Estimated Economic Effects of Proposed Import Relief Remedies for Steel

It is important to keep the current Section 201 investigation in perspective. The ITC recommendations are the result of ongoing complaints, extending back to the days of the Reagan administration, from U.S. steel producers about imports, global steel production overcapacity, and, more recently, the heavy burden of costs imposed on them by retiree health and pension obligations (the so-called “legacy costs”). Ever since Reagan-era quotas on imports expired, the industry has been trying (with some success) to get new measures put in place to replace them. In this respect, steel has been continuously protected from import competition over the last 20 years or so by a string of past administrations, through a mix of quotas, countervailing duties and antidumping duties. The current investigation is another link in a long chain of events making up steel import policy. Most recently, the steel producers and the steel union had long sought a formal U.S. Government investigation of whether increased steel imports were a substantial cause of serious injury to U.S. steel producers. Such an investigation, conducted largely by the ITC, is referred to in the United States as a Section 201 investigation, because it is authorized under Section 201 of the Trade Act of 1974 (as amended).^[1] Section 201 does not address the charge, made long and often by the steel industry, that steel imports are “unfair:”^[2] it applies to imports from all countries, fairly traded and otherwise.

Once a complaint is formally lodged with the ITC, the ITC’s first task is to determine whether or not increased imports are a substantial cause of serious injury^[3] or a threat of future serious injury, to a U.S. industry producing a “like or directly competitive” product. If it so concludes, its second task is to recommend to the President relief that would prevent or remedy the injury and facilitate industry adjustment to import competition. This relief might be tariffs,^[4] quotas,^[5] tariff-rate quotas (i.e., one tariff level applicable to imports up to a specified quantity, and then a second, higher tariff level applicable to imports over and above that prescribed quantity), trade adjustment assistance, or any combination of these. Relief may be granted for up to four years.^[6] The Commissioners may suggest different “solutions” for different products. Relief must be phased down over the period proposed. The ITC may also recommend that the President begin international negotiations to address the underlying cause of the increase in imports, or any other action “authorized under law” that would enable the U.S. industry to adjust to import competition. Finally, the ITC will recommend whether imports from Canada or Mexico should be excluded from the remedy on the grounds that they do not account for a substantial share of total imports or do not contribute importantly to the serious injury or threat thereof found by the Commission. Imports from Canada and Mexico may later be added back into the remedy if the ITC and the President conclude that a surge in imports from those countries is undermining the effectiveness of the relief.

The action next shifts to the Executive Branch. The President has 60 days to decide whether or not to impose relief and, if so, what form that relief should take. He also makes the final determination regarding whether to accept or change the ITC’s recommendations about including or excluding imports from Canada and Mexico. The law requires the President to evaluate the national economic interest of taking different actions. This involves evaluating the overall impact of any action on the economy generally and the impact on other sectors than the protected sector.

The steel industry and the steel union had pressured President Clinton for much of his term to begin such an investigation.^[7] However, he managed to put them off for the duration of his Presidential term. The industry’s complaints reached a crescendo during President Bush’s first months in office. Steel industry supporters in both the House and the Senate nudged the decision along. Representative Peter J. Visclosky (D-IN) and others managed to line up 225 co-sponsors on legislation that would impose quotas on imports and charge a steel sales tax to raise money to pay “legacy costs.”^[8] Paul Wellstond (D-MN) introduced companion legislation in the Senate. In addition, Senator John Rockefeller (D-WV) pressed the Senate Finance Committee to adopt a resolution instructing the ITC to launch a Section 201 investigation.

On June 22, when U.S. Trade Representative Robert Zoellick sent a letter to the U.S. International Trade Commission (ITC) requesting it to begin a Section 201 investigation, the process officially began.

The ITC conducts Section 201 investigations based on a strict timetable. The law and ITC regulations and procedural orders prescribe procedures, from the deadlines for ITC and Presidential actions to the number of minutes private sector witnesses have to testify. Appendix A details the deadlines for various steps of the steel investigation. Because this investigation covered the vast majority of steel products,^[9] including raw materials like slab, and affected every foreign supplier, including Canada and Mexico, there was no shortage of individuals wishing to present testimony to the ITC.

As noted, the first chore was for the ITC to determine whether imports were the most important single cause of serious injury or threat thereof to U.S. producers. U.S. Trade Representative Zoellick had suggested the Commissioners focus on four broad categories of steel products (carbon and alloy flat products, carbon and alloy long products, carbon and alloy tubular products, and stainless and tool steel products). The ITC elected to further subdivide these categories into a total of 33 product groupings, leaving individual Commissioners the option to group them into broader categories as they saw fit. After eight days of hearings in late September and early October, and numerous briefs filed by all of the parties, the ITC Commissioners concluded that imports of 12 of the products under investigation were injuring or threatening to injure U.S. producers, and was evenly divided on four other products.^[10] The ITC made negative determinations (i.e., concluded that imports were not a substantial cause of serious injury) for 17 product categories.^[11] Appendix B provides a chart summarizing the Commissioners’ votes. The imported products covered by the affirmative determinations and the tie votes accounted for 74 percent of total steel imports in 2000. The details of the reasons for the Commissioners’ decisions on injury will not be know until after the report sent to the President December 19 is released to the public.

Because the Commissioners determined that some imported steel products were a substantial cause of serious injury to U.S. steel producers, they had to take the next step required by the Section 201 law: determine what remedy would address that injury and allow the industry producing those products the time it needed to adjust to import competition. The ITC held a new round of hearings the week of November 5, interested parties filed still more briefs, and on December 7 the ITC Commissioners announced the outlines of their remedy recommendations to the President. (It formally submits those recommendations to the President on December 19.) Appendix C summarizes the range of remedies. Briefly, the Commissioners suggested tariffs, tariff-rate quotas, and quotas, as well as adjustment assistance and international negotiations. Tariffs ranged from 8 percent to 40 percent. Weighting the proposed tariffs by value of imports potentially affected, the range runs from 9.2 percent to 20.7 percent, excluding Canada and Mexico from the tariffs, or 12.2 percent to 27.9 percent including Canada and Mexico in the tariffs.

Now, the action shifts to the Executive Branch. Through the inter-agency Trade Policy Staff Committee (TPSC), the Administration will collect comments from the public regarding what impact the suggested remedies are likely to have on the U.S. economy and the affected parties. The TPSC will hold hearings. The statute requires the President to issue a decision by February 17; however, he can request additional information from the ITC, the provision of which would extend that deadline to March 6.

^[1] The U.S. law implements provisions of the World Trade Organization’s Agreement on Safeguards and Article XIX of the GATT 1994.

^[2] U.S. antidumping and countervailing duty laws are designed to address “unfair” imports. Such investigations are launched against specific countries (Section 201 investigations must be against all countries), and typically very specific products (the current Section 201 investigation is against virtually all steel products). Antidumping and countervailing duty investigations result in duties equal to the margin of “unfairness” calculated by the Commerce Department. The steel industry has been filing antidumping and countervailing duty cases against a wide variety of steel products imported from most major suppliers for years. In nearly all cases the Commerce Department finds dumping or subsidies; however, in some cases the ITC rules that the requisite “material injury” to U.S. producers has not been established.

^[3] The threshold for an affirmative finding of injury is higher in a Section 201 investigation than it is in an antidumping or countervailing duty investigation. Imports must be increasing, and they must be a substantial cause of serious injury. “Substantial” is defined as a “cause which is important and not less than any other cause.” Serious injury is defined as a “significant overall impairment in the position of the domestic industry.”

^[4] Potential tariff increases are capped at 50 percentage points above the ordinary tariff imposed.

^[5] Quota levels must be set at a level that is no lower than the quantity or value of imports entered during the most recent three-year period that the President finds is representative of imports of the product under investigation, unless he finds that a different quantity or value is clearly justified to prevent or remedy serious injury.

^[6] Relief may be extended one or more times, but the overall period of relief, including extension, may not exceed eight years under any circumstances.

^[7] The industry and the union had the option of filing its own petition to begin such an investigation. However, they were concerned that if they did so and undertook the heavy legal costs associated with such an investigation, and they prevailed at the ITC, there was a chance that the President would decide to not impose import restraints as a remedy on the grounds that it would be harmful to the national economic interest. But if the President initiated the petition, they believed it increased the likelihood the industry and union would get the desired results: quotas or tariffs. Typically, U.S. companies initiate Section 201 investigations, and it is rare that the President will do so. The law also authorizes the House Committee on Ways and Means and the Senate Committee on Finance to make such requests. Finance prepared its own request for a steel 201 investigation, and the current investigation is a consolidation of the USTR and Senate Finance Committee requests.

^[8] The bill, “The Steel Revitalization Act of 2001” (H.R. 808) was introduced DATE and as of December 12, 2001 has 225 co-sponsors. The CITAC Foundation analyzed the likely impact of this legislation on steel-consuming industries and the economy generally in “Costs to American Consuming Industries of Steel Quotas and Taxes,” April 30, 2001. A copy can be found on the CITAC web site, www.citac-trade.org. Paul Wellstone (D-MN) introduced companion legislation, S. 957, in the Senate on May 24.

^[9] Steel products were generally covered if they were classified in Chapter 72 or 73 of the Harmonized Tariff Schedule of the United States, unless they were specifically excluded. Under the Section 201 statute, products that already face Section 201 remedies may not be included in another case. Certain steel wire rod and smaller diameter line pipe were under Section 201 orders already and therefore were excluded from this case.

^[10] In the case of a tie vote, the President decides whether or not the result is a finding of “injury” or “no injury.” In effect, the products subject to a tie vote are still under investigation.

^[11] Under the North American Free Trade Agreement, the Commissioners who made affirmative determinations are required to decide whether imports from Canada and Mexico account for a substantial share of total imports and contribute importantly to serious injury or threat of serious injury to the domestic industry. If imports from Mexico or Canada are found not to be the cause of injury, they will be excluded from any remedy action.