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WTO Rules That U.S. Steel Duties Illegal

Posted on: Friday, 11 July 2003, 06:00 CDT

In a stinging rebuke to the United States, the World Trade Organization ruled Friday that heavy duties on steel imports imposed by the Bush administration violate global trade rules.

Washington immediately said it would appeal, and would keep in place the tariffs that President Bush had justified as necessary to protect domestic steel producers against a flood of cheap imports during a restructuring period.

In response, the European Union stepped up plans to impose $2.2 billion in retaliatory duties on U.S. imports, ranging from footwear to fruit and vegetables - possibly pricing them out of the market.

A three-member panel of trade experts said in a 968-page ruling that the "safeguard" duties of up to 30 percent introduced by the United States last March were out of line with WTO rules. That confirmed an interim ruling issued earlier this year and upheld complaints filed by the European Union, Japan, South Korea, Norway, Switzerland, China, New Zealand and Brazil.

In a joint statement, the eight called on the United States to remove the duties "without delay."

"It's a big legal victory for us all, which we now have to transform into an economic victory," EU trade commissioner Pascal Lamy said.

The WTO panel said the United States failed to prove that its domestic steel industry had been harmed by a flood of cheap imports - a precondition for safeguard duties. It also said the United States acted illegally by excluding imports from countries with which it has free trade agreements - Canada, Mexico, Israel and Jordan.

The Bush administration insisted the tariffs were legal. "Safeguard measures are allowed under WTO rules. Many countries have used them. We believe the safeguard measures comply with our international obligations," said Richard Mills, a spokesman for U.S. Trade Representative Robert Zoellick.

He noted that the tariffs are reduced by 20 percent every year. The first reduction has already taken place.

"The steel safeguard measures are already working. The domestic steel industry has undergone an unprecedented level of consolidation and restructuring over the last year, making it more competitive with imports," Mills added.

U.S. Steel Corp. agreed to acquire bankrupt National Steel, while International Steel Group became the country's largest steel maker when it acquired Bethlehem Steel.

Mills said the United States would still consider requests from other industries for safeguard duties in the future. During his presidential campaign, Bush had vowed to protect the domestic steel industry, a pledge seen as key to his victory in important steel-producing states.

But the European Union, the angriest complainant about the U.S. tariffs, said Friday it was preparing to increase retaliatory duties on U.S. imports. The duties will come into place five days after the WTO formally adopts the report, said EU spokeswoman Arancha Gonzalez. That cannot happen, however, before the outcome of the appeals process - which will likely take months.

The 146-nation WTO is currently negotiating an agreement to reduce levels of import duties globally, and the introduction of new tariffs on steel has been controversial even within the United States.

Last month, a group of Michigan lawmakers and auto suppliers complained that the tariffs have increased steel prices, cutting into the auto industry's profits. The U.S. government's International Trade Commission is scheduled to present a report on the effect of the tariffs to Bush by Sept. 20.

"All world exporters of steel products are telling them to remove these measures, but also their own domestic users of steel are telling them to remove these measures, which according to them have caused an estimated 200,000 U.S. jobs lost in the last year," Gonzalez said in Brussels.

But U.S. steel industry leaders and lawmakers reacted to Friday's ruling with fury.

"Our open borders policy has enabled the EU and other nations to make tremendous profits and have kept their mills operating at the expense of our mills and our workers," said John Walker, chief executive officer of Weirton Steel Corp.

United Steelworkers of America President Leo Gerard called the decision "the latest example of unelected trade bureaucrats undermining national sovereignty and long-established safeguard provisions of global trade agreements."

"WTO dispute settlement panels have struck down every safeguard measure to come before them, imposed by any country," Gerard said.

U.S. Sen. Robert C. Byrd, a West Virginia Democrat, called the ruling "wrong, plain and simple."

"The Bush administration must not abandon the American steel industry at this crucial hour," he said. "It ought to fight this decision and fight it aggressively."

Byrd has felt the influence of the WTO before. The Byrd Amendment - a law he put forward that hands over fines on foreign producers to U.S. companies - was ruled illegal by the WTO last year. That law had primarily benefited steel manufacturers.

The steel case is the second major WTO defeat for the United States - which has also lost a string of lesser trade disputes against the European Union. In the other case, the EU has published a list of $4 billion worth of American products that will be penalized if Congress does not scrap by the end of the year a law that grants tax breaks to U.S. companies doing business overseas. The WTO has ruled the law illegal.

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