The Hindu : Trade power

Online edition of India's National Newspaper
Monday, Mar 11, 2002

Opinion

Opinion - Editorials

Trade power

IT IS IRONIC that so soon after the U.S., along with the E.U., persuaded the rest of the world to launch a new round of trade liberalisation negotiations at the World Trade Organisation, it has chosen to impose additional tariffs of between 8 and 30 per cent on steel imports, a decision explicitly aimed at protecting the domestic steel industry. India and other developing countries are by and large exempt from the U.S. action. But the larger message from the U.S. action, which is relevant to all countries, is that even the biggest proponents of "free trade", if it suits them, can very easily jettison their professed convictions.

There are many explanations of the U.S. President, George Bush's decision, which is the most significant import control measure of the U.S. since the mid-1980s' "voluntary controls" on automobile imports. The ostensible reason is that an industry that has seen 20,000 jobs lost and 30 bankruptcies in the past five years needs breathing time to adjust to cheaper imports from the E.U., Japan, Russia, South Korea and Brazil. The political reasons are, one, that Mr. Bush is delivering on his 2000 campaign promise to voters in the "steel" States and, two, Mr. Bush needs the support of the Senators in these States if he is to cross the last hurdle to acquisition of the powers of the Trade Promotion Authority. Mr. Bush needs this authority if he is to successfully negotiate a free trade pact covering North and South America. This will be a major trade liberalisation agreement, which is yet another irony. The U.S. has claimed that it is applying the new tariffs under WTO agreements which give it the power to "safeguard" domestic industry against a sudden growth of imports. Yet, the U.S. appears to have flouted the main provisions of the safeguards agreement of the WTO. It has not, as required, gone through the process of prior consultation. It has clubbed import of different steel products to argue that there has been a threat to domestic industry, while the WTO rules state that imports of each product must be treated separately to demonstrate injury. And most important, there is no sign of a sudden surge of imports which would call at this point for the application of protective tariffs. Steel imports into the U.S., in fact, declined from 38 million tonnes in 2000 to 29 million tonnes in 2001. Such niceties may not be of much concern to the U.S. since it is surely aware that even if the affected countries make a formal complaint at the WTO it will take at least two years before a ruling is made against the U.S. — a sufficiently long time to help the domestic industry recover from its present difficulties. It is therefore irrelevant that the new tariffs will be applicable for a "temporary" period of three years.

The U.S. steel industry's travails have many roots. One of the more important ones is that the industry is suffering from the burden of large "legacy costs" under which companies have to meet their pension commitments to workers who have retired. The U.S. industry meets the wage costs of 150,000 workers and also the pension costs of 600,000 retirees. Cheaper imports are only one factor behind the present problems of the industry, and in any case dumping by foreign producers has not been proven. Globally, there are many industrial and agricultural sectors in individual countries which are affected by import competition. But few Governments can dare to flout international trade rules, as the U.S. has done, to protect their domestic industries. The steel dispute is a telling example of national power influencing trade decisions. Governments which were being persuaded to believe that low tariffs were always good for their economies and that there was a common set of global trade rules for all countries should now know that this is not the case.

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