President Bush 2002 Steel Tariff

By Elaina, Evan, Garrett, Josh and Jake

Timeline and Analysis
Relevant Timeline
● 1951: European Coal and Steel Community
founded (ECSC)
● 1957: European Economic Community
founded (EEC)
● December 7th, 2001: USITC issues report to
US president
● March 5th, 2002: George W. Bush
implements 8-30% tariff on steel imports
● December 4th, 2003: George W. Bush lifts
tariffs on steel
Timeline: VER’s and the USA
● 1969: the EEC and Japan agreed to
VER’s
● 1972: VER’s expanded to include British
steel industry
● 1977: “implementation of the steel
Trigger Price Mechanism (TPM)”
● 1984: Ronald Reagan and Bill Brock
impose “voluntary restraint agreements”
on foreign steel
● 1992: VER’s phased out
USITC
● The United States International Trade
Commission investigates whether certain
imports harm the US’s industries
● USITC’s job: to put in place policy measures to
counteract harm
● 2001: the USITC advised Bush to levy
protective measures on steel
Reasons for Tariff
U.S. conducted an investigation under the Trade
Act of 1974 by the International Trade Commission
(ITC) and concluded other countries were dumping.

USITC explanation:

“Given the condition of the steel producers, with 23

recent bankruptcies, I am recommending relief that
will provide needed breathing room for adjustment
and, I believe, will complement the President’s
efforts to address concerns regarding global
over-capacity and production.”
Bush’s Reasons
“Today I am announcing my
decision to impose temporary
safeguards to help give America's
steel industry and its workers the
chance to adapt to the large influx
of foreign steel. This relief will
help steel workers, communities
that depend on steel, and the
steel industry adjust without
harming our economy.” -
President Bush
President’s Proclamation (2002)
● “Free trade is an important engine of
economic growth and a cornerstone of
my economic agenda.”
● “Temporary safeguards” will be put in
place to give American steel producers
time to adjust to the large “influx” of
steel
President’s Proclamation: Action Items
● “a tariff rate quota on imports of slabs “ for 3 years
● “an increase in duties on imports of certain flat steel, other
than slabs (including plate, hot-rolled steel, cold-rolled
steel and coated steel), hot-rolled bar, cold-finished bar,
rebar, certain welded tubular products, carbon and alloy
fittings, stainless steel bar, stainless steel rod, tin mill
products, and stainless steel wire” for 3 years
Remedies
USITC

● 4 year duty on carbon and alloy steel

products
● 3 year duty on stainless and tool
steel products
● With exceptions for the countries of:
○ The Caribbean Basin Economic Recovery Act,
the Andean Trade Preference Act, the
U.S.-Israel Free Trade Agreement Act, or the
U.S.-Jordan Free Trade Area Implementation
Act
Bush’s Remedies
● 3 years
● On imports from Asia, Europe and
South America
● Price of steel was expected to rise
by 10%
● To give firms time to facilitate
layoffs and streamline production
● Hurts: Japan, South Korea, China,
Taiwan, Germany and Brazil
President’s Proclamation (2003)
● “Prior to [the imposition of the
tariff], steel prices were at 20-year
lows, and the U.S. International
Trade Commission found that a
surge in imports to the U.S.
market was causing serious injury
to our domestic steel industry”
● Safeguards have achieved their
purpose
● US competitive in steel markets
Purpose of the WTO

The WTO is a place for governments to:

● Negotiate free trade agreements

● Settle trade disputes

“The goal is to help producers of goods and services, exporters, and

importers conduct their business.”
Settling Disputes
The Procedure

60 days Consultations, mediation, etc

45 days Panel set up and panelist approved

6 months Final panel report to parties

3 weeks Final panel report to WTO members

60 days Dispute Settlement Body adopts report

Total = 1 year (Without Appeal)

60-90 days Appeals report

30 days Dispute Settlement Body adopts appeals report

Total: 1 year 3 months (With Appeal)

United States - Definitive Safeguard Measures on
Imports of Certain Steel Products
European Union’s (EU) Dispute Settlement
Complaint: European Communities (3/13/2002)

Third Parties: Brazil; Canada; China; Chinese Taipei; Cuba; Japan; Korea, Republic of; New Zealand;
Norway; Switzerland; Thailand; Turkey; Venezuela, Bolivarian Republic of

Agreements Cited:
● GATT 1994: Art. I.1, XIII, XIX:1
● Safeguards: Art. 2, 2.1, 2.2, 3, 3.1, 3.2, 4, 4.1, 4.2, 5, 5.1, 5.2, 7, 7.1, 9, 9.1
Brief Timeline:
3/13/02 Request for consultations by the European Union

3/18/02 - 3/27/02 12 countries request to join consultations

4/11/02 United States accepts requests to join consultations

5/5/02 EU, Japan, Korea, China, Switzerland, New Zealand and Norway
request the establishment of panels to examine their complaints

2/24/03 The Panel delays the time it needs

7/11/03 Panel issues Final Report

8/8/03 Notification of an Appeal by the United States

11/10/03 Appellate Body issues report

12/16/03 Dispute Settlement Body adopts appeals report

 Japan’s Settlement
In 1993, the U.S. imposed definitive anti-dumping duties on Japan’s
corrosion-resistant carbon steel products from Japan

United States conducted Sunset Review of Anti-Dumping Duties and determined

revocation (after 5 years) would likely lead to continued injury in domestic industry

● Japan claimed the reasoning used to continue duties was inconsistent with
GATT, the Anti-Dumping Agreement and the WTO agreement
Japan Settlement Results
● The Panel rejects all of Japan's claims
○ US Sunset Policy Bulletin
○ U.S. prediction on continued dumping
● Japan Appeals

● Appellate Body
○ Upholds three findings
■ Except bulletin can be challenged in WTO dispute settlement

U.S. actions are consistent with the Anti-Dumping Agreement

WTO Final Ruling (After the appeal)

United States safeguard measures failed to meet the basic prerequisite conditions:

● GATT Art. XIX:1(a) (Unforeseen Developments)

● SA Arts 2.1 and 3.1 (Conditions for Safeguard Measures - Increased Imports)

● SA Arts 2 and 4 (Parallelism)

● SA Arts 2.1, 3.1, and 4.2 (b) (Conditions for Safeguard Measures - Causation)
President Bush’s Reaction
Initial Response:

● "Our response is that the steel safeguards ... were put in place to give our
domestic industry an opportunity to restructure and consolidate and become
stronger and more competitive," (November)
● Bush declared we would preserve the tariffs

EU threatened retaliation (Duties on more than $2 billion in U.S. exports)

Bush, “Why are you attacking my family?”

The United States backed down and withdrew the tariffs on December 4, 2003.
The Bush Tariff and Import Data

1. Increased home production

2. Decreased imports
Iron and Steel (HS Commodity Code 72)
 Iron and Steel (HS Commodity Code 72)

March 2002 Tariff Imposed December 2003 Tariff Lifted

Iron and Steel (HS Commodity Code 72)
Graph of Trade Value of World Exports of Steel Products to the US from
2000-2004
 Graph Interpretation of World Imports on Iron
and Steel
● 1999-2001 the graph is downward sloping because Steel industry decline
○ 1999 3.4% operating profits
○ 2001 -2.2% operating profits

● March 2002 Tariff implemented

○ Bush claimed that it was to protect from the recent surges in Imports
■ Referring to 1997-1998 Asian market crash
○ But 1999-2001?

● August 2002 there were 700 exemptions made to tariff

● 2002-2003 Many US firms went bankrupt or consolidated to one

○ Less output capabilities More imports for demand
Articles of Iron and Steel (HS Commodity Code 73)
 Articles of Iron and Steel (HS Commodity Code 73)

March 2002 Tariff Imposed December 2003 Tariff Lifted

Articles of Iron and Steel (HS Commodity Code 73)
Graph of Trade Value of World Exports of Steel Products to the US from
2000-2004
Key Takeaways:

Two of the top 10 exporters of Steel to US are NAFTA

○ CAN is the top exporter until 2002 in Articles
○ CAN top exporter in Iron and Steel 2000-2004
○ MEX top 3 exporter to US in both Steel industries

Imports Dropping from top 10 (think Tariff model)

● Brazilian imports of Steel to US declined by ~$200M during the tariff
● Japanese imports of Steel to US declined by ~$100M during tariff
○ Fell off top 10 chart 2004
○ Articles of Iron and Steel remained steady $1.5B
BUT
● Already a trend of decline
● CAN and MEX stayed stagnant, if anything small increase (transfer of imports)

Anomaly of China:
● New Market beginning in late 90s
● 2000-2003 China experienced a 20% annual growth rate
Top 10 Exporters of Iron and Steel in the World (2000-2004)
Top 10 Exporters of Iron and Steel in the World (2000-2004)

March 2002 Tariff Imposed

 Top 10 Exporters of Iron and Steel in the World (2000-2004)

December 2003 Tariff Lifted

Top 10 Exporters of Articles of Iron and Steel in the World
(2000-2004)
Top 10 Exporters of Articles of Iron and Steel in the World
(2000-2004)

March 2002 Tariff Imposed

 Top 10 Exporters of Articles of Iron and Steel in the World
(2000-2004)

December 2003 Tariff Lifted

Analyzing results of Tariff with Model:

Tariff Worked...
● Exports to US went down while the top 10 exporters to World went up

...Somewhat
● US companies still went bankrupt or merged
○ Hence the drop from 7 to 10th on world exports of steel
● Already declining trend of US imports
● CAN and MEX imports stagnant, slightly increased
● Deadweight Loss associated with Tariff
● Consumer surplus loss, price of steel rose $200/ton to $300/ton
Reading the data
Does the data relate to each organizations’ claim?

WTO

USITC

Japan

China

USA
Japan
Claim: “Inappropriate definition of ‘like products,’ inappropriate fact-finding related
to ‘increased imports,’ and unclear causal link between increased imports and
‘serious injury.’”

Data: Japan’s world exports $13B - $21B, US: $1B - $0.5B

Articles of Steel: Constant; World: $6B, US: $1.5B

CATO Institute agrees with Japan that decline in steel industry is a result of lack of
competitiveness rather than unfair foreign imports
WTO
Claim: Against tariff-rate rules, US ‘import surge’ claim inaccurate, $2B sanctions

Data: Definite drop in imports from 2000 - 2001, slight decrease 2001 - 2002
USITC
Claim: Heavily subsidized foreign steel is flooding the market, harming US steel
producers, 30% of steel firms filed for bankruptcy

Data: Import surge false

Bankruptcy claims true, but foreign imports play minor role compared to constant
government intervention allowing unsuccessful firms to stay afloat and harm entire
industry

Too many firms results in prisoner’s dilemma

China
Claim: “China’s small steel exports to the US are not sufficient to damage or
threaten to harm US steel firms.” US decision will result in heavy export losses

Data:

Iron and Steel: Not in top ten until 2004 ($1B)

Articles of Iron and Steel: $2B (2000), $3.5B (2003), $5B (2004)
USA
Claim: “[The] safeguard measures have now achieved their purpose, and as a
result of changed economic circumstances it is time to lift them.”

Data: Safeguards prevented non-existent pre-tariff surge

However, massive import increases in 2004 after tariffs lifted

Steel industry still took a major hit even with tariffs

Trade Theory on Labor Market
● If the US imports more steel, steel industry suffers due to increased
competition
○ Trade Models Predict: Employment should fall
■ Shift in factors to other sectors (if mobile)
○ Intra-Industry Trade Model
■ Employment falls as firms leave

● Tariff directly benefits steel industry

○ Producer surplus increases
○ Employment?
Employment in Steel, Iron, and Ferroalloy Production

2000: 138,000 - 131,000 2001: 130,000 - 112,000

Imports Decreased for both years...

Employment in Steel, Iron, and Ferroalloy Production

Tariff takes effect on March 2002 - Terminated in December 2003

2002: 110,000 - 107,000 2003: 107,000 - 97,000

No Significant Change in Imports Imports Fell

Employment in Steel, Iron, and Ferroalloy Production

2004: 97,000 - 96,000

Imports Increased Significantly

Employment in Steel, Iron, and Ferroalloy Production

Pre-tariff
● 138,000 - below 110,000 (28,000)
○ Imports Declined
Tariff
● 110,000 - 97,000 (17,000)
○ Imports fell
Post-Tariff
● 97,000 - 96,000 (2000 jobs in last 2 quarters of 2004)
○ Imports increasing
Main Takeaways
● Imports and Steel Employment are not strongly negatively correlated
● Tariff did not save jobs
Fall in Steel Employment….
Figure 2. Employment in U.S. Steel Industry
Fall in Steel Employment
Larger Trend in Decline
● ~50% decline in steel employment from 1990 - 2004
● 2005 employment increased…
Causes?
● Technological Improvement
○ Working hours per ton of steel declining
■ 16 hours in 1956 - 4 hours in 1990
■ Less than 2 hours per ton in 2004…
● Demand conditions
Fall in Steel Employment
Technological Improvement Intuition
● Increases production quantity
○ Leads to lower prices (assuming demand is constant)
● To keep a higher price…
○ Workers are fired so that desired level of output is reached
● Firms make higher profits

Demand conditions
● Demand for US steel directly influences employment in US Steel
○ 2000 - 2001 slight recession
○ 2004 -2005 Increase in demand from China
Effect of 2002 Steel Tariff
● Steel Employment significantly fell
○ 13,000 jobs still lost
● Significant price increase of domestic steel
○ Price of Hot Rolled Carbon Steel (Benchmark Product)
■ From $222 per ton to $300 per ton
● Adversely impacted small and medium firms that buy steel directly
○ Larger firms make long-term contracts
Industries that purchase steel
What Industries need steel?
● Industries that produce piping and tubing
● Rolled Steel - bars, rebar
● Steel Wire - nails, spikes, paper clips, and mesh

What effect should imports have on these industries?

● Imports should lower the price of steel, employment increases

A Tariff?
● Makes the price of steel more expensive
○ Employment falls
Employment in Steel Dependant Industries
2000: 73,400 - 72,500 2001: 71,700 - 63,700

Imports Declining Pre-tariff

Employment in Steel Dependant Industries
2002: 63,600 - 62,700 2003: 62,800 - 60,100
Tariff Implemented in March Tariff Removed in Dec.

Imports Declined
Employment in Steel Dependant Industries
2004: 60,200 - 61,200

Post-Tariff - Imports Increased

Effects of Trade and Tariff
Pre-tariff (2000 - 2001)
● 73,400 - 63,700 (10,000)
With Tariff (2002 - 2003)
● 63,000 - 60,000 (3,000)
Post-Tariff (2004)
● 60,000 - 61,200 (1,200)
Main Takeaways
As imports decrease, employment in steel dependent industries falls

● Demand conditions dependant

○ Recession
○ Tariff

Imports increase, Employment Rises

Positively Correlated
Winners and Losers
Winners:
● US Steel Producers
● Foreign Steel Producers
● Bush

Losers:
● Foreign Steel Producers
● US Producers that use Steel inputs
○ Car industry
○ Construction
○ Home buyers
○ Appliance buyers
● Employees of Steel Producers and Steel Dependant Industries
Lobbyist and PAC Supporters
Lobbyist For Tariff:

● US Steel Producers
● Protectionist

Lobbyist Against Tariff:

● Car industry (Funded 2000 election $1,019,581)

● Construction (Funded 2000 election $3,472,821)
● Economist

PAC Supporters:

● AK Steel
○ 128k in 2000
○ 169k 2002 and 2004
Additional Data
● Data on Government Subsidies for the top exporters to the US
● Data on the Price of Steel
● Data on US steel industry in years up to tariff
● Information on how the 2000-2001 recession affected import demand
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