Term Paper: Trade Act of 1974

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[. . .] The BBC reports that the "Japanese trade minister Takeo Hiranuma warned his country may retaliate with measures to protect its own steel industry. EU Trade Commissioner Pascal Lamy said late on Tuesday that it would be "a question of days" before the EU issued quotas on steel imports to prevent its own industry being damaged by steel redirected from U.S. markets." (BBC News, 2002)

The BBC is quick to address the argument by the U.S. that the "dumping of foreign steel on the U.S. market" has been the sole reason for the economic down turn. The European Unions says that their firms are just more efficient than American producers. The EU and Brazil threaten retaliatory tariffs of their own to protect their industry (BBC News, 2002). These measures are unsubstantiated as the export and import between Europe and Brazil is 5 times larger than that to the U.S., as mentioned earlier.

In addition the EU and Brazil have demanded compensation from the U.S. For lost imports. South [Korea will also lodge a formal complaint with the WTO this week though officials will hold further talks with the U.S., an official at the Ministry of Foreign Affairs and Trade said. Also according to the BBC, China is also preparing to launch its first WTO complaint since joining the global trade body late year, though a delegation will first travel to the U.S. For talks this week. U.S. ambassador Linnet Deily has warned his country's critics that calls for "immediate compensation backed by threats of unilateral trade retaliation" would be "deeply mistaken"(BBC News, 2002).] It would seem from the numbers that these countries need to check their numbers before levying sanctions.

The BBC also reports that the U.S. move has angered many of its trading partners, and the EU has already filed a formal complaint at the WTO, although that could take months to resolve. Some steel producing countries in developing countries, including South Africa, have negotiated broad exemptions from the U.S. tariffs, while Canada, Mexico, Israel and Jordan are exempt under free-trade deals. But steel producers in China, Brazil, Japan, South Korea, Norway, New Zealand, and Russia are expected to be hard hit by the U.S. tariffs (BBC News, 2002). Last week the OECD, the rich countries' think-tank, said that steel producers needed to cut more than 100 million tonnes of capacity worldwide to restore the industry to profitability. The trade war comes just a few months after world leaders pledged to co-operate in launching a new trade round at a meeting in Doha, in the Gulf Arab state of Qatar (BBC News, 2002). These claims about requests for exemption can be verified through the Report Submitted to the United States Congress. Pursuant to Section 203 (B) (1) of the Trade Act of 1974, as Amended. There have been many claims for exemption filed as reported by the BBC.

While the move may safeguard thousands of jobs within the U.S. steel industry, it will put pressure on non-U.S. firms to make further cutbacks. U.S. steel imports were worth about $8.6bn last year, making up 10% of world trade (World Steel 1999). The EU is afraid of a flood of surplus steel imports from countries such as Japan, which will no longer be able to compete in the U.S. (BBC News.2002). UK Prime Minister Blair warns President Bush that tariffs would be bad, not only for the world economy, but also for American consumers, who would be forced to pay more for steel products (BBC News.2002). In addition, the U.S. ambassador in Moscow was summoned to the Russian Foreign Ministry to be told that relations could be damaged if the tariffs were imposed. Russian Prime Minister Mikhail Kasyanov said the decision would have a "negative impact on Russia's steel industry," but said the move would not spark a trade war (BBC News.2002).

An Article be Arnold, 2002, calls steel the "the backbone of bridges, the skeleton of skyscrapers, the framework for automobiles" (Arnold, 2002). Its many uses include frames for eyeglasses, more durable frame in housing, and it's the high-tech alloy used in the Space Shuttle's solid fuel rocket motor cases; and it's the precise surgical instruments used in hospital operating rooms around the world. According to Arnold, "Some analysts are already speculating that the U.S. import curb will cause a surge in prices for steel, thereby increasing the cost of thousands of everyday items."

According to Walker the EU exports to the U.S. account for about five percent of European Union steel production. The EU is particularly concerned that Asian steel may be diverted to the European market (Walker, 2002). He also notes that many American steel using companies industries are opposed to the tariffs. The lobby group, Consuming Industries Trade Action Coalition, says the tariffs will cost more jobs in industries that use steel than they will save (Walker, 2002). They say that for example many car parts now made in the U.S. will be made abroad.

The steel producers reject this. The American Iron and Steel Institute says the effect on consumers prices will be minimal and there will be no meaningful employment costs for steel using industries.

Walker also addresses the issue as to whether the U.S. has been slow in their restructuring campaign and it is a legitimate slow-down. Walker and the U.S. Steel Industry seem to disagree on this issue. Th e U.S. Steel Industry says no. It claims to be the most efficient and least protected steel in the world. There have been 30 bankruptcies in the sector in the last five years or so. It blames the problem of excess global capacity in the steel industry on government subsidies abroad. The critics of the U.S. steel industry say it needs to bite the bullet and slim down. It is in trouble, they say, because its costs are too high They say that for example many car parts now made in the U.S. will be made abroad (Walker, 2002).

Walker criticizes the claim by the U.S. Steel industry that a flood of imports has been the cause for their dilemma. Walker says that this is strictly not so and points out that under the safeguard provisions of the WTO, there is no need to demonstrate unfairness. However, the U.S. industry does say that most of the imports that have done them so much damage are in breach of other WTO rules: they are either subsidized by foreign governments, or are dumped, that is sold in the U.S. For less than the price in the country of origin (Walker, 2002)..

The U.S. is blamed for targeting specific countries and that the U.S. has taken a number of actions against these problems which are directed against specific countries. But steel producers say that the unfair imports keep coming from other sources. So they wanted a global solution to protect them from all imports (Walker, 2002). The U.S. claims that this is strictly not so and that the import tariffs are aimed at reducing all foreign competition from the U.S. marketplace, and that it is only a temporary measure to give the U.S. steel industry time to recover. This is one area where their arguments become direct and accusatory on both sides.

History of the Steel Industry in the U.S.

In 1901, the financier JP Morgan paid $250m for the Carnegie Steel Company, making Andrew Carnegie one of the richest men in the world. Steel was at the heart of the confident American super-state that emerged at the beginning of the 20th century, forging its bridges, skyscrapers and railroads, and making massive fortunes in the process. Now, the industry that built America is in ruins. One-third of firms are on the verge of bankruptcy, and tariff barriers are needed to fight off competition from the likes of Kazakhstan and South Korea (Arnold, 2002).

The decline of the industry has been slow. Since the 1970s, it has been struggling to come to terms with over capacity, along with the rest of the world. A drop has occurred in the world demand, not just the demand of any one country. Total employment among major producers was 2.4 million in 1974; now, it is less than 900,000 (Arnold, 2002).

In Britain, a steel industry that once supported 200,000 jobs now employs fewer than 30,000. At first glance, the industry is merely suffering from the sort of ills affecting all manufacturing in developed countries, unbeatable cost competition from the burgeoning developing world (Arnold, 2002).

The situation from an Economist's Standpoint

The mismatch between supply and demand is exaggerated by the inability of producers and governments to do anything about it. In the U.S., the world's biggest market for and third-biggest producer of steel, companies and government have worked closely together since Mr. Carnegie's day. An industry that once was the symbol of the free-market dash, now relies on financial support and trade protection from… [END OF PREVIEW]

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