structure of the industry is such that a dozen workers are responsible for the manufacture of tens or hundreds of tons of low-grade steel every day. Manufacturing businesses which use steel to produce consumer goods, buildings, and manufacturing equipment would seem likely to employ more people per ton of steel than the businesses protected by the tariffs.

It seems to me that tariffing a raw material in a time of recession and unemployment is likely to reduce the total number of people on payrolls largely to the benefit of people who own shares in steel vendors. If so, then removing the tariffs without waiting for them to be ruled illegal by the WTO would have been a move to help stimulate the economy at the level of wage earners rather than coupon clippers.

Posted by: Bob Webber on July 11, 2003 11:49 AM

"What binds us to the WTO ruling? I want to hear Bush tell his unilateralist supporters that we are going to change policy because of a WTO ruling. If he fails to do this what will be the implications for the fantasy that the Republicans are for free-trade."

The same thing that binds us to any international law, treaty obligations and our standing in the global community.

Nations states in the global community are very like individuals within a state. They can do whatever they want, but oftentimes the benefits of doing what other people want them to do outweigh the benefits of doing what they want. Or the same thing, but with penalties.

If someone wants to go around slaughtering people, they can do that theoretically, but in practice, they aren't going to get away with it for very long because everyone else in the community is going to band together and at the very least put them away for years, possibly a lifetime, and very possibly they will decide to take their life in return.

Same thing with international law, only nation states are more explicitly committed to it because they have specifically signed onto a treaty ratified by the governments (and therefore the people) of their state.

Of course, as the only remaining superpower, the US could decide to go it alone and ignore the economic penalties of not going along.

Posted by: J.Goodwin on July 11, 2003 12:10 PM

One thing that readers might not be aware of is the fact that Bush probably won't see much of a political benefit from the tariffs, and probably wouldn't have even if the WTO hadn't stuck them down. His general anti-union record is well known enough among rank-and-file union members that even a high profile sop to the steel workers hasn't garnered him much support (at least, this is the view of the labor community, according to organizers that I know). And the labor leadership is even more decidedly against him: the head of the steel workers union gave Kucinich a very enthusiastic introduction before he spoke at a large conference recently.

Posted by: Alp Aker on July 11, 2003 01:02 PM

http://economist.com/agenda/displayStory.cfm?story_id=1919390

"Tommy Franks, until recently the battle commander there, told the Senate's armed-services committee that the number of troops in Iraq, currently 148,000, would probably hold steady for the “foreseeable future”, and that America might well stay on for two to four years—hardly the quick pull-out that some politicians had hoped for. The price tag came as more of an unpleasant surprise: Donald Rumsfeld, America's defence secretary, told the committee that the cost of keeping troops there (which does not include reconstruction costs) had risen to about $3.9 billion a month, rather more than the roughly $2 billion monthly bill forecast in April."

http://fareedzakaria.com/articles/newsweek/071403.html

"From the start, internationalizing the Iraq operation has seemed such an obvious solution. But the Bush administration has not adopted it because it holds a whole series of prejudices about the United Nations, nation-building, the French, the Germans and multilateral organizations. In clinging on to ideological fixations, the administration is risking its most important foreign-policy project."

http://economist.com/World/na/displayStory.cfm?story_id=1893625

"Veronique de Rugy of the Cato Institute points out, federal spending has increased at a hellish 13.5% in the first three years of the Bush administration (“he is governing like a Frenchman”). Federal spending has risen from 18.4% of national income in 2000 to 19.9% today. Combine this profligacy with huge tax cuts, and you have a recipe for deficits as far ahead as the eye can see.

"Why has the self-proclaimed party of small government turned itself into the party of unlimited spending? Republicans invariably bring up two excuses—the war on terrorism and the need to prime the pump during a recession; and then they talk vaguely about Ronald Reagan (who sacrificed budget discipline in order to build up America's defences).

"None of this makes much sense. The war on terrorism accounts for only around half the increase in spending. The prescription-drug entitlement will continue to drain the budget long after the current recession has faded. As for Mr Reagan, closer inspection only makes the comparison less favourable for Mr Bush. The Gipper cut non-defence spending sharply in his first two years in office, and he vetoed 22 spending bills in his first three years in office. Mr Bush has yet to veto one."

http://online.wsj.com/article_email/0,,SB105780270564803300,00.html

"A widening federal budget deficit is expected to push Treasury note net issuance up to $89 billion in the third quarter this year, a 19% jump from that of the previous quarter and a 134% surge from that of the year-earlier quarter, according to a survey of primary dealers conducted by the Bond Market Association."

http://economist.com/finance/displayStory.cfm?story_id=1912021

"Asian economies are supporting America's profligate habits. By buying American government securities they help finance America's large external deficit, hold down interest rates, and so sustain the boom in consumer spending and mortgage borrowing. This may benefit America in the short term, but it allows even bigger imbalances, in the shape of consumer debt and foreign liabilities, to continue to build. The eventual consequences for America—and the world economy—could be more painful."

http://www.cm1.prusec.com/yararch.nsf/(Files)/t_051203.pdf/$file/t_051203.pdf

"While foreign investors have cooled to the U.S. stock market, they can't seem to get enough U.S. Government Agency bonds. These are mostly mortgage-backed securities. Indeed, their appetite for these securities has been growing steadily and reached a record high of $210 billion during the 12 months ended February 2003, with record highs of $110 billion and $71 billion for Asians and Europeans, respectively (Figure 9). So foreigners have become a significant source of funds for the U.S. housing market. Last year, they accounted for 22% of the demand for Agencies."

http://online.wsj.com/article_email/0,,SB1057955986494400,00.html

"House Financial Services Chairman Michael Oxley (R., Ohio) has called Mr. Snow to testify July 25 before the full committee on the regulatory structure for Fannie Mae and Freddie Mac. Mr. Snow is expected to comment on a bill sponsored by Rep. Richard Baker (R., La.) that would remake Fannie and Freddie's regulator -- the Office of Federal Housing Enterprise Oversight.

"Mr. Snow's testimony will be key if Mr. Baker is to get his long-awaited bill. The Treasury Department under the Bush administration has been extremely cautious when commenting publicly on either company, keenly aware of the damage done to the markets in 2000 when a top Clinton administration official told Mr. Baker that Congress should repeal the companies' $2.25 billion line of credit with the U.S. Treasury, among other changes.

"Mr. Bush's first Treasury secretary, Paul O'Neill, set the administration's tone on GSE issues last year: “When I hear people say, 'Oh my God, we've got to do something with Fannie and Freddie,' I start with the medical proposition, which is first do no harm.”"

Posted by: Bradley S. Felton on July 11, 2003 07:51 PM

Bob Webber makes an excellent point. One effect of the steel tariffs is to make manufacturing goods in the US more expensive. It becomes more cost effective to manufacture steel goods abroad and import the finished product, thus avoiding the steel tariff. The US tried to save the domestic steel dinosaurs in the late 60s early 70s and really hurt the auto industry. The US auto industry cut way back on the steel used in cars and came up with designs like the FORD Pinto and Chevy Vega. This opened the door for a flood of Japanese imports made with cheaper steel.

BTW are not most of the jobs that are lost in this economy in the manufacturing sector??? Why are we governed by such idiots?

Posted by: bakho on July 12, 2003 07:27 PM
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