Questions:

1. Which relationships (between the WTO, national governments, and business industries) would you characterize as cooperative and which were adversarial, and why?

2. What public policy inputs, goals, tools, and effects can be found in this discussion case?

*Look at the slides found in reference..

3. Why wasn't Bush's tariff proposal more effective? Did it achieve any of the effects he intended?

Case Analysis:

The U.S Steel Industry

Between 1997 and 2002, America's steel industry was under attack. Foreign companies had allegedly dumped large amounts of cheap steel into the American market, sending 35 companies into bankruptcy and costing 54,000 industry employees their jobs. Dumping is the practice where a product is exported to another country at a low price, sometimes below the cost of production.

Recognizing that the domestic steel industry faced a crisis that threatened its very existence, President Bush asked the U.S. International Trade Commission (ITC), an independent, bipartisan government agency, to investigate whether the U.S. steel industry had been injured by the unprecedented surge of foreign imports. After a seven-month analysis, the ITC made a unanimous determination that the industry had suffered serious injury as a result of the surge of imports and strongly encouraged President Bush to take significant steps to remedy this situation.

In 2002, President Bush proposed a 30 percent tariff, an import tax, on most steel sold in the United States by foreign companies for three years. The outcry in reaction to Bush's plan was immediate. From Beijing to London, governments threatened a serious international trade fight and retaliatory action. The European Union said the tariffs would cost European steelmakers as much as $2billion a year in lost trade. Russia computes its losses at $500 million annually. Officials in South Korea and Brazil also expressed their dismay at the proposed tariffs, but made it clear that they had little desire to pick a fight with the United States over this issue.

The European Union accounted for approximately 37 percent of all steel affected by tariffs, and thus the EU response was viewed as the most critical in determining if Bush's plan would succeed. Other significant steel exporters to the United States included South Korea, Russia, and Japan. Bush did not have to wait long for a response from the international community. Less than two months after Bush's tariff proclamation, the EU threatened retaliatory actions against $300 million of U.S. goods within two months as a political counterattack to impose additional costs on U.S. exports to the EU if Bush did not withdraw or seriously modify his tariff plan. The next day Japan joined the EU by announcing its intentions of slapping tariffs on some imports of U.S. steel. The Japanese action would be imposed the same day that the EU tariffs on U.S products took effect.

A few weeks later, President Bush began to back down from his aggressive plan. He excluded about 136,000 tons of annual steel imports from the tariffs, representing about 1 percent of the steel that would have been affected. Two months later the administration excluded an additional 178 products from the tariff proposal. The last exclusion was mainly aimed at reducing barriers to steel exports from the EU and Japan.

By the end of 2002, Bush's tariff proposal had been significantly watered down. Once the key to his 2000 presidential campaign, the tariff plan was designed to bring an end to international steel wars, provide time for U.S. steel manufacturer to modernize their plants, and give hope to thousands of unemployed steelworkers. Things did not turn out the way Bush had planned. By the end of the year, steel prices had risen more sharply than Bush and his advisors had anticipated. Lured by higher prices, steel mills around the world began to produce more than they had two years ago, worsening the global glut of steel. Brazil produced 36 percent more steel in July 2002 than a year earlier. Production in Russia, the EU, and Japan rose about 3 percent over this period.

Nonetheless, Bush's supporters maintained that the steel tariff plan, even the modest effort that was finally implemented, was necessary. "We live in a world that isn't always about living on a free-trade basis. It's about moving the process in the right direction. And I truly believe that this action [Bush's tariff proposal] has done that," said Grant Aldonas, undersecretary for international trade at the U.S. Commerce Department.

Bush's saga with the tariff proposal was not over. In early 2003, the World Trade Organization (WTO) determined that the United Stated had acted illegally when it raised tariffs on imported steel in 2002. The WTO said the U.S. decision to raise tariffs had been based on bogus information (that unfair prices were undercutting U.S. businesses and imperiling the nation's steel industry.) Rather than being flooded by cheap foreign steel, on the contrary, the United States had actually witnessed declining steel imports. Therefore, the consequent tariffs were illegal. The WTO authorized the European Union, Canada, and five other countries to impose nearly $150 million in trade sanctions on the U.S. in retaliation for Bush's steel tariffs.

Eventually, President Bush lifted all tariff restrictions on steel imports well before the protections were to expire, bowing to economic and political pressure from within and outside the United States. Critics of Bush's tariff plan argued that the critical blow occurred when the WTO fought back and confronted Bush by authorizing European and Asian nations to impose retaliatory tariffs against the United States, just 11 months before a presidential election. The Europeans went so far as pulling out an electoral map and proudly announced they would single out products made in states Bush most needed to win a second presidential term. Industry analysts claimed that the tariffs had hurt the U.S. manufacturing sector and cost more jobs than they saved. One of Bush's senior aides said, "Defiance had real costs. It was going to cost us exports and export jobs. It was going to cost us credibility around the world."

References: https://docs.google.com/document/d/1C81QbjH9xrEtBnoARW0BwlsUHNoenTVsHdpc1IbRxo8/edit?usp=sharing

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