The decision to begin the case

 

In the late 1990s the United States steel industry once again began to seek special protection. (The United States steel industry has a history of more than three decades of requesting various types of import protection.) Following what was perceived to be a surge of steel imports in 1998, the industry, the union, and the Steel Caucus in Congress made several efforts to persuade the Clinton Administration to self-initiate a Section 201 case to address the so-called import problem. But these efforts were successfully blocked.

 

From 2000, economic conditions have worsened. In the second half of 2000, the manufacturing sector of the United States economy began to suffer and United States demand for steel fell sharply. By 2001, several high-profile steel companies had begun to threaten or declare bankruptcy. With weak demand and substantial new domestic capacity, domestic steel prices were at record lows.

 

More importantly, the political dynamics changed and forces emerged that pushed for a congressionally initiated Section 201 case against steel imports. The White House announced in June 2001 that President Bush would request the Section 201 investigation.

 

The Commission injury investigation

 

The Commission began its injury investigation in July 2001. Under United States law, all Section 201 cases must include a factual investigation into whether the domestic industry is suffering serious injury, and whether increased imports are a substantial cause of that serious injury. But this particular case involved a number of unusual issues.

 

The first novel issue involved the scope of the investigation. The President's request included virtually all types of steel products. The Commission's first task was to figure out how to organize its product-by-product analysis. The union argued for a single like product: all steel. The domestic steel mills argued for four broad like products: flat-rolled carbon steel; long products; pipe and tube; and stainless and tool steel products. The foreign respondents argued that the Commission should follow its traditional like product categories from prior trade cases, and divide steel into a variety of specific products. For example, carbon flat-rolled steel would be divided into slab, plate, hot-rolled, cold-rolled, corrosion resistant, and other specific products. After some initial argumentation back and forth, the Commission decided to collect data for both narrowly defined and broadly defined like products, so that it could decide the issue later. Consequently, the Commission collected complete data for 33 different steel product categories. This meant, effectively, that the Commission's investigation consisted of 33 cases in one.

 

The second novel issue was the inclusion of slab in the investigation. There had been a fierce battle in the industry discussions with the Administration about whether to include iron ore, and whether to include slab. Both of these products, which are feedstock for the production of finished steel products, were imported by a small group of United States finished steel producers. In the end, the Administration decided not to include iron ore, but to include slab. This decision set the stage for a rare split among the domestic mills - a battle between those mills that imported slab to roll into downstream products, and those mills that primarily produced their own slab. The unique status of slab, as the one product imported in large quantities by the domestic mills themselves, continued throughout the case.

 

The third novel issue was the pace of the investigation. This case was enormously complicated, with more different products and more different issues than any other recent Section 201 case. The foreign respondents wanted more time to prepare their defence. But the domestic industry and its allies knew that a quick investigation would work to their advantage. So they generated strong pressure on the Commission not to extend the case. In the end, although the statute arguably allowed it to do so, the Commission decided not to extend the case, and instead pushed ahead on a normal schedule.

 

The fourth novel issue was the extent of economic argumentation. In light of the recent Appellate Body jurisprudence on the need to separate and distinguish the various causes of injury, respondents decided to make a major effort to document and quantify the alternative causes. They hired economic experts to prepare various statistical and econometric analyses. The domestic industry also hired economic experts. Much more than in any other Section 201 cases, there were extensive and detailed economic and econometric arguments about what truly was causing the difficulties of the domestic industry.

 

The fifth novel issue was the fact that many of the imported steel products - and virtually all the sensitive flat-rolled products were already subject to anti-dumping and countervailing duty (anti-subsidy) cases. It was rather unusual for the United States Government to seek an extra layer of protection when it was obvious that the anti-dumping and subsidy cases had already begun to restrain imports of steel.

 

In October 2001, the Commission found 'serious injury' caused by imports for most of the products covered by the President's request, including the large flat-rolled category. The details of what each Commissioner found varied, but the main elements of the decision were as follows:

 

- On like product, most Commissioners adopted a broad definition of flat-rolled steel - including both slab and the various finished flat-rolled products. For the other categories, the Commissioners tended to adopt narrower categories of like products.

- On serious injury, the Commission found most segments of the domestic industry to have been injured. Although the decision went through all the various statutory factors, the key element appears to have been financial losses. If the segment of the domestic industry had been suffering negative operating losses, the Commission found serious injury. The only segments for which the Commission did not find serious injury were those with positive operating income.

- On increased imports, the Commission generally found this requirement to have been met. In its finding, the Commission followed United States law, which allows an increase of any size to meet the statutory requirement. Thus, as long as the absolute level of imports was higher in 2000 than in 1996, the Commission found an increase.

- On causation, the Commission generally found that imports were the most important cause.

 

The Commission therefore made affirmative injury findings for about half of the different like products, but those findings covered about 70% of the steel being imported into the United States. None of the commercially significant products escaped.

 

The Commission remedy investigation

 

The Commission then turned to its remedy investigation. Under United States law, if the Commission finds serious injury in the initial phase, it then begins a separate proceeding to prepare recommendations to the President about what remedy to impose.

 

At this stage, more end-users became involved. Typically end-users are slow to organize, and this case was no exception. Although there was some end-user participation in the injury phase, in general users were reluctant to become involved.

 

The domestic industry argued generally for 40% tariffs. The industry goal was to shut as much imported steel out of the market as possible. Such high tariffs, on top of other anti-dumping and countervailing duties already in place, would largely block imports from the market. The domestic industry theme was consistently that only strong measures would give the United States industry the 'time out' necessary to restructure and recover.

 

The foreign industries argued for either no restrictions or more modest restrictions. The Europeans most strenuously argued for no restrictions at all. Other major steel exporting countries, such as Brazil, Japan and the Republic of Korea, argued for no restrictions, but then also argued in the alternative for less restrictive alternatives such as quotas or tariff rate quotas at historical levels. Rather than blocking imports completely, such quantitative limits would allow some imports to continue in the market, but would prevent any future surges from injuring the industry.

 

The problem with the foreign industry argument, however, was that import levels had already fallen dramatically. The various unfair trade cases had largely shut out many steel products, so 2001 import levels were already considerably lower than import levels in 2000 or prior years. The various quota recommendations would therefore not be binding: any reasonable approach to historical import volumes would set the quota level higher than current import levels. This approach to remedy, while economically sensible, would be politically unacceptable, since it did not provide for any further roll-back of import volumes.

 

In the end, the majority of the Commission recommended 20% tariffs on most products. The individual Commissioners split. One Commissioner opted for tariff rate quotas. Two Commissioners agreed with the domestic industry demand for 40% tariffs. But the three remaining Commissioners agreed on 20% tariffs on flat-rolled steel, and somewhat lower tariffs on some other products. Interestingly, slab was treated differently. Although slab had been considered part of the single flat-rolled like product in the injury determination, the Commission recognized that slab was different from other finished flat-rolled products. So the remedy recommendation was for a tariff rate quota, with the 20% tariff applying only after a certain tonnage had been imported.

 

The Commission then released its written report. Under United States practice, the Commission does not describe in detail its injury findings or remedy recommendations until after both phases are finished. The three-volume report contains 560 pages of determinations by the various Commissioners on the various products and issues, and an equivalent amount of tables and data from the staff.

 

The USTR remedy phase

 

The proceedings then turned to the USTR remedy phase. Under United States law, the Commission recommends some form of relief on the products for which it makes affirmative injury findings, but the President then has discretion to make whatever decision he would like. Given this flexibility, the President typically has his own staff conduct its own investigation to collect information, study the markets, and assess how different constituencies feel about the proposed actions.

 

Both sides held repeated meetings with USTR officials and representatives of the interagency committee that helps to advise the President (known as the Trade Policy Staff Committee or TPSC). Many agencies in the United States Government weigh in on such trade policy issues, and working level officials from each of these agencies were given the chance to attend hearings at which interested parties made presentations. Beyond these formal meetings, both sides also had repeated informal meetings with various agency officials. All of this reflected normal practice for high-profile, politically contentious safeguard investigations.

 

At this stage, the efforts to obtain targeted product exclusions intensified. Although the Commission has been reluctant to address the exclusion issues directly, the USTR process focused very much on exclusions. USTR invited formal applications for exclusions, and made the arguments for and against exclusions a major part of this stage of the proceedings.

 

The President's decision

 

After all the 'legal proceedings' had finished, President Bush had to make a decision. The Commission process and the USTR process had generated lots of data and set up various options, but the President had to decide. Under the law it was up to him whether to accept the Commission recommendation, reject it completely and impose no remedy, or devise his own remedy.

 

The economic advisers recommended that the President take no action. The various economic arguments were quite strong that although the domestic industry was suffering, the role of imports in causing those difficulties was limited at best. Moreover, the economic advisers were concerned about two other major issues. First, import protection probably would impose more harm on downstream user industries than it would benefit the domestic steel industry. Second, such a blatant act of protectionism would send the wrong signal to trading partners. At a time when the United States was trying to lead countries to liberalize trade as part of the Doha Round, imposing protection for the steel industry would trigger backsliding by other countries.

 

The political advisers, however, recommended strong action to restrict imports. Steel workers were concentrated in politically key states, and were very active. Although the number of steel workers had shrunk, there were many more retirees and dependents who relied on the flow of retirement and health care benefits provided by the steel mills. The domestic steel industry had commissioned many polls and analyses of the political impact of protecting the steel industry, and argued this point forcefully.

 

President Bush decided to impose 30% tariffs on most steel products. Some smaller volume products received lower tariff rates, but the large quantity flat-rolled carbon steel products were subject to a uniform 30% tariff. (Slab was the only exception, and was subjected to a tariff rate quota, with a 30% duty on the amount in excess of the quota.) This decision was surprising, in that the President adopted more severe import restrictions than recommended by the majority of the Commission.

 

President Bush moderated the decision in two ways. First, he excluded developing countries from the restrictions. Second, he also excluded certain specific products from the scope of the remedy, and announced that future exclusions might be forthcoming. Although a lot of effort had gone into the exclusions process, the sheer number of exclusions clogged the system, and only a fraction of them were acted upon in the initial decision. But by opening the door to future exclusions, the Administration kept its political options open and maintained some influence over how the process would unfold.

 

Foreign reactions

 

The initial reaction was largely shock at both the decision and the nature of the remedy. The number of products restricted and the magnitude of the restrictions surprised many.

 

As the details emerged, many countries expressed dissatisfaction with the process and the outcome. In their view the process had made clear that imports were not really the problem. Indeed, import levels had been falling since 1998, not increasing.

 

What is evident from reviewing the President's decision is that the burden of the safeguard measures was not spread equally among suppliers to the United States market. Much of the burden was imposed on suppliers in the Republic of Korea, Japan, and the European Union. For example, in carbon steel flat products (a category which includes slab, plate, hot-rolled flat products, cold-rolled flat products, and corrosion-resistant flat products), of the five largest traditional suppliers to the United States market only the Republic of Korea and Japan were significantly affected by the import relief. Canada and Mexico, both countries which shipped high volumes of flat products in every year from 1996 to 2000, were completely excluded from the relief. This differential treatment was compounded by the developing country exclusions extended by the United States. Looking at carbon and alloy flat-rolled steel, for example, in absolute volume, the increase from excluded developing countries over 1996-2000 was eight times the increase from countries subject to the relief.

 

Foreign countries responded in several ways. First, many countries began to impose their own restrictions on steel imports. Citing the likely shift of export volumes to their own markets, many countries imposed various forms of monitoring and steel restrictions of their own.

 

Second, many countries also decided to challenge the United States actions in WTO. The EU filed the first case (DS248), and was quickly followed by Japan (DS249), the Republic of Korea (DS251), China (DS252), Switzerland (DS253), Norway (DS254), New Zealand (DS258), and Brazil (DS259). These cases moved forward in a single consolidated panel before finally coming before the Appellate Body. The outcome of dispute settlement was favourable to the complaining parties. A Panel found the United States in violation of its obligations under the Safeguards Agreement on several counts, though these findings were scaled back by the Appellate Body, which found three principal errors:

 

- The United States failed to provide a reasoned and adequate explanation demonstrating that 'unforeseen developments' had resulted in increased imports causing serious injury.

- The United States failed to provide a reasoned and adequate explanation of how the facts supported a finding of increased imports with respect to certain carbon steel flat-rolled products, stainless steel rod and hot-rolled bar.

- The United States failed to adhere to the principle of 'parallelism' by failing to match the scope of the products found to have met the conditions of a safeguard measure with the scope of the products for which a measure was imposed.

 

Unfortunately, the Appellate Body refused to examine other Panel findings that found the United States had not satisfied the causation requirement, which included a subsidiary finding regarding its failure to properly define the appropriate 'like product'. Thus, the United States approach of collapsing various products into one super-generic classification was never fully considered.

 

One final point worth mentioning is that shortly after the United States imposed its steel measures, the EU and Japan began to explore the feasibility of immediate compensation for the damage their industries had suffered. Under Article 8.3 of the Safeguards Agreement, Members agree to suspend for three years their right to compensation for safeguard actions taken by another Member, but only if the Member imposing safeguards has followed the Safeguards Agreement, and only if there has been an absolute increase in import levels. The EU and Japan contended that the United States did not act in conformity with the Agreement, including the increased imports requirements, and therefore took procedural steps to assert their right to immediate compensation. The United States insisted that it found absolute increases and was otherwise in compliance with the Agreement, and argued that the EU and Japan had to wait for the WTO dispute settlement process to unfold before acting.

 

In the end the United States decided to exclude enough EU and Japanese products from the scope of the Section 201 remedy that both the EU and Japan decided not to push this issue. Both the EU and Japan decided not to push ahead with their demands for immediate compensation, and decided instead to wait for the WTO process to run its normal course. Clarification of the meaning of Article 8.3 will have to wait for a future case.

 

Termination

 

Confronted with an unfavourable Appellate Body finding, but also a dramatically altered landscape with respect to the United States steel market, on 4 December 2003 President Bush signed a proclamation that terminated the steel remedy. In his proclamation, the President found changed economic circumstances warranting the termination. In taking the action, the President avoided any consideration under United States law of whether and how the Commission could make its determination consistent with the Appellate Body findings, or whether a more substantive change to the law was required.

 

Source: Business Guide to Trade Remedies in the United States: Anti-dumping, countervailing and safeguards legislation practices and procedures