Ironworks Gaming Forum - W.T.O. Rules Against U.S. on Steel Tariff

Ironworks Gaming Forum (http://www.ironworksforum.com/forum/index.php)

- General Conversation Archives (11/2000 - 01/2005) (http://www.ironworksforum.com/forum/forumdisplay.php?f=28)

- - W.T.O. Rules Against U.S. on Steel Tariff (http://www.ironworksforum.com/forum/showthread.php?t=84902)

TL's oh-so-brief OpEd:
I predicted this nearly a year ago, some of you may remember. The US officials whined as expected, saying unfair decisions undermine the WTO blahda blah blah. Yeah, same song and [img]graemlins/dancing.gif[/img] - if the US doesn't like a decision it threatens to leave the body. Just like the UN. Whatever.

Now, there is a reasonable argument to be made that the WTO treaty should protect anti-dumping. "Dumping" occurs when a nation (take Japan as a not-so-hypothetical) sells stuff (take steel as a not-so-hypothetical) cheaper than its real cost in a country (take US as a not-so-hypothetical) just to destroy the domestic producers. The theory is that it's worth taking the loss of profits for a few years to gain a near-monopoly on the market. Well, accounting for that just isn't really in the WTO agreements. NAFTA has a good anti-dumping agreement (which, incidentally leads to many high-paid lawyer jobs in D.C.). But, the USA signed on to the WTO/GATT without such an agreement in place. Maybe they need to address that, but until then they should live by the rules.

Today's NY Times:

Quote:

W.T.O. Rules Against U.S. on Steel Tariff
By ELIZABETH BECKER

WASHINGTON, March 26 — The World Trade Organization ruled today that the steel tariffs imposed by President Bush last year were illegal.

The administration said it would appeal the decision.

While the trade decision was called interim, with the final report expected next month, it is rare for an interim decision to be reversed. If the United States loses next month, European and other nations could impose trade sanctions of comparable value against the United States.

Last spring, Mr. Bush imposed tariffs of nearly 30 percent on most types of steel imported from Europe, Asia and South America, the biggest government action to protect an industry in several decades. While it was praised by the steel industry and trade unionists, the move was criticized by free trade advocates and companies that use steel in manufacturing.

The case against the tariffs was brought by the European Union, which accused the United States of illegally protecting the steel industry. Pascal Lamy, the European Union's trade commissioner, called the tariffs "unjustified, highly protectionist U.S. measures."

"I am in no doubt that the U.S. will lose this case, as it has lost all six previous safeguard cases," Mr. Lamy said when the initial case was brought against the United States.

But there was no celebratory statement or any comment from the Europeans today. All spokesmen said they would not discuss an interim decision, but foreign officials also said Europe wanted to avoid creating a further division with the United States in a time of war.

Today's ruling, which was not a surprise, was the second major loss for the United States at the W.T.O. in the last year. The trade panel awarded Europe the right to impose $4 billion worth of trade sanctions against the United States for giving tax breaks to American exporters through foreign sales corporations.

When administration officials imposed the steel tariffs they said they were legal under provisions in the world trading rules allowing a response to a surge of steel imports.

The tariffs were meant to help the American steel industry find its footing in the global market. American trade officials said today that the strategy worked.

"The domestic steel industry has undergone an unprecedented level of consolidation and restructuring over the last year that have made it more competitive," said one American trade official, who insisted on not being identified.

Democratic lawmakers criticized the trade decision, citing a United States International Trade Commission study done before the tariffs were imposed that showed imports were seriously injuring important parts of the American steel industry. They said the W.T.O. had exceeded its authority.

"I support the goal of an international trading system," said Senator Max Baucus, Democrat of Montana. "But we have a growing problem with dispute settlement decisions that are inventing obligations and requirements to which the United States and other countries never agreed. Ultimately, these types of decisions will only undermine confidence in the W.T.O."

Some Democrats said the administration was partly to blame for failing to adopt an aggressive strategy to end a series of rulings against the United States.

Representative Sander M. Levin, Democrat of Michigan and ranking minority member of the House Ways and Means trade subcommittee, accused the administration of overseeing the loss of 13 of 15 cases brought against the United States since 2001.

"This decision furthers a trend that jeopardizes the credibility of the W.T.O. dispute-settlement system and must serve as a wake-up call for the administration," Mr. Levin said.

In Congressional hearings today, steel officials and union representatives praised the tariffs. Leo W. Gerard, international president of the United Steelworkers of America, told lawmakers that they should not forget the history that led to the president's decision to impose the steel tariffs. For several years, he said, the domestic steel industry was "under attack from foreign producers, aided and abetted by foreign governments through subsidies and other market manipulations."

"The consequences of this assault have been disastrous for our steelworkers and for the American steel industry," Mr. Gerard said.

The result, he said, was that 37 companies were forced into bankruptcy, 54,000 steel workers lost their jobs, and pension plans and health care programs were being scaled back for retirees, widows and other dependents.

But some manufacturers have complained that the tariffs have led to higher prices for steel and hurt their companies.

Wes Smith, the president of the E&E Manufacturing Company, with 250 employees in Plymouth, Mich., testified that the tariffs and rising cost of steel amounted to a new tax for him.

"We are willing to meet the challenge of competing with the Asians," Mr. Smith said. "However, we cannot do that with our hands tied behind our backs by having our government tax our largest input by 30 percent."

Why Why oh Why does a grown up nation like the U.S need to be told it has done wrong by some world body. It was a childish act that has upset a lot of the friends of America. If you have a problem with a certain country *cough Japan cough* then take the issue up with that country. Take those poor working class people in Australia that over the last ten years have had wages, conditions and jobs slashed in order to be competitive in a world marketplace. Cuts which have hammered whole cities and not to mention the miners who fetch the coal and iron. The mantra used to justify such hardships was the "level playing field of world trade" I'd personally like to see an apology from those responsible but all we are going to get methinks is a "the U.S. has been done wrong again whinge"

If you all think this makes me angry, don't get me started on the subsidies you give to your farmers :(

MR ANGRY from AUSTRALIA [img]tongue.gif[/img]

I knew it would fall out this way, too, but HIP HIP HOORAY!!!! (Sorry for the shouting, but it is nice when common sense wins the day every once in a while, even if it is purely fortuitous.)

Ever since I studied economics, I have viewed tariffs thusly;

You impose an embargo on some nation because you think that economic sanctions will impose some kind of hardship. Unfortunately, that hardship is never on the government -- they can just tax the serfs to pay for the added cost of doing business. The common people get hurt because they cannot get cheaper goods from other nations, then they get whacked again when the gov't raises taxes to pay thier bills.

So if indeed embargos are Bad ThingsTM, why, oh why would any nation voluntarily impose a tariff, quota or other restriction, in effect a mini-embargo, upon itself? Oh, yes, because it doesn't affect the government. It ly affects the people, and that can be propagandized as some evil action of some evil other nation.

[EDIT]
I do find it ironic that this body, who allegedly stands for free trade, decided that in response to trade restrictions, there should be other restrictions. Hey, if the US civilian population has to pay more for their steel, why shouldn't European civilians have to pay more for their goods, too...
[/EDIT]

[EDIT2]
Don't get me started on our "farm" subsidies. Over 60% of it goes to "farmers" such as David Rockefeller (yes, of that Rockefeller family), The Hartford Insurance Group, 66 members of Congress, including 3 multi-millionaires, Sam Donaldson and Scottie Pippin. The Environmental Working Group put up a page with the names of the recipients, and it was eye-opening to say the least...
[/EDIT2]

[ 03-27-2003, 07:22 PM: Message edited by: Thorfinn ]

Moreover, from and economics purist point-of-view, protectionism is bad for us all. If those islands in the mediterranean cannot compete with Ohio-based and Nicaragua-farmed Chiquita Banana, then it would be best for us all if they simply grew something they were better at - be it apples, grapes, whatever.

It's a notion of utility: why support an industry (via tarrifs on foreign competitors or subsidies on domestic producers, which are essentially the same thing) that cannot make money and stay afloat? The answer usually is "the jobs, silly, it's all the jobs." Well, yes transition from one economy to another is hard on the individuals at the moment - but better for the greater good in the long run.

Take Vermont's historical economies as a for instance. Though there have always been other products to come from VT (wood, for instance), the usage of farms in VT is a good picture of changing economies. First, sheep were produced there for local purposes - and shipped up and down the rivers of VT as far as Boston for sale. As railroads opened up, overcoming the transportation problems, the local rivers of VT became a non-issue, and Boston and New England could get their sheep goods from Wisconsin. Sheep farming largely dried up, and more farms began producing dairy. Cows like the climate of Vermont (cold). Sometime about 1970, it became cheaper to house cattle in air-conditioned warehouses in California rather than on hills in VT, so the "cold" advantage disappeared, meaning that only specialty dairy products (Cabot Cheese, B&J Ice Cream) could be supported in VT. Now, those farmers have over the past few decades adopted two new production types in Vermont: (1) eco-tourism (such as the Billings-Rockefeller farm in Woodstock, and such as selling farmland for little out-of-the-way retreats and ski slopes), and electronics manufacturing (e.g. IBM) (which is where many farm families have sought work).

While Vermont's model is odd indeed, it shows how the market causes the greatest utility use of the land/people/resources. Messing with this is like mucking with the environment, IMHO: it's combating nature herself, who always wins in the end.

Now, let's keep in mind that "dumping" is bad. If Chiquita can sell for less and make more profit than those small producers in the EU market, that's one thing. But, if Chiquita is taking a loss just to out-last those small producers and gain a monopoly, it is a Very Bad Thing (TM) and should be illegal under the WTO rules.

And Thorfinn, the notion of further trade restrictions to make up for past wrongs is simply what the nations agreed on as a proper punishment. The US wins a beef-hormone case, the EU refuses to relent, so the US gets to put tarrifs on Ducati motorcycles to make up for the difference. Ideally, Ducati and other local mfgr's will go to their government, and the government will face pressure from all sides to right the wrong (the tariff or restriction).

Quote:

Originally posted by wellard:

If you all think this makes me angry, don't get me started on the subsidies you give to your farmers :(

MR ANGRY from AUSTRALIA [img]tongue.gif[/img]

I can identify with this Wellard [img]smile.gif[/img] , but the US is not alone in subsidising their farmers, the EU does its' fair share as well if I recall.

Timber, have you read John McPhee's The Control of Nature? Chilling stuff. I drive over the Atchafalaya Spillway at least once ayear on my way to Florida or New Orleans, and If you are right, that will all one day be under water. But, not if the U.S. Army Corps of Engineers has its way.

[ 03-30-2003, 05:32 PM: Message edited by: Attalus ]

Looks pretty good, Attalus. I'll check it out. IMO, the inability to CONTROL nature does not stop us from building are modern marvels IN HARMONY with nature. I'm not saying don't build bridges, just that you can't stop the occassional flood. Boy, I'm starting to drag my own thread offtopic. :D

Oh, I understand that is what the nations agreed to as a suitable punishment, but considering who is actually harmed by these sanctions, applying the same logic to, say, child abuse, if your neighbor was abusing both your kid and his kid, then the judge hearing the case would rule that you should smack the kids around a while, too. That outghta show him...

[ 03-31-2003, 10:50 AM: Message edited by: Thorfinn ]

Quote:

Originally posted by Davros:
<blockquote>Quote:<hr />Originally posted by wellard:

If you all think this makes me angry, don't get me started on the subsidies you give to your farmers :(

MR ANGRY from AUSTRALIA [img]tongue.gif[/img]

I can identify with this Wellard [img]smile.gif[/img] , but the US is not alone in subsidising their farmers, the EU does its' fair share as well if I recall.[/QUOTE]'Fair share'?! I was under the impression that 70% of the EU budget was wasted on this. We've been trying to get rid of this waste of money for years now, but the French wont agree on any budget cuts (big surprise- most of it goes to French farmers). So now we just spend billions on food that gets thrown away anyway, because we can import it much cheaper from the Third World...

Thorfinn, you are correct to point out that the "Two Wrongs Make Right" system of punishment is certainly illogical at best.

Quote:

Dreamer128 wrote:
'Fair share'?! I was under the impression that 70% of the EU budget was wasted on this. We've been trying to get rid of this waste of money for years now, but the French wont agree on any budget cuts (big surprise- most of it goes to French farmers). So now we just spend billions on food that gets thrown away anyway, because we can import it much cheaper from the Third World...

Trust me, I love to grind this axe against US farmers, too. Especially since these days the majority of such benefits are enjoyed by BigAgribusiness(TM). Tax me to keep farmers afloat -- that's welfare, pure and simple.

[edit:] Let me temper this, however. Though it may not be smart trade-wise, keeping American farms functioning is smart from a national security standpoint. Just like we pay taxes to buy tanks, it is smart to keep enough farms operating that we can say "F-U" to other nations if we need to.

[ 03-31-2003, 01:18 PM: Message edited by: Timber Loftis ]

Hey TL...question...did the US sign on to the WTO/GATT with the understanding that there would be some measure taken to prohibit dumping?

And a followup question....so once a deal is signed, the US should stay with it forever? or can it ever decide to reverse its decision? Seems pretty unreasonable to expect a nation with a changing dynamic governing body to be bound in perpetuity by past administrations...are there not legal ways to extricate yourself from bad deals? Im just curious.

Quote:

Originally posted by Timber Loftis:
Especially since these days the majority of such benefits are enjoyed by BigAgribusiness(TM). Tax me to keep farmers afloat -- that's welfare, pure and simple.

And here i thought you liked our taxation system :D I agree that the government subsidies should be done away with...for all business, and the concurent lowering of taxes......

Of course, doing away with subsidies can disadvantage a free market system when it goes out to compete with government subsidized foreign interests...such as the french farmers or the japanese steel co's.

I'm not even convinced that dumping is all that big of a deal. If someone wants to sell things to me at below cost, and I need these things, I don't see the downside. Sure, some people end up being having to take vacations until the "dumping" stops, but they should be able to come right back in after the prices return to "normal", and the net result is that the US companies have never had to sell product at a loss, so can now undercut the companies who were "dumping". Remember, by definition, you cannot "dump" forever, and at some point, you will have to recoup your losses.

Seriously, if the Japanese people want to pay for a part of the structural steel that goes into my new home, why should my government tell them they cannot?

MagiK: I'll research anti-dumping in WTO/GATT and let you know. It's been four years since I studied that particular aspect, so I'm fuzzy.

Yes, we should be bound in these agreements, BTW, lest they have no meaning. The non-binding nature of the UN and the ICJ is what has neutered those institutions. Yes, administrations change, but that argument undercuts the constitution as well. A treaty results in the agreement of our Congress (which must ratify it) and the President, and subject to judiciary review. It simply is the will of our country, and we *should* be stuck with it.

As an example, for this reason, Bush ignoring most parts of the climate change treaties just because he didn't like Clinton's politics is simply illegal. (Note: while Kyoto was not ratified the Framework Convention was - Kyoto was just a sub-agreement. Plus, once signed, Kyoto created a duty in the president to push for its passage, by ratification, in Congress -- a committment Clinton and Bush have failed.) I know the issue of climate change is off-topic, but its an example that's fair.

I answered the farm subsidies issue by editing my previous post- there is a national security concern. Plus, your point on subsidies is well-taken. And, while the WTO restricts tarrifs and other trade barriers, it does not stop a nation from spending its money on what it wants. Nor could it likely do so- some nations are just structured that way. In Japan, for instance, the government make private loans to industries - direct subsidies.

Which is why Bush could have subsidized the steel industry but could not have banned/taxed foreign steel.

Quote:

Originally posted by Thorfinn:
I'm not even convinced that dumping is all that big of a deal. If someone wants to sell things to me at below cost, and I need these things, I don't see the downside. Sure, some people end up being having to take vacations until the "dumping" stops, but they should be able to come right back in after the prices return to "normal", and the net result is that the US companies have never had to sell product at a loss, so can now undercut the companies who were "dumping". Remember, by definition, you cannot "dump" forever, and at some point, you will have to recoup your losses.

Seriously, if the Japanese people want to pay for a part of the structural steel that goes into my new home, why should my government tell them they cannot?

Simple. Startup costs are much greater than maintaining an existing industry.

So basicly, what you are saying, is that any agreement entered into is permenent for all time no matter the damage it might do to you later....with no legal recourse?? I think it would be insane to enter into any kind of contract that binds you forever with no way out.

No, contracts/treaties between nations are not enforceable forever; in fact, one nation cannot force another nation to honor an agreement without military action. However, failure to live up to one's agreements does damage to one's reputation. Yes, administrations may change but the US Government is still the same Government that was instituted back in 1781 with the ratification of the Constitution; treaties into which previous administrations entered should be honored in order to ensure the perpetuity and the intrinsic honor of the Government. If you find that an agreement is faulty, then renegotiate before reneging; it may also be wise to have an "opt-out" clause written into the agreement...just in case. [img]graemlins/petard.gif[/img]

Quote:

Originally posted by MagiK:
So basicly, what you are saying, is that any agreement entered into is permenent for all time no matter the damage it might do to you later....with no legal recourse?? I think it would be insane to enter into any kind of contract that binds you forever with no way out.

There is no such thing as no way out in absolute terms. Look at our Constitution. There are ways out, secession. It carries a high price.

A governing agreement between nations is of no use without a high price for exiting the group. With WTO right now, the price is that you lose those free trade protections. WTO member nations have no obligation to refrain from placing tariffs on products of non-member nations. That price is not so high if, say, you are running into 400-500 billion dollars in WTO DSB (Dispute Settlement Body) rulings against you.

How can the UN enforce its mandates? Right now it can't. It's way too whimsical as far as leaving/disagreeing/disobeying the UN. SUre, leaving carries a high price - namely you dump about 400 treaties/sub-treaties that you signed. But, the ICJ for instance has VOLUNTARY jurisdiction. Compulsory jurisdiction to the ICJ MUST be a requirement if the UN or any other analog will work. Why create a court to govern member disputes when members can simply choose not to show up for trial and have no repurcussions for doing so?

Azred, my point is that you describe how treaties have worked since ancient Greece. That's just not good enough for trying to build true international systems for addressing specific, complicated international concerns such as humanitarianism, human rights, trade, communications, labor, and the environment.

Quote:

Originally posted by Timber Loftis:
Just like we pay taxes to buy tanks, it is smart to keep enough farms operating that we can say "F-U" to other nations if we need to.

Yes - it would be fair to say that one of your coalition partners is quite worried at the moment on this front. Australia has had long standing and mature grain markets with the Iraqii's. No government subsidies here to prop up business. The Iraqii market has been a prime source of income to our grain growers, and indeed many families are still owed upwards of 30 grand each for shipments that were sent back in 1991 and paid for back in 1991 (money was paid into a US account), with the money being seized and frozen by the UN/US in the Gulf War days. This money is still rotting in bank accounts in the US, and many farmers who are feeling the pinch are frustrated that not enough is being done in terms of them recieving due payment.

To many grain farmers in OZ the perfectly normal paranoia is that :
1) Those seized funds for trade payment of goods recieved (figure was upwards of $100m OZ) will never be seen, and now be diverted to the "let's rebuild Iraq" fund.
2) That same fund the money went into could be used by the US to let grain contracts after the war to subsidised US grain farmers and kill their best trade market.

Many Australian farmers see themselves going to the wall if those things happen - would be ironic if the grain payments rightly owed our farmers were used to pay the grain contracts of our competitors.

I may be a Chemical Engineer, but I come from an unsubsidised farming backgound, so I know how free trade nations are getting squeezed from both the US and EU sides.

Sadly, Davros, President Bush recently freed up all that frozen Iraqi money - to do exactly what you've contemplated. :(

Quote:

Originally posted by Timber Loftis:
Azred, my point is that you describe how treaties have worked since ancient Greece. That's just not good enough for trying to build true international systems for addressing specific, complicated international concerns such as humanitarianism, human rights, trade, communications, labor, and the environment.

I quite agree. The problem is not with the nature of agreements, though, rather that many nations will not want to willingly submit to the potential judgements of other nations. There are too many people governing too many nations who have a long memory and old wrongs are sometimes rather difficult to forget....
I fear that it will be a really long time before enough nations decide that righting wrongs is more important than maintaining complete autonomy at all times. Perhaps this is because paranoia is much more widespread among circles of national leaders than the general population. [img]graemlins/beigesmilewinkgrin.gif[/img]

I guess it depends on whether or not you believe you have the right to force all others to submit to your vision of "improved society". After all, the idea behind one world government is that everyone, with no exceptions, must go along with the dictates of the leaders.

Today, you have at least a few options. If you don't like the government under which you live, you can usually attempt to emigrate to a country more agreeable to your worldview. If we implement one world government before coming up with private spacecraft able to leave earth, the only way to opt out of being bossed about by others is cyanide.

Davros, US ag subsidies will not harm your markets one bit -- in fact they help you. You see, the US subsidies are paying farmers not to grow food. This decreases food on the market, which jacks up the prices. Despite all the negative press we get worldwide about farm supports, in truth, the US program, and to a limited extent, CAP, both actually force taxpayers in EU and US to subsidize your farmers.

This is all basic economics, but unfortunately, economics is not taught to any extent, and as a result, most people are poorly equipped to see through the propaganda.

(Sorry for two in a row, but my reply to Timber seemed just too different to lump into the same post. That, and I forgot. ;) )

Quote:

Thorfinn: Seriously, if the Japanese people want to pay for a part of the structural steel that goes into my new home, why should my government tell them they cannot?

Timber Loftis: Simple. Startup costs are much greater than maintaining an existing industry.

Exactly!

But in order to dump steel, you have to increase your production. If the Japanese did not build new mills, they cannot depress the world price -- they can just give some people better deals than other people. After all, what difference does it make to 3M's economic justification if its new building costs $100 million, while Exxon can build an identical structure for $80 million?

But in order to affect world supply and drive out the competition, the Japanese will have to build new mills, and supply more steel than the world needs. Otherwise, people will still be buying un-dumped steel. And as you already pointed out, building those plants will be much more expensive than maintaining the existing industry, and even if they do increase production enough to drive out all existing competition, they cannot raise the price much without making it cost-efffective to bring those mills back on-line.

From an economic point of view, the important figure is not the average price of a good, or the low price of a good, but the marginal price -- the price that the very last good sells for. It is that price that determines whether any given project goes forward, and that price that determines whether any given supplier is able to stay in business.

Seriously, if Japanese dumping were that bad, there would be plenty of venture capital to keep the US plants running at as low a level as possible to avoid mothballing costs, then once the Japanese mills go into bankruptcy from selling below cost, those same venture capitalists could buy up the Japanese mills.

Thorfinn, I see your points on Japanese dumping. I think, however, I have a further factor which may poke a hole in your theory: over-supply. IIRC, where structural steel is concerned, there is the capability among existing plants, in both Japan and the US, to make more steel than is demanded. Inland Steel, for instance, once employed 80,000 people on-site, but now operates at what would have once been considered a skeleton crew. So, there is no need for new mills.

I'll reply tomorrow. That shaking thing is just too annoying.

[EDIT]
Thought I'd pop back in and clarify. I have those Invisiline bifocals, so every time the screen shakes vertically, it puts the text at a different focal length, so my eyes have to refocus, and my eyes don't refocus as rapidly as they used to. About half the time, I am just able to read the screen about the time it bounces again.

So, see you tomorrow.
[/EDIT]

[ 04-01-2003, 10:50 AM: Message edited by: Thorfinn ]