Steel Trap: How Bush could harm free trade

This article appeared in National Review on July 9, 2001.

Since taking office, President Bush has repeatedly voiced strongsupport for free trade-often in stirring terms. In a May 7 speechbefore the Council of the Americas, for example, he declared: "Opentrade is not just an economic opportunity, it is a moralimperative." Yet not quite a month later, on June 5, the presidentannounced that he was initiating a "Section 201" investigation thatcould end up imposing comprehensive import quotas on foreign steel.Whatever happened to that moral imperative?

The sausage grinder of domestic trade politics, that's what. TheBush administration has mapped out an ambitious agenda of tradenegotiations: at the bilateral level, deals with Chile, Singapore,and others; at the regional level, a 34-nation Free Trade Area ofthe Americas; and at the global level, a new round of talks at theWorld Trade Organization. But to negotiate successfully at anylevel, the administration needs a grant of "trade promotionauthority"-TPA, formerly known as fast track-from Congress. Such agrant commits Congress to an up-or-down vote on trade agreements,thus assuring other countries that the deals they strike with theU.S. executive branch won't be rewritten by the legislativebranch.

Once granted more or less routinely, TPA in recent years hasbecome a kind of Sisyphean boulder. The last such grant expiredover seven years ago, and efforts to secure one failed in 1997 and1998. A third failure would more or less doom the Bush tradeagenda; indeed, it would call into serious question the wholefuture of America's postwar commitment to ongoing, negotiated tradeliberalization. Administration officials are thereforeunderstandably white-knuckled about a TPA vote that may happen assoon as this summer-and they are determined that no potential "yes"vote be left behind.

Which explains the apostasy on steel. In economic terms, theU.S. steel industry is a pipsqueak: It employs fewer than 200,000people in an economy with 140 million workers. But politically, itis a bruising heavyweight. In particular, the Congressional SteelCaucus-which boasts 100 members in the House and 33 in theSenate-is a ferocious advocate of steel-mill and steel-unioninterests. The administration needs many of those votes if TPA isto pass, and getting at least some of them will be easier if theWhite House gives the steel lobby what it wants.

And what it wants, plain and simple, is protectionism. In 1992,the first Bush administration allowed comprehensive steel quotas-inthe form of so-called "voluntary restraint agreements"-to expire.Ever since, the steel industry has been struggling to rebuild theprotectionist wall. Multiple barrages of antidumping andcountervailing-duty petitions have resulted in cripplingly highduties on specific products from specific countries, but to littleavail: Demand has shifted to other products, and third-countrysuppliers have rushed in to fill the vacuum. In 1999, in theaftermath of a flood of imports triggered by the Asian financialcrisis, the steel lobby pushed hard for import-quota legislation.The House passed it easily, but the Senate killed it-largelybecause of its egregious inconsistency with WTO rules.

Enter Section 201 of the U.S. trade law, a seldom-used provisionthat exploits a loophole in WTO free-trade disciplines. UnderSection 201, if the U.S. International Trade Commission finds thatincreased imports are causing "serious injury" to a domesticindustry, the president can impose temporary tradebarriers-including quotas-without violating WTO rules. NormallySection 201 investigations begin with an industry petition. Inthose cases, even if the protection-seeking industry convinces theITC, it can still come up empty if the president declines to grantrelief. By launching an investigation on its own authority, theWhite House has signaled that the president's finger is on thesteel-quota button. As soon as the ITC gives the go-ahead, thebutton will be pushed.

In explicitly endorsing steel protectionism, the Bushadministration has caved in where the Clinton White House heldfirm. President Clinton stood up to steel-industry pressure andrefused to self-initiate a Section 201 case-even when doing so inthe fall of 2000 could well have made a difference for Al Gore inWest Virginia or Ohio, and thus tipped the national election.

What will the administration get for this abandonment ofprinciple? Presumably, some extra votes for TPA that might nototherwise have been forthcoming. Such compromises are nothing newin U.S. trade policy: The path of U.S. postwar trade liberalizationis littered with squalid little interest-group payoffs that allowedthe larger process to move forward. In this particular case,though, the Bush administration could very well end up winning thebattle and losing the war. It may get its precious trade authority,only to find that it is unusable.

Trade politics, after all, is a two-level game: You have to winthe political contest against domestic opponents, but in a way thatdoesn't prevent you from winning trade deals with foreign partners.And globally, we are now facing an uphill struggle: Most countries'commitment to further trade-opening is lukewarm at best. Brazil,for a variety of reasons, would be all too happy to see hemispherictrade talks fall apart. The European Union is much more concernedabout defending farm subsidies at home than about opening marketsabroad; so is Japan. Under these conditions, there is littleprospect for large- scale trade initiatives unless the U.S.actively leads the way.

That would mean putting our money where our mouth is, andshowing a willingness to endure political pain on behalf of tradeliberalization. It is flatly inconceivable that hemispheric orglobal trade talks can succeed if our position is that othercountries should open their markets while all our major tradebarriers remain sacrosanct. In particular, it will be verydifficult to make real progress unless the Bush administrationfinds the stomach to take on the steel lobby. The Section 201 caseis a disturbingly clear signal that it won't.

And Section 201 is not the only problem. The antidumpinglaws-which purportedly target "unfair" practices like tradebarriers and subsidies-are routinely invoked to impose punishingduties on perfectly normal business practices; nearly half of U.S.antidumping cases involve the steel industry. Many countries haveand use such laws, but the U.S. implements them more aggressivelythan do the others; curtailing U.S. antidumping abuses hastherefore become a top priority for many of our trade partners.Brazil has insisted that antidumping be included in hemispherictalks; Chile has adopted a similar position in bilateralnegotiations; dozens of countries have pushed to includeantidumping on the WTO agenda. The choice facing the Bushadministration is increasingly stark: stand up to steel onantidumping, or watch one trade-opening opportunity after anotherslip away.

It's not too late to rescue the Bush trade agenda from the steeltrap it's stumbled into. Temporary protectionism under Section201-assuming the ITC approves it-could serve as the medicine thathelps the free- trade sugar go down. That sugar is movement on theantidumping question. Here's what needs to happen: First, anyimport quotas under Section 201 must be in lieu of-not in additionto-existing protectionism under antidumping and other "unfairtrade" laws. Next, the U.S. has to agree to changes in itsantidumping law that eliminate or at least substantially limit itspotential for abuse. That way, once the quotas expire, the U.S.steel market will be more open than it is today: a prospect thatcould do wonders for pushing through deals with our tradepartners.

A quotas-for-antidumping-reform tradeoff would also facilitateother elements of steel-policy reform here at home. The White Househas announced that, together with the Section 201 case, it will bepursuing negotiations to reduce subsidies and other anticompetitivepractices engaged in by foreign countries. This is a fine idea-butone that is absolutely doomed to failure unless the U.S. is willingto address the distortions caused by our own antidumping law. Theadministration also wants to condition Section 201 relief onrestructuring efforts by the steel industry; if the industry knowsit can't go back to the antidumping strategy once quotas expire, itwill have a powerful incentive to streamline itself.

At present, unfortunately, it doesn't appear that theadministration is willing to bite the antidumping bullet.Consequently, the moral imperative of open markets may have to makedo without much help from the United States.