- The Washington Times - Tuesday, September 4, 2001

The Bush administration arrived in January 2001 and was quickly confronted with the same problem that has faced every president since Lyndon Johnson a domestic "steel crisis" and demands for trade protection from the politically powerful steel lobby, the union and their friends on Capitol Hill.
On June 5, President Bush announced his plan to help the domestic steel industry. The first two elements of the Bush program address non-economic capacity, subsidies and trade distorting practices all serious problems facing the global steel industry- including the United States. The third element of the plan, a Section 201 investigation on steel imports, could result in import quotas. The decision to launch the investigation surprised many because the domestic steel industry lobbied unsuccessfully for years for a 201 during the Clinton administration, and the move seems incongruent with the Bush administration's commitment to free trade.
Why did the Bush administration file the 201? The U.S. steel industry employs about 160,000 workers (compared to over nine million in the steel consuming industries) and has a total market capitalization less than the value of a two-point swing in the price of Microsoft. Many analysts believe that a combination of circumstances, including the certainty that Senate Finance Committee Chairman Max Baucus had the votes to initiate a Section 201 case, forced the filing by the Bush administration. Their only logical course of action at that point was to keep some control of the process by including the 201 in the administration plan.
The decision to impose or not to impose steel import restrictions via a 201 investigation ultimately falls to the president, assuming the ITC finds injury of the domestic industry. The president's choice is important because it will significantly affect his administration's ability to return the United States to a position of leadership in world trade. The wrong decision- imposition of restrictions -could initiate more international disputes regarding the World Trade Organization (WTO) and stimulate increased protectionism and trade wars where there can be no winners, only lots of losers. The United States with its sophisticated consumers, internationally integrated manufacturing base and internationally competitive export industries has been the biggest winner from the liberalization of trade since WWII, and therefore also has the most to lose from a return to protection.
The addition of special 201 relief to the already extensive protection the industry currently enjoys will further hurt the competitive position of the steel industry's consumers. And it will neither solve the problems of the industry, nor make it competitive. Why? The domestic steel industry has received special government protection and subsidies for the past 30 years in the form of loans, quotas, antidumping duties and "Buy American" crusades, just to name a few. Each time protection was demanded, the proponents claimed that they needed time a respite from the "assault" on the U.S. market by "unfair" imports to retool and become internationally competitive. While some companies did modernize, there were always some that did not, and they have remained the weak players in the market demanding more protection during the next cyclical downturn. The conclusion is inescapable trade protection does not create competitive industries. Instead, it helps keep the weak companies alive, to the detriment of all.
Advocates of steel import restrictions seem to believe the United States can act unilaterally without negative consequences. Unfortunately, memories are often short in Washington, and few publicly discuss the 1999 Seattle WTO debacle. That was when talks to begin a new trade negotiating round collapsed in large part because of big steel's insistence that the United States not put the trade laws that protect steel on the table for negotiation. These laws have been used to restrict more than half the steel imported into the United States. And at the World Trade Organization, the United States has lost every steel-related complaint involving abusive use of the trade laws. The bottom line is that protectionist actions on behalf of the steel industry by the U.S. government are now negatively impacting our ability to advance trade liberalization at the WTO liberalization that benefits U.S. consumers and internationally competitive industries across the United States.
Is United States leadership in the WTO worth all the fuss? During the 1990s, while the Clinton administration was denied fast track negotiating authority by the steel-led protectionists, the rest of the world continued to pursue freer trade, negotiating over 100 trade agreements. U.S. companies and their employees are at a disadvantage today in international markets as a result of the trade agreements concluded by their competitors.
The administration has an historic opportunity to set in motion market forces that would unleash the merger activity and consolidation so desperately overdue in the U.S. steel industry. A U.S. steel industry not burdened by weak steel producers could compete with its international competitors to the benefit of its workers, stockholders and over 9 million employees of steel consumers who need access to high quality, internationally competitive steel. The U.S. industrial economy needs both a competitive steel industry and steel imports. The first two elements of the Bush plan could be the right medicine at the right time to reach that goal if the administration has the strength to stand up to the steel industry protectionists on the third element of the Bush steel plan.

David Phelps is president of the American Institute for International Steel.


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