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(02/02/2001 - Szamosszegi) Foreign Steel's Indignation At Byrd Amendment Rings Hollow

Foreign Steel's Indignation At Byrd Amendment Rings Hollow  
Andrew Szamosszegi
850 words
2 February 2001
ISSN: 0002-9998; Volume 109; Issue 23
Copyright 2001 Gale Group Inc. All rights reserved. COPYRIGHT 2001 Cahners Publishing Company

In the battle for trade hypocrisy, this one surely takes the cake: After handing their steel industries more than $5.4 billion in subsidies during the past six years, Japan, the European Union and seven other steel-producing countries recently filed a case with the World Trade Organization's dispute settlement body against a U.S. provision that could provide as little as $40 million to U.S. steel-makers. At issue is the so-called Byrd amendment, which allows Washington to distribute anti-dumping duties to domestic industries injured by dumping.

The complainants may prevail. The WTO's dispute settlement body ruled against the United States on a number of cases in 2000, including some dealing with anti-dumping and anti-subsidy measures. But the cost of winning this battle may be high. Given the post-Christmas bankruptcy filing of LTV Corp., the third-largest U.S. steelmaker with 18,000 employees, and the much higher levels of subsidies and protection in the filing countries, a decision against the United States risks- undercutting U.S. popular support for the WTO even further.

Among other things, the complainants allege that the Byrd amendment is an unfair subsidy. Press reports have it potentially transferring a total of $40 million to $200 million to the affected industries, although the amount could be much lower.

Anyone familiar with the international steel industry should be amused. Subsidies in steel are the rule, not the exception, and $40 million is chump change. In March 1999, three of Japan's largest steelmakers received lines of credit totaling more than $1 billion from the government-affiliated Japan Development Bank because commercial banks would not lend them any more money. The Japan Development Bank is now the largest lender to both NKK Corp. and Sumitomo Metal Industries. Japanese steelmakers also were heavy users of employment subsidies, government funds that enable manufacturers to maintain more workers than warranted by economic conditions.

In Europe during the 1990, steel subsidies were massive. In 1994 and 1995, EU subsidies, earmarked for the steel sector amounted to $2.2 billion and $1.5 billion, respectively, excluding aid for R&D and other objectives. Although steel-specific aid has declined dramatically in recent years, subsidies averaged $233 million annually from 1996 to 1998. European steel producers also benefit from aid to the coal industry, which reduces raw material costs, and handouts to the ship-building industry, a major steel user.

Cartels also distort steel markets in Europe and Japan. In Japan, an arrangement among the five major steelmakers kept their domestic market shares virtually unchanged from 1978 to 1999. In December 1999, the European Commission fined four Japanese and four European producers of steel pipe and tube for restricting competition "by requiring that the domestic markets of the different producers be respected." In November 2000, the commission raided Italian steelmakers on suspicion of colluding. Not surprisingly, there has been very little bilateral steel trade between the EU and Japan, even though the two are major steel exporters to other markets.

In addition to Japan and the EU, the list of complainants reads like a Who's Who of steel protection and promotion: Brazil, India, Indonesia, South Korea and Thailand have jumped on the bandwagon. The major steel producer in Korea was privatized only recently, and politically inspired lending to other steel producers was, a proximate cause of the bankruptcies that culminated in Korea's economic crisis in 1997. According to a report published by the U.S. Department of Commerce, high tariffs, captive, distribution channels and cartel-like behavior limit imports in Brazil. And Indian trade distortions include tariffs, import surcharges, investment promotion schemes and export subsidies.

Given these widespread distortions, indignation at the Byrd amendment certainly rings hollow. But even more empty-headed is the timing of the filing, coming as the U.S. economy clearly is slowing. Trade deficits are moot when the economy is strong, but they are rallying points when the economy is weak and unemployment is rising.

Indeed, through October the United States had a trade deficit of $140 billion with the nine complainants and $363 billion overall. Moreover, the U.S. steel industry currently is contracting, with a number of companies announcing plant closures and layoffs. If these conditions persist, the filing will be Exhibit A for the anti-WTO movement that spilled into the streets of Seattle last December. Opponents of globalization also will seize on the fact that three of the filers received U.S. financial assistance in overcoming the financial crisis of 1997-98.

Most discouraging, the case is futile, no matter I what its outcome. In the grand scheme of things, the Byrd amendment is small beer compared to the witches' brew of pervasive market distortions and global overcapacity that has engulfed the industry for decades. Even if Japan and company win this battle, they will not win the war. The industry's underlying problems will remain.

Andrew Szamosszegi is a Fellow at the Economic Strategy Institute, Washington, D.C.


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