The War on Steel: A fight to the finish

The War on Steel: A fight to the finish

The date March 20, 2002 is not likely to be forgotten by those in the steel industry because, even before that date, the scramble was on to fight the Bush administration's tariffs on steel imports. No sooner had Bush's announcement hit the media then echoes came from all corners of the world in blatant condemnation of his moves as well as his reasoning behind them. One of the loudest echoes came from European Trade Commissioner Pascal Lamy who branded the tariffs as unfair, commenting “We cannot stand by and allow an industry that has gone through hell and high water to become the most competitive in the world to suffer the consequences of illegal measures by the U.S.” Lamy also added that he would do all he could within World Trade Organization rules to protect the EU steel industry and its workers from the effects of the tariffs. This prompted others such as U.K.'s Trade and Industry Secretary, Patricia Hewitt to echoe their sentiments as well. Hewitt went so far as to flaunt her displeasure at the tariffs to the media. She also flew to the States to meet with Bush in March about the issue as well. Both Lamy and Hewitt stated they feel the Bush administration's move is a political one, in light of what they deem as the slackened state of the U.S. steel industry. The defense that U.S. steelmakers are giving is that an influx of cheap steel imports since 1998 has pushed prices down, forcing many of them into bankruptcy. Since the beginning of 1998, 31 U.S. steel mills – roughly, half the industry have either gone bankrupt or filed for bankruptcy protection, the American Iron and Steel Institute (AISI) commented. Bush trade policy viewed as “double standard” In effect, a worldwide ruckus has ensued, with all the major steel players vying for position. Not just abroad but especially in the U.S. as well. The AISI stance is that Bush's tariffs will have a “devastating impact” on steel prices for individual steel consumers. Experts add, the ironic twist to the entire situation is that one major problem Bush claimed would be prevented – loss of jobs, has already happened. Reports were already in, long before March, about U.S. firms cutting back production and jobs, due to higher steel costs. U.S. economists voiced their warning that for every job saved among steel producers, an estimated eight to 10 jobs in the U.S. steel consuming industries will be lost. As Business Week explains, the Bush trade policy on steel clearly displays the double standard. On one hand, Bush tells the tech industry, farmers and workers in export industries that he believes in free trade. Yet, on the other hand, he tells union workers (whose support the Republican party wants), that he believes in free trade. Analysts have been claiming for months that Bush has not only risked his stance on trade with his counterparts overseas, but that U.S. steelmakers as well, have not been happy with the Bush administration's tariff package. Part of the reason that U.S. steelmakers are unhappy, lies in the fact that some measures in the package turned out to be less restrictive than many in the industry had imagined. Part of the reason that the EU and other major players in the steel industry such as China, Japan and Russia were miffed is due to what they consider unfair and extraordinary measures – as they see it – only designed to help the U.S. steel industry rather than take into account demand for particular types of imported steel as well as longstanding customer relations with steel clients, for example. Consumer backlash in U.S. set to explode Yet, the very measures that were supposed to ’help' the steel industry have seemingly backfired. Industry insiders reported on April 10 that consumers in the car and can industries have been hit with increases of between 15-25%. They have urged Bush to review his policy as well. U.S. vehicle manufacturers have gotten in on the fight too by reporting that they will also suffer from higher prices for steel – the key material in their products. Meanwhile, the U.S. defense is that WTO rules allow a member country to initiate a safeguard mechanism that would slow imports in order to give a specific industry time to adjust to heightened competition from foreign suppliers. Granted, most steel market watchers concur that the U.S. steel industry has been long overdue for a restructuring phase. Yet, the EU has pointed out that other nations shouldn't have to suffer just because the U.S. has, as they put it, suddenly decided to institute protectionist measures to supposedly, they imply, correct a problem, which many claim should have been fixed years ago. So, it would appear that the Bush administration's seemingly “positive move” for those in the U.S. steel industry has turned out to have produced a backlash. As country after country are playing out their hand in the current checkerboard of steel. If that is not bad enough, industry sources reveal as many as eight British firms, including the Anglo-Dutch steel group, Corus – are requesting exemption from the quotas. Their defense is that the steel products they produce cannot be supplied by U.S. producers. So many other countries are up in arms about not only U.S. but EU quotas as well. So much so, that some in the media are branding the situation, on the brink of a “trade war.” Insiders: Warn quotas, mayhem for free trade Steel insiders reveal that a chain reaction has taken place globally, regarding steel tariffs. If this continues, many analysts fear that a chain of protectionism would damage the global system of free trade. Not to mention, that as a direct result of U.S. tariff announcements, world prices on steel products have continued to rise. Most steel industry insiders' biggest fear is that a shift in supply of steel products could lead to an increase in market volatility and negatively affect steel manufacturers' performance. U.S. Treasury Secretary, Paul O'Neill recently remarked that there is a 30-35% overcapacity of steel on the global market. That is not the only concern either. If this chain-reaction persists, experts also fear “the spread of protectionism” could lead to a breakdown in international agreements aimed at stabilizing steel markets. Another worry is that it might also affect global steel markets on a mid to long term basis. Searching for solutions: Meetings with US-EU Bearing all of this in mind, the question that needs to be asked remains: Is there a solution on the horizon? It would seem as most reports indicate, that the best solution probably lies within the dispute-resolution process of the WTO. Though the process is lengthy, it is the only option other than face-to-face meetings with the U.S. and the EU. So far, a number of nations are trying their luck at consultations with the U.S. and the EU before making any further moves. In the meantime, the EU, China, Japan, South Korea, Norway and Switzerland have all begun dispute proceedings. Another 10 countries have joined Brussels in seeking compensation under a different rule for damage to their own industries. If there is a silver lining to come out of any of this, it would have to be that just the act of one nation coming face-to-face with another, having to hammer out agreements, would likely do a lot more to encourage global understanding in the long run than any pronouncements from on high. It's compromise at the trade table more than anything, that is going to determine how global relationships play out, not just within the steel industry, but in global politics as well.