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Edited on Wed Oct-08-03 11:30 PM by jamesinca
WTO says Bush's steel tariffs break rules · Brussels threatens to retaliate unless Washington backs down
Andrew Osborn in Brussels and Larry Elliott
Saturday July 12, 2003
The Guardian
The European Union and the United States were teetering on the brink of a transatlantic trade war last night after Brussels threatened a $2.2bn package of sanctions unless Washington scrapped steel tariffs ruled illegal by the World Trade Organisation yesterday.
Brussels claimed victory in its fight to force President George Bush to drop measures aimed at shoring up his political support in America's industrial heartlands, but the US said it would appeal against the decision.
The world's two biggest trading blocks are already at loggerheads over Europe's anti-GM foods regime and America's tax breaks for multinationals.
Yesterday's ruling comes as EU and US negotiators are attempting to settle their differences in the global trade liberalisation talks.
A WTO disputes panel said American import tariffs of up to 30% on foreign steel could not be justified under global trade rules and that they should be abandoned as soon as possible.
Within minutes, the European commission said it would seek to hit pre-selected US products with retaliatory tariffs worth up to $2.2bn (£1.3bn) a year unless Washington dismantled its offending steel tariffs within five days.
"If and when the US does not comply with this ruling, the EU will impose counter measures," said Arancha Gonzalez, a spokeswoman for EU trade commissioner Pascal Lamy.
She said the sanctions, if used, would hit US steel products, textiles and fruit and vegetables.
"We would like to urge the United States to look at the wider picture - all the world's steel exporters are telling them to remove these tariffs. This is not just a partial victory - it is a full victory. The US has been caught red-handed."
The WTO appeared to side with the EU and fellow complainants Japan, Korea, China, Switzerland, Norway, New Zealand and Brazil on every front.
The trade watchdog said the US tariffs, announced by President Bush last March, were in breach of global trade rules in every category.
The US had argued they were necessary to help America's steel industry recover from a wave of cheap Asian and European imports, but the WTO said it had found little evidence to show foreign imports had dramatically increased.
Washington also contended that its hand had been forced by sudden and unforeseen circumstances, but again the WTO disagreed.
Nor did it concur US steel producers had suffered any major economic injury because of alleged floods of foreign imports.
US trade representative spokesman Richard Mills said: "Where the panel found against the United States, we disagree, and we will appeal. In the meantime, the steel safeguard measures will remain in place."
Washington now has 60 days to appeal the ruling, and may delay doing so until the last moment in an attempt to defuse some of the tension ahead of the WTO ministerial meeting in Cancun, Mexico, in September.
Ms Gonzalez struck one conciliatory note when she said the commission remained ready, despite the dispute, to work constructively with the US and the OECD to tackle what she called the real problems affecting the US steel industry - global overcapacity and domestic subsidies.
To rub salt in Washington's wounds, the WTO also stated that an American decision to exclude preferred trading partners Canada, Mexico, Israel and Jordan from the offending tariffs flew in the face of its rules.
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This article was done on July 12, the U.S. had 60 days to respond to the complaints of the WTO. The day came and went on Sept 12. If you look, Bush does not like to play by the rules. It does not matter if you like or don't like NAFTA or the WTO, we are part of those and Bush does not want to follow the rules. He is not trying to change the rules, he is just breaking them. Then there is this.
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Steel Tariffs Appear to Have Backfired on Bush
Move to Aid Mills, Gain Votes in 2 States Is Called Political and Economic Mistake
By Mike Allen and Jonathan Weisman
Washington Post Staff Writers
Friday, September 19, 2003; Page A01
In a decision largely driven by his political advisers, President Bush set aside his free-trade principles last year and imposed heavy tariffs on imported steel to help out struggling mills in Pennsylvania and West Virginia, two states crucial for his reelection.
Eighteen months later, key administration officials have concluded that Bush's order has turned into a debacle. Some economists say the tariffs may have cost more jobs than they saved, by driving up costs for automakers and other steel users. Politically, the strategy failed to produce union endorsements and appears to have hurt Bush with workers in Michigan and Tennessee -- also states at the heart of his 2004 strategy.
"They tried to play politics, and it looked like it was working for awhile," said Bruce Bartlett, a conservative economist with ties to the administration. "But now it's fallen apart."
The issue is being brought to a boil by the scheduled release today of voluminous progress reports by the U.S. International Trade Commission. The ITC's mid-session assessment of the three-year tariff program's impact will examine not only the tariffs' effects on the steel industry but also on the hard-pressed manufacturers that shape steel into products.
White House officials said Bush will not make a decision until he has digested the ITC reports. But his top economic advisers have united to recomend that the tariffs be lifted or substantially rolled back this fall, and several administration officials said it is likely he will go along. The retreat would roil the political and economic landscape of the Rust Belt, where both parties expect the presidential election to be won and lost.
It also could produce a tidal wave of negative publicity in West Virginia, a traditionally Democratic state that Bush won by 6 percentage points, and Pennsylvania, which Bush lost by 5 percentage points and had targeted as one of his most promising possible pickups for 2004.
"The only reason they won't do it is if they're unwilling to admit they made a mistake," said a Republican strategist who works closely with the White House.
Administration officials said the office of Bush's top political adviser, Karl Rove, was a vocal and energetic advocate of tariffs during the debate last winter. Rove became so identified with the duties that a Wall Street Journal editorial calling for their repeal was headlined, "Steel Thyself, Karl Rove."
Republican lawmakers from steel states said Bush is considering compromises that would increase the number of exclusions from the tariffs, easing prices for steel buyers.
Administration officials are careful to say they see both sides of the argument. "A healthy steel industry is important to this country," said Grant Aldonas, undersecretary of commerce for international trade, in an interview. "But the small- and medium-sized guys who bend metal for a living have a real complaint about the steel tariffs. There's no doubt about that. We can't hide from it."
Even as they express their sympathies, however, they make no apologies for the tariffs -- or trade "safeguards," as the administration prefers to call them. "It's important to recognize these safeguards have had an adverse impact on consumers -- that's why safeguards are used sparingly," a senior U.S. trade official said. "But the president thought that on balance the benefits would outweigh the costs, and the story of the last 18 months has borne that out."
That conclusion is subject to fierce debate. A study backed by steel-using companies concluded that by the end of last year, higher steel prices had cost the country about 200,000 manufacturing jobs, many of which went to China. Small machine-tool and metal stamping shops say they have been decimated by steel costs that rose in some cases by as much as 30 percent.
Steel producers have their own job numbers. Investments that flooded into the protected steel industry over the past 18 months brought idled steel mills back on line and kept teetering mills from shutting down, said Peter Morici, a University of Maryland business professor hired by the steel producers. That resurrected 16,000 steel jobs, and more than 30,000 jobs when steel suppliers are included.
Gary Hufbauer, a critic of the tariffs at the Institute for International Economics, said that both sides are exaggerating their numbers. The steel industry has added some jobs in the past 18 months, but not because of the steel tariffs. Steel consumers have shed jobs because of the tariffs, but he said the number was probably 15,000 to 20,000.
But in this case, the facts may be less important than the perception in key states where the tariffs have been debilitating. The tariffs failed to give Bush the allegiance of the United Steelworkers of America, the industry's largest union and one the White House had hoped to win over. In August, the union endorsed Rep. Richard A. Gephardt (Mo.) for president and issued a statement saying any of the Democratic candidates would offer better than "the reactionary policies of the current administration."
Perhaps worse for Bush, the tariffs alienated thousands of small businessmen who run steel-consuming companies. "He didn't win the steelworkers over, and he sure as hell didn't win the users over, and there are a hell of lot more of us," said Jim Zawacki, chief executive of G.R. Spring & Stamping, Inc., a small manufacturer in Grand Rapids, Mich. "A lot of people feel burned," said Mike Lynch, vice president of government affairs at Illinois Tool Works, a large machine tool company outside Chicago.
Political divisions over the tariffs remain fierce, even within the GOP. Sen. Arlen Specter (Pa.), who talked to Bush about the issue this week, contends the tariffs "are saving thousand of jobs in the steel industry, and you had a steel industry headed for more bankruptcies."
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This one is telling. He is costing jobs, not creating.
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Sen. Lamar Alexander (Tenn.), however, insists the tariffs have "shifted more steel-consuming jobs overseas than exist in the steel-producing industry in the United States," causing thousands of layoffs and closing the doors of hundreds of small businesses that supply automakers in Tennessee, a state that Bush won by just 4 percentage points and is counting on for his reelection.
But among Bush's economic team, opposition to the tariffs has hardened substantially. Administration officials said Commerce Secretary Donald L. Evans, one of Bush's closest friends, thinks the tariffs should be lifted as a way of showing that the administration has heard the pain of manufacturers, who account for 2.5 million of the more than 2.7 million jobs lost during Bush's presidency.
Treasury Secretary John W. Snow, chief economic adviser Stephen Friedman and N. Gregory Mankiw, chairman of the White House Council of Economic Advisers, are said to agree.
That marks a significant change from 18 months ago, when R. Glenn Hubbard, then chairman of Bush's Council of Economic Advisers, drafted detailed analyses against the tariffs, including state-by-state job losses that he forecast for manufacturing.
But the economic team was fractured. Evans was torn between the steel industries and the steel users. He ultimately decided against the tariffs, but with caveats that the White House political team took as a sign of weakness, former administration economic officials say.
Likewise, then-Treasury Secretary Paul H. O'Neill expressed philosophical opposition to tariffs, but he was more interested in opening talks with allies on limiting steel production capacity abroad.
At a crucial meeting of the economic team, tariff opponents said they were abandoned. O'Neill sent his undersecretary for international affairs, John Taylor. Then-Budget Director Mitchell E. Daniels Jr. told Hubbard, who also has since left the administration, that he would back him, but left the meeting before Hubbard's presentation. And Lawrence Lindsey, the famously opinionated chairman of the White House National Economic Council, decided his role was to facilitate the discussion, not express an opinion.
Perhaps most importantly, former Bush economic advisers said, Robert B. Zoellick, the U.S. trade representative, supported the tariffs, figuring that backing them would win congressional votes to give Bush "fast track" trade negotiation powers. Indeed, Congress did hand the president that win. Zoellick also calculated that the lucrative subsidies backed by Bush that year in the massive farm bill would help the cause of free trade, by giving the United States a chip to bargain with at the World Trade Organization's upcoming round of talks to eliminate farm subsidies.
But, trade experts say, Zoellick's calculations have had mixed results. "Fast track" trade powers have allowed Bush to conclude free trade agreements with Chile and Singapore, but those have yet to show results in terms of jobs. And last week, WTO trade talks in Mexico fell apart after poor countries concluded the United States and other Western nations were not serious about cutting farm subsidies.
The strategizing was "too clever by half," Bartlett, the economist, said. "It presupposed that nobody was watching what we were doing, and it presupposed that our credibility was of no importance."
© 2003 The Washington Post Company
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