Should the US Drop Steel Quotas? NO: Not with continued foreign dumping. [ cf. YES: They're unneeded and fuel inflation ]
PRESIDENT BUSH is the fourth president in recent history to be faced with the problem of how to enforce America's trade laws without banning steel imports from many of our allies in Europe and Latin America. President Nixon tried quotas. President Carter tried trigger prices. Neither worked. President Reagan instituted Voluntary Restraint Agreements in 1984, and they are working. In the absence of a negotiated end to massive foreign steel subsidies and dumping, the VRA program should be extended for another five years. VRAs are an effective way to cap the dumping of foreign subsidized steel on our market and prevent the liquidation of our domestic steel industry. They don't require a large bureaucracy, since foreign governments must police their own exports. Most important, they have allowed domestic steel producers to make a remarkable comeback from the brink of disaster. Today our steelmakers produce for consumers some of the highest-quality, lowest-priced steel in the world.Skip to next paragraph
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The world trade conditions that gave rise to the VRA program haven't changed one iota. Scores of countries including our European allies, Japan, South Korea, and Brazil still commit unfair trade practices, heavily subsidize their companies, and dump steel. The expansion of world steel production in recent years has led to a structural overcapacity in excess of 100 million tons. Foreign steel-producing nations fight back by rigorously restricting imports and ``cramming'' steel into export markets. Their system provides jobs, not profits, for their steelmakers, and those subsidized tons, or ``social tons'' as they are called, have to go somewhere.
Subsidized production is the only thing that allows many foreign steel producers to stay in business. In the 1980s, European steel producers alone received over $40 billion in government subsidies. Indonesia has recently put more than a half a billion dollars into its steel industry; New Zealand, two-thirds of a billion dollars; and Canada, three-quarters of a billion dollars. Italy plans to add another $5.8 billion into its state-owned steel group, an entity that has not broken even for over 15 years. Meanwhile, these countries maintain strict limits on the quantity of imports they will accept, making our 20 percent allowance appear generous.
Without VRAs to cap dumping, in the next recession subsidized steel imports to the United States would accelerate at an uncontrolled rate. With unrestrained dumping, our domestic steelmaking capacity would decline still further.
Of course, dumping is illegal, and Americans do have recourse to the courts. Without VRA extension, US steelmakers would once again file a barrage of winnable trade cases. But each of these would take an average of a year or more to sort through. During that time, our steelmakers would suffer heavy losses. Investment in US plant modernization, and in research and development, would again be chilled. Dependence on foreign steel would again grow substantially.
It doesn't make sense for us to unilaterally give up negotiated import limits in the face of continued foreign subsidization and dumping. Not only would we be risking the future of an industry vital to our industrial base, but we would lose a valuable bargaining chip in trade talks to end foreign trade-distorting practices in steel.
VRAs exemplify sound public policy. By assuring US manufacturers of a reliable supply of low-cost, high-quality steel we solidify our economic and industrial base and improve our ability to compete in international markets. Thoughtful steel customers recognize the benefits of maintaining a viable and internationally competitive steel-producing capacity. Most of steel's customers support the continuation of the VRA program. VRAs are the second-best solution to the thorny problem of foreign subsidies and dumping. Free and fair trade would be best. But as long as massive unfair trade practices continue, so should the VRAs.