USTR Briefing on Steel (Text Only)

USTR Briefing on Steel
Press Briefing by U.S. Trade Representative Robert Zoellick
The James S. Brady Briefing Room

MS. BUCHAN: Good afternoon. Welcome to our briefing. This will be on the record, on camera, with Ambassador Robert Zoellick, the United States Trade Representative.

AMBASSADOR ZOELLICK: Good afternoon. Over the past year, President Bush has been regaining America's momentum for free trade. In November, at Doha in Qatar, we were able to launch a new round of global trade negotiations, reversing the failure in Seattle in 1999. Earlier in the year, at Quebec City, the President was able to give a push to the free trade area of the Americas, and agree with the leaders of 34 other democracies about trying to complete that by the year 2005. And we also completed a free trade agreement with Jordan, got it through the Congress; and also a basic trade agreement with Vietnam.

After a 15-year effort, we were able to bring China and Taiwan into the WTO. We've been using a new piece of legislation called the African Growth and Opportunity Act to boost trade in Africa. And on the congressional front, we were delighted that we were able to get the President's trade promotion authority through the House of Representatives and the Senate Finance Committee by a vote of 18-3. And we hope for Senate action on that trade promotion authority in the near future.

So the President believes that free trade benefits America's consumers and families, and that it's vital to generating jobs for America's workers, opening markets for American products and services, and in spurring economic growth.

But the President also recognizes that some industries, workers and communities can't respond as quickly as one might wish to the changes of a fast-moving global economy. We all know that financial and information markets move with lightening speed. But some traditional manufacturing industries and the communities that depend on them cannot. Some may need a breathing space to regain competitiveness. And this includes the steel industry.

The global steel industry has been rife with government intervention, subsidies and protection. These unfair practices have hurt the U.S. steel industry because our market has been much more open than others. The Organization for Economic and Community Development, the OECD, a government body, in 1999 produced some measures of openness -- what they call import penetration -- for the steel industry. And the United States figure was 30 percent, with the European Union was 16 percent, and Japan 9 percent.

In the Financial Times today, you might have seen there is a report about the fact that the United States was one of the largest net steel importers in the world last year, with 23.5 million tons. And, for example, the EU and Japan, even though they're no more productive, are exporters.

So the President is committed to using U.S. laws and the international trade rules to the fullest extent possible to help American industries under stress to make sure that they have the opportunity to restructure and compete. The international trade rules of the World Trade Organization recognize that sometimes imports, whether fairly or unfairly traded, can cause such harm to domestic industries that temporary restraints are warranted. And these rules include safeguard provisions for industries that have had substantial injury from imports.

Other countries, for example Japan, Korea, India, the European Union, Brazil have also used safeguards and there are about 21 of these in effect in the world today.

In June, the President launched discussions with our trading partners to try to reduce global capacity for steel and to try to address these unfair practices that plagued the steel industry throughout the world, and we're starting to make some progress. He also asked the International Trade Commission, an independent agency, to review whether the U.S. steel industry had suffered substantial injury from imports in recent years. They came back with a unanimous decision. All six said that the U.S. steel industry had been suffering substantial injury from imports, although they disagreed on the nature of the remedies.

In general, about three of the six recommended tariffs of about 20 percent or less, depending on the product. One of the members recommended large quotas to deal with future import surges. And two of the commissioners recommended tariffs up to 35 or 40 percent.

The steel industry, as this ITC report noted, faces some very harsh facts. At the end of the year, prices for steel in the United States were at 20-year lows, and about 30 percent of the industry, by capacity, was in bankruptcy. Losses have been piling up, whether for the traditional integrated producers or for the newer mini-mill manufacturers.

So, therefore, today the President announced a comprehensive three-year plan to help the American steel industry and its workers get back on their feet. First, the President is imposing tariff safeguards of 30 percent on major steel products. These safeguards are generally stronger than those recommended by most of the ITC commissioners and will extend for three years. At the same time, they're designed to meet some of the particular concerns that were voiced to us by steel users.

Second, this relief will be buttressed by an import licensing and monitoring system to assure that the remedy fits with market trends. And, third, this remedy will exclude America's four partners in free trade agreements, and most poorer, developing countries which export limited amounts of steel to the United States. Yet these exclusions will be monitored to ensure consistency with our goals for the recovery of the U.S. steel industry.

Now, this safeguard remedy gives American steel industry some temporary relief from years of import surges and unfair trading practices that have hurt its ability to compete and to prosper. Yet this safeguard only offers an opportunity that the steel industry and its workers will need to seize. They need to use this breathing space to restructure and to regain competitiveness. We'll also monitor and review how the industry uses this period of adjustment to restructure and improve productivity. And we can adjust the safeguards, if conditions warrant.

In conclusion, the American steel industry faces a turning point. We believe the actions that the President is taking today can help restore the strength and profitability of this very important American industry. The President has listened to the frustrations and the anxieties of steel workers and their families. He is offering help. Now it's the responsibility of the steel industry -- owners, management, workers, communities -- to use this breathing space to construct a new future.

Q What's this going to mean for American consumers? Will they be paying more for autos and houses and appliances? And how much?

AMBASSADOR ZOELLICK: There are as many analyses as you can count of people in terms of the effect of this. But I think the starting point is the fact that I mentioned about steel prices being at a 20-year low. So it's our belief that this will give the opportunity for the U.S. steel industry to get back on its feet, because it's had to struggle with the situation where you have large-scale bankruptcies, but without any significant effect on the economic recovery and growth.

Q What does this do for your office, in terms of your credibility, vis-a-vis free trade and seeking trade promotion authority? Are you, and is the President going to have to do more to convince potential trading partners that the U.S. is a free trader and not a protectionist?

AMBASSADOR ZOELLICK: Well, I think it's important to look at the steel safeguard as part of an overall portfolio of actions. And if you take the first signal that we're sending today, I think it will send a good signal for any country that has a free trade agreement with the United States, because, as you can see, they're excluded from this. So Canada, Mexico, Israel and Jordan are outside it.

But in order to promote free trade, the United States has to manage the homefront and the international front. And on the homefront, the only way that we can continue to get support for the American people for open markets in trade is to use our domestic laws and our international laws to the fullest.

Now, what we're talking about today -- and people have used different terms for it -- is a safeguard action. And as I noted in my opening comments, this is an action that is permitted under the World Trade Organization rules; it's under Section 201 of our domestic law. There's 21 of these around the world. And it's a temporary process to give this industry a chance to get back on its feet.

The President believes very strongly that if we're going to have an open, dynamic marketplace -- and we have to have that to be able to compete -- we also should be willing to help those that need a breathing space to come back. Now, in terms of the rest of the international community, it's important to keep in mind that this element is combined with two others -- the President has also said that the problems of the steel industry are obviously more than those of the U.S. industry.

We've got a problem of a fragmented global industry with over-capacity. And that's why, as you've probably seen, we, working with the Department of Commerce, have gone to a series of meetings; we brought together some 40 countries to try to reduce the global capacity. And we've talked about reductions of about 117 million, 120 million tons out of global production over the future years.

The third element of this is obviously to get these unfair practices. And anybody who has looked at anything over economic history has a strong sense that the steel industry is probably the worst example of government intervention around the world, and we've got to be able to try to address those practices, whether they're subsidies in countries, or hidden barriers. And that's also what we're going to try to do in the Doha agenda.

So this, in my view, is both a strong message to the rest of the world that the United States is willing to work with others, but we're also going to take care of our people and give them a chance to compete.

Q For the most part, yes. You mentioned the fact that this allows some breathing room to the steel companies. Many of them, as well as people in the industry, have talked about the need to deal with the legacy costs for steel workers. And I know there is some resistance in the administration doing something specifically for steel, but is there a new proposal the administration will make to deal with the problems of workers displaced by foreign competition? Something new as a result of this effort?

AMBASSADOR ZOELLICK: It's a good question. The first and most important aspect of this is to try to help people keep their jobs, because that's the best way to have a pension plan and a health plan and to take care of your family and your community. So we hope that this breathing space will help steel workers and their communities have a chance to make it.

Second, as you probably know, the steel industry was somewhat divided on this question of legacy costs. Some of the large, integrated producers wanted the government to pick up some $13 billion. The mini-mills, who have had a different set of labor contracts, didn't want that.

What I was struck by was in the meeting that the President had with members of the steel caucus last week, Democrats and Republicans, everyone who spoke about this topic said, Mr. President, you should focus on the safeguard action and let Congress deal with this question of legacy costs, recognizing that there are a variety of views.

As a general matter, the administration believes very strongly that you do have to help workers adjust. And frankly, this is one of the reasons why the President is so strong about education, because the start of helping adjust is making sure that you have kids that go to good schools all throughout America, and they have the ability to learn and to be able to learn throughout their lives.

But more than that, what we will be working with the Congress on -- and, in fact, some of this will go on this month -- is something called a trade adjustment assistance plan. Senator Daschle has said that he wants to move the trade promotional authority that passed the House, and we certainly urge him to do so. And in that context, he wants to take on this trade adjustment assistance issue.

And I just spoke to him today and talked to him about how we want to try to work with him to try to do so. Some of the issues that are involved with that are extending benefits, covering more workers, trying to make sure that people can -- some ideas about getting people back into jobs more quickly.

But there are other pieces that -- some are already in place. For example, for a lot of workers in the steel and other industries, their concern is pensions. And as you probably know, the Pension Benefit Guarantee Corporation, fortunately, is well- funded; it has about $10 billion of assets. And for most workers, the average protection -- or their benefit for workers who are vested would be about 93 percent of their pension, if for some reason their company does go bankrupt.

Obviously you then have Medicare. But for workers who don't qualify for Medicare, the issue is, what do you do about their health insurance? And dating back to the campaign, the President had proposed something that is valuable for workers in the steel industry, or any other, which is a refundable tax credit, so as to allow people to be able to buy health insurance.

So those are important components. The message we got from Congress was to focus on the safeguards. And I think some of those will be pushed forward in the larger context of the Trade Adjustment Assistance and other trade issues. As a general matter, we believe that shouldn't just be focused on workers in the steel industry, because there's lots of people who are going through adjustment.

Q Bob, last month when you were here briefing us on another trade issue, you said, tariffs are nothing more than taxes that hurt low and moderate income people, who pay a lot for goods, in that case, we import from Africa -- whether it be clothes, or shoes, or food. Just before, you told us that the increases that would occur from these tariff increases, which economists are saying are in the sort of 6 to 8 percent range, by the time the steel is done, wouldn't have a significant effect on economic recovery. Can you tell us what the effect of consumers would be? On the one hand, you've been arguing in the past against tariffs like this.

AMBASSADOR ZOELLICK: Well, the most astounding point is, I don't remember being here last month. Are you sure? But taking your word for it, and recognizing my travel schedule is putting me in places I don't recall -- look, David, this is a safeguard action. And the key distinction is it's a temporary nature, to try to give steel companies and steelworkers a chance to get back on their feet.

Now, the nature of the relief -- and I think this is a key distinction -- is focused on foreigners, not Americans. And so this does not affect the ability of the American companies and consumers. So the safeguards are applied, obviously, to exports to the United States, not American production.

Now, as for the question of prices -- I think in reality, it's hard to predict what the prices will be. You start out with the fact that there are 20-year lows. You know, this will -- it will partly depend on what the production decisions are by U.S. firms.

We will continue to have imports, not only from our NAFTA partners, but under this as -- if we get into some of the details -- there are some provisions for obviously the developing countries. There is something called the Tariff Rate Quota which allows certain semi-finished product in without a tariff. And then, ultimately, it depends on the demand side. And while I hope the economy is in the process of recovering, that is also going to affect prices.

The best thing I can do is to tell you to go look at futures markets or the prices that people are having. And what you start to see there is that, from these 20-year lows, you're starting to get price increases of maybe 4 or 5 percent and those might go up over time. But guessing prices is not my business.

Q How concerned are you about the reaction from some U.S. allies in Europe and even Japan, some considering lawsuits, even some retaliatory tariffs of their own?

AMBASSADOR ZOELLICK: Right. Well, the key is we've tried to do this according not only to our domestic law, but under the WTO rules. That's why I noticed, in some of the coverage of this, not surprisingly, people aren't up on all the minutiae of the WTO rules. These are provisions that are created under WTO, World Trade Organization agreements, for this exact reason, to allow temporary safeguards for an industry to get back on its feet. And, as I emphasized, there are 21 of these in place around the world with a number of other countries. So I have no doubt that there will be some challenges by our partners about whether we applied the rules totally correctly, and we'll discuss those in the WTO.

I will say that the nature of this remedy -- and I've talked with some of my colleagues around the world today -- obviously, our free trade partners are very pleased with it; a number of the developing world countries are very, very pleased with it. So some of the countries that will be more troubled by it will be, for example, the European Union. But as I've said to my good friend, Commissioner Lame, of the European Union, they don't really approach the issue of steel with clean hands. And the starting point of that is -- my recollection is when they started the European Union, they called it the Coal and Steel Community, which revealed the whole political nature of the steel industry.

In the course of the '70s and '80s and '90s, as they started to restructure their industry, they put $50 billion into it. So when you talk about subsidies, that's a pretty striking case. And from about 1978 to '92, they had voluntary restraint agreements. And so, I might add, did the United States during the Reagan administration and in President Bush's father's administration.

So their industry, frankly, not only used various types of safeguards at earlier points, but they're still using it. So they have various restrictions through anti-dumping orders and other issues, for example, dealing with Russia and Ukraine and others.

So, in some ways, the most telling question of the European approach is -- Commissioner Lame said, look, if you guys put on safeguards, we'll have to put on safeguards. And what that, frankly, suggests to me is we have a relatively open market. Theirs has been less open. If there is less steel coming to the United States, it might go to Europe and then they don't necessarily want to face it.

So what we're trying to do in this is take advantage of the U.S. law, the international rules, to give our guys a chance to compete. And I know there's a lot of talk about, well, free traders' perspective on this. I've been -- as probably many of you know -- as free trade as they come. And if you look at the steel industry, this is a worldwide industry that has just been rife with these subsidies and unfair practices. So I think what we've come up with since last year has been the right approach at this. Try to get at the unfair practices, try to get at the problem of overcapacity.

I mean, China has devoted another $6 billion to their steel industry just last year in terms of subsidies. But in the meantime, we're darn well going to use the rules available to us to help our industry get back on its feet.

Q Can I follow up on that? On the Russian side of it, do you regard the recent action taken by the Russians on poultry trade as connected to this decision today, because the decision wasn't expected? And there also seemed to already be some real threats to the Russians that their action on poultry trade might have negative repercussions for their entry to the WTO and maybe on Jackson-Vanik and some other issues?

AMBASSADOR ZOELLICK: They're not veiled threats, they're statements of fact. Okay? What has happened is the Russian Agriculture Ministry, without looking at any of the information that we provided in terms of the safety of our chicken exports -- and if you think it's so unsafe, there's a lot of Americans eating chicken and they don't seem to be too sick -- blocked those exports. That's 20 percent of our exports to Russia and 50 percent of our poultry exports.

And, frankly, I called in the Ambassador on Friday when I learned of this and told him, the fact of the matter is, I've been trying to work with our Congress to help deal with the repeal of Jackson-Vanik. But if this stays on, I don't see it getting repealed; it's just a fact of life. And I talked to Leader Lott of our party and he certainly made that point exactly clear to us.

So what I suggested to my Russian colleagues is that we get this turned around as quickly as possible and we offer to send a team to make sure that we provide all the information about the safety and the quality of the poultry.

On steel, I'll just say this -- is that it's the irony of ironies, because if you get into the details of what we're proposing here, the tariff rate quota that we offered on slab, which is primarily what Russia is exporting to the United States -- so, for those of you a little newer to this, it's kind of a semi-finished ingot product that gets rolled -- the tariff rate quota that we provided with the reference base of 2001 would help Russian steel exports to the United States. But, frankly, that's going to be hard to sustain in this program, if Russia doesn't act responsibly on poultry. And I cannot emphasize that enough.

Q So on tariff rate quotas, it establishes a 5.4 million tons, is that per country?

AMBASSADOR ZOELLICK: No, let me tell you where that number comes from. Our imports of slab in the year 2000, which was the -- we picked 2000 because the ITC -- the majority of the ITC commissioners recommended a tariff rate quota using that year. And it's before you had the slowdown or recession, depending on your view of the quarters. And so we had about 7 million tons. You have to back out the numbers for Canada and Mexico, because they're not going to be sort of covered under this overall safeguard. And that gets you down to 5.4 million tons.

So the 5.4 million tons is the slab exports in the year 2000, taking out Canada and Mexico. And then those would be allocated by countries among their relative shares. And that was the exact -- under the 2001 imports, because we wanted to take the most recent data. And that goes to this gentleman's question, is that if Russia doesn't mess it up, it will do better.

Q Some countries were pleased, actually, with these quotas. In terms of South America, Brazil for instance, does it seem pleased?

AMBASSADOR ZOELLICK: Well, I should let my Brazilian colleagues speak for themselves. I called Minister Laffer today, and caught him on his way to Panama, just to give him the basic explanation of this. And I said he needs to look at the numbers himself, but if you combine this slab quota, plus the other products that will not be covered for Brazil under the developing country, plus the fact that we're not covering all products under the safeguard, about 85 or 90 percent of Brazil's steel exports will not be affected. And I think from my prior conversations with Brazilian leaders, I think they'd be pleased with that result, but they should speak for themselves.

And for the other countries of Latin America, they're covered basically under the developing countries. So it's a Western Hemispheric arrangement that I think will be -- go down rather well.

Q What percentage of existing or this year's or last year's imports would have been exempt under these rules that you proposed today?

AMBASSADOR ZOELLICK: Just so we have it, there are different categories here. For the developing countries, because this was covered in some of the articles, the way that the WTO rules work, is that you have to look at it by product line, and we're talking about 11 or 12 product lines here. If a country's exports are only 3 percent of the total U.S. imports, they can be excluded if --

Q I understand that. What is your analysis of these rules applied to the steel that came into the United States? Which percent would have been exempted under your rules because of the various exemptions? Is it a third, a quarter? From tariffs.

AMBASSADOR ZOELLICK: Well, I can't use last year's numbers because there was a recession. Markets do change. I can't -- in other words, I can't tell you whether imports will go up or down because it depends on demand. So all I can tell you is, is that for the vast majority of developing countries -- and the way we define that is countries that have generalized system of preferences and WTO membership.

They will be excluded for almost all products. There's a couple little exceptions here, depending if they're over the 3 percent level. Our NAFTA partners will be excluded and, obviously, Israel and Jordan will be excluded, but they're not big steel producers, obviously. And then slab is not really an exclusion, it's we're using the nature of a tariff rate quota. So I'm afraid I can't compute that to your question.

Q How would an exporting country know whether they're exempt if they're right on the bubble of the 3 percent?

AMBASSADOR ZOELLICK: Oh, we'll be informing them. And I have a list here, if you want to go through countries -- it's a lot of countries. And so we will be informing them through our posts.

But the other point I want to emphasize on this, and your question nicely gives me the opportunity to do so, is that in doing so, we're also putting in, as a I mentioned, a licensing system. And we will certainly tell these countries that while we are certainly pleased that we were able to exempt poor, developing countries, we also expect them not to take advantage of that and we'll be monitoring them.

Q Why not go all the way to 40 percent, as the unions and some of the larger steel corporations have wanted?

AMBASSADOR ZOELLICK: Well, first off, if you look through most of these product lines, three or four of the ITC commissioners actually recommended 20 percent or 20 percent with a liberal quota system, as opposed to any set of tariffs.

And so by going to 30 percent, frankly, the President's decision went beyond the plurality or the majority. And 40 percent, frankly, we felt would have done potential damage to the U.S. economy in terms of the added cost.

You start to get -- and this, again, you can get different economic models -- at certain rates you're going to block steel, at certain rates you allow steel to come in but the price goes up a little bit and then it depends on the ability of U.S. steel producers to compete. The other point I guess I'll direct you towards here is that there are really three main product lines that have the 30 percent. I think you have a sheet that has some of these numbers and tries to give you the ITC numbers, as well.

The most important one is what they call "flat products," that's about 60 percent of America's steel production, and that is 30 percent. Then there are products called "bar," hot and cold "bar," and that tends to be produced more by the mini-mills, the flat products tend to be produced by the integrative production. And we also apply a 30 percent to that number. Now, I will note that even the ITC commissioners that wanted a higher rate didn't use 40 for that, they had used 35 for that.

Q So the 40 percent that the unions and some of the larger companies had asked for, was it unrealistic, given the economic realities?

AMBASSADOR ZOELLICK: I think it would have been a mistaken course. And then the last one I was going to mention is tin mill. And the tin mill, in particular, is produced by Weirton in West Virginia. And there, there is actually a split decision among the ITC commissioners and the President decided to apply 30 percent to that, as well. And you can see these other products vary. And it's a determination based -- we tried to follow the TIC plurality as much as possible. In some cases we made our own assessment of market conditions, profitability of the companies, ability to make sure we had competition in the market.

Q Weirton, though, raises the question, there's been a lot of talk about the politics, potential political benefits to the Republican Party and to the President, himself, from this action. And you seemed obliquely to talk about -- when you talked about on the home front, building support for free trade by enforcing these laws. How much of a role did politics play? Why Weirton? And did you seek and/or receive any assurances from members of the steel caucus that they would vote for trade promotion authority if the President provided this relief?

AMBASSADOR ZOELLICK: Well, on the first part of the question I want to distinguish the nature of what I think is the political support. I'm talking about support for trade in America, and I think this is part of a larger challenge. Because all of you have had endless words written about globalization, and the problem is that a lot of this change frightens people and it leads to anxiety. And it's our strong belief that if we're going to promote a free trade agenda around the world and have support for it at home, we have to be willing to use the rules available internationally and domestically to help those industries that have really gotten flattened to be able to help themselves.

And that's what this is. I've been making this point, frankly, since before the election of 2000 about how one has to use safeguards. And without getting you into too much detail, we used this in the case of wheat gluten industry, we've used it in the case of the lamb industry.

If you're basically an open economy, as the United States is -- I mean, our average trade-weighted tariff is about 1 to 2 percent -- you are really subject to the dynamism of the international economy. And, as I said -- I came from the world of financial markets -- you have to be able to move in seconds in that world. You can't ask communities that have

manufacturing plants and depend on employment and schools and all that, to be able to move on a dime. And so I have always believed it's appropriate to use these. And, in the process, we get political support, I hope, for both parties for continuing to keep America open.

Now, there was another view. I mean, there were many members of Congress, over half the House of Representatives last year who wanted to have quotas to block steel. That was not, in our view, the right approach. And so that's why the President went to the ITC, asked for their analysis, and then we've looked at their recommendations.

As for the second part of your question, on this remedy phase, I neither asked for, nor got any sort of particular promises of votes. But in the process of talking with people in this industry, but, frankly, other industries, agriculture, I mean, part of my job is how to put together a coalition to try to support openness. So that's what I do abroad and at home.

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