Steel Tariffs

MARGARET WARNER:

It was a major setback today for the U.S. today. An appeals panel of the World Trade Organization ruled that U.S. tariffs on steel imports, first imposed in March of last year, are illegal under global trade laws. The complaint was brought by the European Union, Japan and six other countries.

EU officials warned today they could begin imposing some $2 billion in duties on U.S. exports next month, if the Bush administration doesn't rescind the steel tariffs.

For more on the dispute and where today's decision takes it, we turn to Neil King. He covers trade issues for the Wall Street Journal. So Neil, first give us a brief history here. How did the dispute get to this point?

NEIL KING:

It's a convoluted one and a tough one, but you'd have to go back to — Bush comes in the office 2001, the industry is very aggrieved, they're hollering for protection, they've been doing it even under Clinton, they've been battered during the Asian monetary crisis, its imports.

So, Bush says, "All right." They make the decision a year later, March of last year, to give them a three-year window, essentially. "We'll protect you from surges of imports with an up to 30 percent tariff, and you essentially have three years to consolidate and to put your house in order."

MARGARET WARNER:

So what did the WTO say today, what was the basis of their ruling?

NEIL KING:

The ruling basically was, they had ruled earlier this year that the thing violated international trade rules; the U.S. appealed. This was the final blow. The ruling basically said, "If you had come a few years earlier when the real flow of imports was coming in dramatically, you might have had a different case. But when you came, the imports were actually going down and the problem had somewhat subsided." Part of the arguments, and it also gets a little bit technical, was that you put countries like Canada and Mexico among those that were hurting the industry, and then when it came time to putting out a remedy, you took those countries out. So you kind of had it both ways because we did not impose tariffs on imports from either Canada or Mexico. So, there's a whole litany of things that they say were not right in the calculations that the administration made.

MARGARET WARNER:

So, the WTO, though, essentially didn't buy the argument that floods of imports had damaged the U.S. steel industry?

NEIL KING:

They didn't.

MARGARET WARNER:

Now, is there any doubt that the EU Is going to go ahead with its threat?

NEIL KING:

It would be astonishing if they didn't, because Pascal Lamy, the EU trade minister, he reiterated this absolute, not even a threat, promise, that in early December they'll go forward with this. The EU has never made any such promise to do something before. It would be astonishing if they were to make it with a date certain, and then say, "Oh, by the way, we were just playing chicken."

MARGARET WARNER:

"Oh, never mind," yeah. So what are they threatening to do, which U.S. industries would be hurt if they impose these duties on U.S. exports?

NEIL KING:

Well, they've been very crafty. About a year ago, in order to kind of put a warning shot across Bush's bow, they released the early list and made it very clear that this was done in a very targeted sort of district-by-district way to go after select politically sensitive states.

Florida citrus is one of the things that would be hit; textiles from the Carolinas and other politically difficult area; apples from Washington state. There's a whole variety of things — even sunglasses. I'm not sure where those are made, motor boats, yeah — so there are a whole variety, even steel as well. We don't send a lot of steel to Europe, but there would be those targets as well. So, it was very clear: "If you do you this for political reasons, you're going to regret it for political reasons."

MARGARET WARNER:

And of course this was the EU's basic complaint, that the president did this in part for political reasons?

NEIL KING:

That was their complaint, and there is some truth to that.

MARGARET WARNER:

So what is the steel industry saying now?

NEIL KING:

The steel industry is saying, "We need more of this, this has given us a degree of stability." It is true that much of what the administration wanted to accomplish has happened. There have been some consolidations, there was a wave of bankruptcies before, some of the companies have been brought out of bankruptcy and put into larger, kind of conglomerated companies, they've made some deals with the unions, so some of the kinds of reforms that the administration wanted to see have happened.

On the other hand, the industry is saying we need the full three years, a year and a half more of this to put everything in order to be fully ready to go back out on the open market, so to speak. The other side is arguing that they've done what they needed to do, the steel people, the consumers of steels, those who make washing machines and everything else, have taken their hit; it's time to kind of take the warp off the U.S. economy.

MARGARET WARNER:

Now, the consumers of steel have really, really complained, have they not, said they've lost jobs because of this?

NEIL KING:

They've complained bitterly. It's also in a way been a kind of rallying point for this huge industry, certainly much vaster than the steel industry, people that use steel to make other things. It's brought them together in a way that's never really been the case. And they've made the argument, at times a little bit exaggerated, but other times backed up by studies that have even been done by the administration, that it has cost a lot of jobs within the manufacturing sector, perhaps more jobs in that sector than has been saved on the field side. So it's been a very difficult calculus by the administration.

MARGARET WARNER:

Now, also put into the calculation which states is the steel industry most important in.

NEIL KING:

Well, that's kind of the key component here. There … of course there's West Virginia, which is very big in that way and has always gone Democratic, and in the last election it didn't, and it was one of the states that put Bush over the hump. There's of course Pennsylvania, Michigan, Ohio. All their … among the steel workers that are there, they're very organized, they're very angry, and they're within a bus ride of Washington. And they've done that before, and they can make a lot more noise than manufacturers who use steel, and that's one of their advantages.

MARGARET WARNER:

The steel workers, though, have not endorsed President Bush for reelection. They went another way.

NEIL KING:

It's true. It's a curious thing that Bush made this calculation going back when they decided to impose the thing for a whole variety of complex reasons we don't need to get into, part of them political. But it's not clear that he's … he's certainly not won the support of the U.S. steel workers, and it's unclear, really, to what extent he would ever have the complete support of a lot of union workers, steel union workers that are traditionally Democrats.

MARGARET WARNER:

Now, I read that there is considerable debate inside the Bush administration, that is there was even before this ruling about whether to continue these, or rescind these tariffs. What can you tell us about that?

NEIL KING:

It's pretty clear that within the kind what was we call the economic team, the folks that are within the White House that advise on economic matters, the treasury secretary, commerce secretary, to some extent Robert Zoellick, the trade representative, if they had to vote, would say, "Let's get rid of these things. They've done their job and they're going to cause worse pain now with Europeans and others who those retaliate."

And there are other countries that are threatening to do the same thing. It's certainly the wisdom going back to when these were decided that it was really the main political advisor to Bush, Karl Rove, that said, "This is politically important, let's do this." I think the decision will in the end be made in a room with three or four people in it, and one of them would be Mr. Rove. So it's hard to say, no matter how much the leaning is in that direction of getting rid of the tariff, I think there are certain voices who we haven't heard from yet.

MARGARET WARNER:

And this of course comes in the context of a lot of tension between the U.S. and the EU, certainly, over trade matters?

NEIL KING:

A lot of tensions. The next big thing on President Bush's plate is something that also has to happen within Congress, which is fixing a very large overseas tax break that's been a problem going back more than a decade with the European Union. That also has been found to be illegal by the WTO, and if that isn't fixed, the EU is saying by the end of the year they're going to impose retaliatory tariffs on $4 billion worth of exports. So it's substantially larger than the steel tariff, and that's just one of a whole number of other things that are out there that are problematic.

MARGARET WARNER:

So, the president has some big decisions. Well, Neil King, thank you so much.

NEIL KING:

A pleasure.