Commentary

Don’t Meddle in the Steel Market

By Aaron Lukas
February 16, 1999

Predictably, the Commerce Department announced last week that Japanese and Brazilian companies had “dumped” steel at up to 71 percent below fair market value in the United States. Within a few days, Commerce had pressured Russia into agreeing to slash its steel exports to the United States by almost 70 percent. You’d think that those announcements would make U.S. steel companies happy. You would be wrong.

The steel industry and labor unions complain that existing antidumping laws aren’t enough — that the steel industry deserves special attention. The reality is that the industry has benefited unfairly from trade barriers for decades and continues to enjoy advantages that are not available to other U.S. industries facing import competition. The Commerce Department’s expediting of the antidumping process in the current case and the administration’s proposed tax breaks worth an estimated $300 million for steel companies are merely the latest examples of special treatment.

Meanwhile, precious little attention is being given to the fact that the array of new protectionist proposals now in the works will seriously threaten the ability of U.S. manufacturers to obtain imported steel. None of the proposed legislation would increase general economic welfare, and much of it would be in violation of U.S. international commitments.


Sensible members of Congress should ignore the industry’s demands and refuse to meddle in the steel market.


Here’s a guide to the most egregious legislative proposals that would benefit U.S. steel makers to the disadvantage of virtually everyone else:

The Stop Illegal Steel Trade Act, or SISTA (H.R. 506/S. 395), sponsored by Rep. Visclosky and Sen. Rockefeller. This bill would limit steel imports from all nations to 1997 levels on a monthly basis for a period of three years. Although SISTA says that the import limits could be accomplished by “quotas, tariff surcharges, or negotiated enforceable voluntary export restraint agreements, or otherwise,” it is in essence a quota bill that would set strict limits on the volume of foreign steel that U.S. companies would be allowed to purchase. SISTA is a clear violation of our international obligations under the General Agreement on Tariffs and Trade.

Quotas are one of the most damaging forms of trade restrictions. They redistribute wealth from consumers to domestic producers and to those foreign producers lucky enough to get quota rights, but they do not provide the U.S. government with any tariff revenues. In other words, SISTA would tax U.S. steel users to benefit major steel companies, both here and abroad. Moreover, SISTA would endanger the ability of U.S. steel-using industries to obtain the materials they need. According to calculations, based on 1998 levels of demand, by the Precision Metalforming Association, SISTA quota levels would leave U.S. manufacturers nearly 4 million tons short.

The Fair Steel Trade Act, or FASTA (H.R. 502), sponsored by Rep. Traficant. FASTA would impose a three-month ban on imports of steel and steel products from Japan, Russia, South Korea and Brazil, in shocking disregard of the needs of American consumers and steel-using industries. A trade ban — even a limited one — would seriously damage private business relationships and undermine the global competitiveness of dynamic U.S. companies. This bill would deprive the U.S. economy of all the gains from steel trade and offer only temporary benefits to domestic steel companies. It would, in short, be a disaster.

The Trade Fairness Act of 1999 (H.R. 412/S. 261), sponsored by Rep. Regula and Sen. Specter. This legislation would create a permit and monitoring program that would require all steel importers to register with the Commerce Department and report information on the cost, quantity, source and ultimate destination of all steel shipments. The bill authorizes Commerce to collect “reasonable fees and charges” to defray the costs of issuing permits.

More significant, the bill would amend the Trade Act of 1974 to make an injury finding easier under Section 201. No longer would imports have to be a “substantial cause” of serious injury (i.e., “not less than any other cause”). Instead, imports would only need to be a plausible cause of injury, however insignificant. Second, the bill would detail the factors to be considered when determining whether U.S. industry has suffered serious injury.

This misnamed Trade Fairness Act is the most subtle of all the current proposals, and thus the most dangerous. Its import-reporting regime, in addition to being an unfair burden that falls only on steel importers, has the potential to choke off beneficial steel trade through paperwork. The Section 201 amendments, however, are its most ominous provision. By making 201 cases much easier for petitioners to win, this bill threatens to open the floodgates of protectionism in the future. It is clearly a step in the wrong direction.

The Clinton administration is pursuing its own non-legislative approach, generally known as Voluntary Export Restraints, or VERs. The administration is attempting to jawbone foreign governments — especially Japan’s — into reducing steel exports “voluntarily.” Of course, a VER is in reality an informal quota that is hardly voluntary. Like all quotas, VERs distort the economy and harm the national welfare. For example, the VER on Japanese cars, which limited sales in the United States to 1.85 million cars per year during the early 1980s, had the effect of raising U.S. car prices by nearly $1,000 per car. That meant an additional profit of about $1.85 billion per year for Japanese car companies — paid for by American consumers through higher prices.

Steel companies and unions have spent big bucks trying to convince Congress and the public that the U.S. steel industry is in dire need of protection from imports. The raft of new protectionist legislation shows that some lawmakers have been listening. Sensible members of Congress, however, should ignore the industry’s demands and refuse to meddle in the steel market.

Aaron Lukas is an analyst at the Cato Institute’s Center for Trade Policy Studies.