The geopolitical tide appears to be turning against restrictive trade measures that have kept lower-priced steel out of the U.S. market for most of 2002. Trade commission rulings are being made on duty requests that will lead to lower domestic steel tags, and President Bush may even relegate his controversial steel tariffs to the scrap heap by mid-2003—after, as expected, the World Trade Organization (WTO) declares them illegal.

If a company exports a product at a price lower than it charges in its home market, it is said to be dumping the product. The U.S. steel industry has filed more dumping cases in recent years with the U.S. International Trade Commission (ITC) than other industry, winning more than 200 cases of illegally traded steel over the past decade. The industry also convinced Bush to enact 8-30% tariffs in early March on 13 million tons of imported steel. But, since implementation of the Section 201 tariffs, the trade panel has ruled consistently against the domestic industry and numerous mill products have been excluded from the tariffs.

Foreign steelmakers are hailing the latest rejection by the trade commission as evidence that the tide has turned against the domestic industry. "Nevertheless, a considerable number of products remain subject to prohibitive tariffs," says Pascal Lamy, trade commissioner for the 15-nation European Union (EU), the world's largest steel-producing region that accounts for a fifth of annual world output. "U.S. protectionism in steel has a cost, in terms of higher prices for domestic users and in terms of American credibility before the world trade body," he says. "We will pursue our complaint against the remaining prohibitive tariffs before the WTO."

The EU has been feuding with the U.S. over steel trade for years. "Over the past three decades, U.S. steel producers have been shielded from foreign competition by quotas, voluntary export restraints, minimum price undertakings, and hundreds of dumping, countervailing duties and other safeguard measures," says Dan Ikenso, trade policy analyst at the Cato Institute, a Washington think tank. "Yet, nothing positive has transpired in six months, and this should infuriate the administration."

Economists and trade experts have said for months the Section 201 tariffs were unjustified because domestic steel mills themselves import perhaps 25-30% of all steel that comes into U.S. ports and U.S. industry couldn't function without imports. "Atop that, U.S. steelmakers have hardly been mistreated, having received more than $17 billion in government subsidies in the last quarter century," notes the National Center for Policy Analysis in Washington.

A spokesman for the steel mills says their industry has been the victim of a smear campaign by foreign steelmakers and the steel buyers who profit from artificially low prices. Steel mills are upset especially that the ITC in August rejected a request for dumping duties on cold-rolled sheet. In effect, this 4-1 vote against extra tariffs gave steel-using companies a favorable trade decision that will, in time, reduce market prices on the key industrial raw material. This will be good news for buyers, says Ikenso, since the tariffs were followed by "supply shortages, significant price increases, contract reneging, intolerable harm to downstream industries, concern for exporters targeted for retaliation (and) compromised prospects for opening markets to U.S. products and services abroad."

In effect, the trade commissioners rejected the contention of the nation's largest steelmakers that foreign firms were dumping cold-rolled steel at below-market prices in the U.S. The ITC refused to impose extra duties that could have more than doubled the price of imported product. The vote also left the steel industry wondering how much trade protection it could expect in the future from the Bush administration. Some analysts suggest the White House isn't all that upset with the ITC vote because the tariffs were annoying some foreign nations important to the Bush administration's quixotic attempt to reduce global steel capacity by about 126 million metric tons by the end of 2005.

While the steel industry lost a handful of other dumping cases within the past year, the request for additional cold-rolled sheet tariffs was considered a critical case because it applied to higher-priced steel used to make automobiles, major appliances, machinery and electrical equipment. Though the August ruling affects only Australia, India, Japan, Sweden and Thailand, it is widely expected to mean another defeat in October when the trade panel is scheduled to decide the second part of that cold-rolled dumping case against 12 other countries—Argentina, Brazil, Belgium, France, Germany, South Korea, The Netherlands, New Zealand, Spain, South Africa, Taiwan, and Venezuela.

Led by U.S. Steeland Nucor, several steelmakers and the United Steelworkers of America labor union worked together to file the charges against the foreign steel-making countries. The 4-1 negative blow left U.S. steelmakers faced with trying to determine how to regain momentum that began in early March when Bush enacted the 201 tariffs. "We are bitterly disappointed and we don't know how to respond to it," says Robert S. Miller, chief executive of Bethlehem Steel. Nucor plans to appeal the ruling with the U.S. Court of International Trade in New York.

Independent steel analyst Charles A. Bradford in New York says, however, that "even when domestic steelmakers 'win' the initial rounds at the Commerce Dept. and the ITC, most of the trade cases have gotten overruled at the International Trade Court or at the World Trade Organization's various trade panels. Recently, a case was overturned in favor of the Japanese tinplate producers and, last year, the hot-rolled sheet case was thrown out. In fact, we understand that the U.S. has lost 15 out of 15 cases at the WTO."

More dumping cases are winding their way through the government process, the most significant on the horizon being against foreign producers of wire rod used to make wire products and machine parts. But, at this point, the industry likely will turn its focus to stemming further erosion of the March tariffs. Already, the Bush administration has granted exceptions on 727 specific steel products, and government trade officials are accepting further requests for exceptions. Also, Bush may cut short the three-year tariffs if the industry doesn't wisely use the reprieve to become strong enough to compete, without protection, with foreign steelmakers.

Through Commerce Secretary Don Evans, the president has requested plans on consolidating the fragmented industry—such as stronger companies buying weaker competitors and eliminating inefficient capacity. "Yet, there has been virtually no capacity reduction," suggests Ikenso at the Cato Institute. "Companies in bankruptcy are choosing to go back into production rather than liquidate. Start-up and production costs at outdated facilities are increasing, not cutting, costs. Plans for big mergers are no longer considered serious."

Note that U.S. Steel has signaled it would purchase National Steel, but only if the government were to absorb costs of benefits for that company's retirees. In the meantime, International Steel Group is arising from the ashes of LTV Steel. Steel Dynamics and Nucor have announced agreements to purchase smaller mills, although the amount of capacity they actually will eliminate isn't clear. In the bar market, a restructuring of Republic Steel Technologies is underway, but supply still exceeds demand. That's also true for the beam and plate markets, where new capacity has been added by mini-mills in recent months.

Almost immediately after the March tariffs were announced, foreign steel-producing countries began threatening a retaliatory trade war. So, dropping the tariffs may be a net political gain for Bush. The move is sure to bring howls from steelworkers and their congressional representatives in Ohio, West Virginia, Pennsylvania and elsewhere. But, the free traders that abhor trade restraints will cheer.

Steel consultant Bradford, notes that the only U.S. mills that have improved their competitiveness are mini-mills, and they're "the most competitive in the world anyhow."