Bush threatens steel trade war

European steel industry leaders have accused George Bush of holding a gun to their heads to force them to reduce capacity.

Bush, who is in Gothenburg in Sweden today (Friday) for an EU summit, has threatened to impose quotas on imports to the US, in a bid to protect the struggling US steel industry.

The US President recently announced plans to negotiate with international trading partners on efforts to eliminate subsidies in the global steel industry, and to tackle world over-capacity.

But it is his threat to implement section 201, a US trade law allowing import tariffs to be introduced to provide ‘breathing room’ for struggling industries, that has angered European steel producers.

Ian Rodgers, policy director of UK Steel, said the threat was another example of US unilateralism. ‘Bush is using the threat of quotas as a gun held to people’s heads – not just to get them to the negotiating table, but to get them to make all the sacrifices.’

The world’s excess steel capacity should be tackled, he said, but Bush is wrong to argue that countries exporting steel are largely responsible for this over-capacity, and should shoulder the burden for reducing it. ‘Bush is not going about it in the right way. Some of the world’s most inefficient capacity is in the US.’

The US International Trade Commission is to launch a six-month investigation into the possibility of implementing section 201, which would give European steel producers the chance to present evidence. ‘We will put a very strong legal case to the ITC that the injury suffered by certain US firms is not the result of imports, but of their own inadequacies.’

Many in the industry fear the ITC will bow to pressure from the US Senate, where a number of senators are dependent on steel industry backing in their election campaigns. If the ITC recommends steel tariffs be imposed – and Bush agrees – they could be introduced early next year. ‘If quotas are imposed, the EU would lodge an immediate complaint with the World Trade Organisation. They would be against WTO rules,’ said Rodgers.

European steel makers are concerned they could lose out on sales to the US, and could be hit by a flood of cheap imports from Asia and Russia, which would otherwise have been exported to the US. The dispute is not expected to play a large part in discussions at this week’s Gothenburg summit, but could be raised with Bush during a debate on bilateral trade disputes.

Christian Mari, director of Eurofer, the European steel confederation, said the crisis in the US steel industry is one of its own making. ‘The US integrated steel sector has not restructured and consolidated in the past ten years, which is why their companies are in the doldrums, unable to make a profit.’

In recent years imports to Europe have grown at a much faster rate than those to the US. In the US imports reached a peak of 41.5m tons in 1998, and fell back to 35.7m tons 1999. In Europe, imports increased in 1998, 1999, and in 2000, said Mari, who is responsible for US relations at Eurofer. ‘We have borne more than our share of the problem.’

Netherlands a target

The European steel industry would support international talks on steps to reduce over-capacity in the industry, he said, but these must not be one-sided. ‘If everything were put on the table – in particular the subsidies given to the industry in the US – it would be a positive step. This is not a one-way street.’

Speculation that Corus could be badly hit by US import tariffs caused a slump in its share price last week. It dropped 9.25p to 62.5p following Bush’s threat, but has recovered slightly, up to 68p by close of trading on Tuesday.

Duncan Hobbs, senior consultant at metals consultancy CRU International, said there are fears the Anglo-Dutch firm could be a particular target as the Netherlands was the subject of a trade complaint filed last year in the US. ‘It could be that the administration is watching that country more closely than others.’

Section 201 – if it were introduced – would have a ‘domino’ effect on the world steel market, pushing down prices, he said. ‘Countries that had been exporting to the US would have to look for markets elsewhere, and that would put pressure on steel prices outside the US.’

Over-subsidised, over-capacity, over here

By Mark Payne

The announcement by George Bush that the US International Trade Commission is to examine whether imports are harming US steel mills has been viewed by the global steel sector as a final declaration of trade war.

European steel producers have for years been on the receiving end of law suits and lectures on over-capacity from the US industry, and now it looks as though the Bush administration could be moving towards imposing tariffs on their products.

Even though US producers have enjoyed what Andrew Sharkey, president of the American Steel Institute, described as ‘the world’s most vibrant steel market’ they have complained bitterly for years about cheap imports and resorted readily to ‘anti-dumping’ litigation.

US subsidies

Despite this, the US industry has so far managed to avoid the necessary rationalisation and consolidation which has (painfully) been undertaken elsewhere – particularly in the EU.

No matter either that, between 1993 and 2000, as the EU was able to trim its overall crude steel capacity by 2m tonnes per year, the US was busy piling on 19m tonnes per year of new capacity, much of it in the mini-mill sector which has frequently enjoyed the state and local subsidies which the US as a whole professes to abhor in other countries.

The US industry sees itself as one of the most efficient producers in the world and naturally wants to protect itself against its foreign, state-supported competitors, said Sharkey.

‘Steel producers have invested substantial sums and made considerable efforts in recent years to develop their business in the long-term interests of customers, shareholders and employees. It cannot be right that these efforts are damaged or put at risk by the dumping activities of a number of companies – often far less efficient – from regions of the world where the same criteria have not been applied,’ he said.

Anti free-trade policy

From a European perspective it seems that the US industry as whole, as well as many of its individual corporate members, has been a strident opponent of free international trade in steel products. Hence the culmination of this policy in President Bush’s announcement last week.

Just as the issues of missile defence and climate change are likely to prove a stumbling block in Bush’s discussions with EU leaders in Sweden today, so the possibility of tariffs on steel imports threatens to spark a bitter EU/US trade dispute.

There appears to be no meeting of minds on the global problem of over-capacity in steel production to which the US has contributed significantly. Consequently low prices have plagued the sector for some time.

Between 1997 and 2000 the EU suffered a 13m tonnes deterioration in its steel trade balance, shifting from being a net exporter to a net importer. Some of this deterioration has its origins in the measures adopted in the US since 1998 to repel steel imports by whatever means available. Substantial quantities of steel products from Asia, Eastern Europe and elsewhere in the world – which would normally have found customers in the US – were sold instead into western Europe.

While the ITC investigation may not necessarily lead to the imposition of quotas or tariffs on the imports of steel products to the US, its timing – just before Bush’s European visit is inauspicious, to put it mildly.

Many will see it as yet another sign of the Bush administration’s unwillingness to consider foreign countries’ views on international matters, which does not bode well for the EU.

Corus of discontent

It has been suggested by the European Commission that further protectionist measures for the US steel industry could not only restrict exports of steel products from the EU to the US but could also divert as much as 9m tonnes of shipments from third-party producers onto the European market each year.

And to put that figure into context, it equates to the combined annual crude steel output of Austria and the Netherlands, or nearly half the crude steel output of Corus in 2000 – three times the scale of the capacity cuts announced by that Group at the beginning of February.

Mark Payne is a writer on the steel industry and author of ‘World Steel – into the New Millennium’ published by Metal Bulletin Books.