US steel action palpably WTO-illegal, but no quick remedy in sight
The US has slapped prohibitively steep tariffs on a range of steel imports in a move that has drawn strong criticism from exporters. Aggrieved trading partners are set to lodge complaints at the WTO but, owing to the structure of the trade body’s dispute settlement mechanism, may secure no quick relief even if the US action is found to contravene international trade rules.
GENEVA: The action of US President George W. Bush in imposing steep tariffs on imports of a variety of steel products, purportedly to “safeguard” domestic producers, seems likely to face challenge at the WTO from a range of countries, and throw a spanner into the US support to the EC for a new trade negotiating round with new issues and its hope that agriculture and services liberalization could be accelerated.
Many WTO Member-country delegations were studying the order with their capitals to decide on their course of action. The full text of the safeguard measures with all relevant details and particulars, which was required to be notified immediately to the WTO, was received on 12 March, the WTO secretariat confirmed, adding, however, that circulation of the US notification to Members would be delayed due to the need for its translation into a WTO-compatible computer format.
Up till then, trade officials said, notifications at earlier stages had been received, but not the one on the decisions taken and announced by the White House on 5 March.
While one has to await the details, it is apparent from the public announcements that the US’ action seems to be in violation of its WTO obligations on several counts, and thus a broad phalanx of angry criticisms and opposition is likely to erupt over the next few days.
Though the US action has been justified on the grounds of safeguarding domestic industry, in fact the entire operation seems aimed more at the November Congressional elections and the role that the steel unions will play in some key states.
WTO Director-General Mike Moore, who at the slightest opportunity issues a statement commending or welcoming actions or statements by the US or EC, was conspicuously silent on this issue on 6 March, even though the succession of notifications from the US at various stages to the WTO secretariat provided enough information and time for Moore to make an assessment or intervention.
On the other hand, only on 4 March, in an interview to the Spanish news agency EFE, Moore had no hesitation in commenting upon his concern over what he has described as rising protectionism in the Latin American region.
On the face of it, the US measure seems likely to be found WTO-illegal on several grounds, but the process of challenge at the WTO in raising a dispute, and the time elements involved in the various stages thereof, are such that the countries affected will get no quick relief, while the US will be able to continue the palpably illegal measure for a 2-3-year period.
So far, almost every US action either under the safeguards or under the anti-dumping accords has been found contrary to the WTO, and this one is likely to prove so too.
Only one element has been left open by the WTO’s Appellate Body (AB) in its interpretation of the Safeguards Agreement requirements, namely, the right or ability of countries to take action against imports but exclude the imports from countries in a free trade area - like, in this case, the North American Free Trade Agreement (NAFTA), whose two other members, Mexico and Canada, have been exempt from the steel safeguards.
While the AB in some repeated rulings on safeguards has left open the issue of whether safeguards action could be taken generally without including free trade area members, its latest ruling appears to have very much narrowed down the scope for exempting other free trade area members (paragraph 198 of the AB report on the US’ definitive safeguard measures against imports of “line pipe” products from Korea).
In that paragraph, the AB has said that it was not prejudging the question of whether the provisions of Article XXIV of GATT (on customs unions and free trade areas) are exceptions to Art. 2.2 of the Safeguards Agreement (which states that: “Safeguard measures shall be applied to a product being imported irrespective of its source.”). However, said the AB, this question would be relevant only in two circumstances: one, when, in an investigation, imports exempt from safeguards are not taken into account in the determination of serious injury; and the other, when imports exempt from safeguards are considered in the determination of serious injury and the competent authorities have explicitly established, through a reasoned and adequate explanation, that imports from outside the free trade area alone satisfied the application of the safeguards measure.
In the present steel case, the White House announcement made clear that the US International Trade Commission (ITC), on certain products, had recommended or had reached a tie decision on inclusion or exclusion of a NAFTA member.
On these products, said the announcement, the White House asked for supplemental information on whether imports from countries besides Canada and Mexico were by themselves a substantial cause of serious injury. The ITC, it claimed, had found this to be so in each case. Based on this, the White House has determined on exclusion of a NAFTA member.
In a dispute, these will be subject to scrutiny, but long after the event.
While the White House announced it will also, because of the de minimis rule, exclude from the action developing countries exporting only small amounts to the US market, preliminary reports on affected countries show that even in this matter, the US action can be faulted and challenged.
Under Art. 9.1 of the Safeguards Agreement, no safeguards are to be applied against a developing country so long as its share in the total imports of the product in the country taking the safeguard measure is 3% or less and developing countries below this level do not collectively account for more than 9% of the imports. The wording of this clause leaves little doubt that the de minimis level has to be calculated at a “product” level and not at the level of all steel products from a country.
However, inquiries from several developing countries suggest that they have in fact been hit by the US action on the basis of a cumulation of all their exports to show that their exports are above the de minimis level. While the rules require that the de minimis test must be applied at each product level where safeguard action is being taken, the US appears to have lumped together all imports of steel and steel products from an individual country in order to decide whether they fell below or above the de minimis level.
Though the US claims that its action is a legitimate safeguard action, earlier data (of the ITC and the preliminary notifications to affected countries by the US) suggest that while the prices of US steel imports had been falling and with it there has been an increase in imports and reduction of domestic production, at least over the last two years, the prices on the US markets have been rising.
Any fall in demand for steel seems clearly attributable to the economic slowdown in the major industrial countries as well as some of the key developing countries.
And the Safeguards Agreement is very clear - this has been repeatedly affirmed by WTO dispute settlement panels and the AB - that an objective assessment based on facts has to be made, and the causes of serious injury or threat thereof have to be separated. The difficulties of the domestic industry due to other factors are not to be used to judge serious injury or threat thereof as caused by imports.
The EC, Japan, Korea and Brazil, countries identified in the media as the hardest hit, have announced they would challenge the US at the WTO. The EC has threatened retaliation in terms of actions to ensure that its market is not flooded by imports from steel producers shut off from the US market. These are, however, matters that would take a few months at least.
But one immediate area where the EC could act might be in relation to its ‘retaliation’ against the failure of the US to comply with the Foreign Sales Corporation ruling (see TWE #271 and #272/73), where arbitrators are now to decide on the level of compensation to be permitted.
However, other countries affected by the US action, including some of the developing countries, have no such leverage.
The only leverage they will have is if they join to hold up some of the negotiations in the new round. However, they will be disunited on this: the Cairns Group of agricultural exporters, despite the US action which shows lack of faith and confidence in the ‘free trade’ agenda being propagated by the US itself, will not want the agriculture talks to be slowed; and the EC has an interest in forcing developing countries to move forward on the services talks.
In effect, the situation will become a replay of the Uruguay Round, where trade negotiators held out the prospect that progress in the negotiations will block the protectionist actions.
At the time of the Uruguay Round, the Reagan administration had a panoply of voluntary safeguard measures in place (including voluntary export restraints in steel). The conclusion of the negotiations, including on safeguards, was held out as the best way to push back protectionism. Indeed, the WTO itself and its Dispute Settlement Understanding (DSU) was sold to developing countries (by the secretariat and the EC) on this basis. Now, 16 years later, the same record is being played again.
Deficiencies in dispute settlement
Other trade experts note that this issue has again brought up the real weakness of the much-flaunted “rules-based” dispute settlement system in relation to the ability of developing countries to enforce their rights. A powerful Member can take action in penalizing a developing-country exporter for a period of 2-3 years and inflict great damage, and the country affected would be powerless. If the action is deemed to be illegal by a WTO dispute settlement ruling, the complainant country can only get prospective relief if the other party is willing to implement the ruling, but cannot get any compensation for the damage already effected to its trade interests.
In the current review of the DSU, mandated for completion by mid-2003, the major trading nations and their proposals do not tackle this issue. Even leading developing countries are merely proposing changes at a very technical and procedural level, rather than in terms of the substantive negative impact of the DSU on the developing world.
According to the 5 March White House announcement, the measures in the form of a steep rise in tariffs involve the following:
* A 30% tariff is to be imposed on imports of plate, hot-rolled sheet, cold-rolled sheet and coated sheet. A plurality of the commissioners on the ITC had suggested a 20% tariff.
* A 30% tariff is to be imposed on imports of tin mill products. The ITC commissioners were in fact evenly divided as to whether the imports were a substantial cause of serious injury to the domestic industry. However, the White House has chosen to exercise its own statutory option of treating this as an affirmative determination.
* A 30% tariff on imports of hot-rolled bar and cold finished bar. The duty is higher than the 20% recommended by the plurality of ITC members.
* A 15% tariff on imports of rebar, a rate higher than the 10% recommended by a plurality of the ITC commissioners.
* A 15% tariff on certain welded tubular products.
* A 13% tariff on imports of carbon and alloy fittings and flanges. A plurality of ITC members had recommended this level of tariff.
* A 15% tariff on imports of stainless steel bar, again a rate recommended by a plurality.
* A 15% tariff on stainless steel rod, lower than the rate recommended by three commissioners.
* An 8% tariff on stainless steel wire. The ITC was evenly split on this.
* Imports of steel slabs are to be subject to a tariff rate quota (TRQ), with an in-quota volume of 5.4 million short tons and a 30% tariff on out-of-quota imports. A majority of the commissioners had recommended a TRQ on slab, with an in-quota volume equivalent to the imports in 2000 and out-of-quota tariff of 20%.
Though the ITC had also recommended actions against certain imports from Canada, the White House has exempted Canada and Mexico from these safeguard actions. (SUNS5074)
From TWE No. 275 (15-28 February 2002)