• Investment World
• eWorld
• Catalyst
• Mentor
• Life
• Canvas
• Praxis
• Urban Pulse
• Brand Quest

Nilanjan Banik

LOBBYING these days can earn extra bread. The US' recent move to impose sweeping tariffs on a wide range of steel imports for three years bears this out. There is obviously no economic rationale behind the decision. The decision was taken to appease the powerful, unionised steel mills in such key electoral States as West Virginia and Pennsylvania.

The tariff was imposed in four tiers — 30 per cent, 15 per cent, 13 per cent and 8 per cent respectively. A 30 per cent tariff was imposed on imports of steel plate, hot-rolled sheets, cold-rolled sheets, coated sheets tin mill products, hot-rolled bars and cold-finished bars.

A 15 per cent tariff was slapped on rebar, certain tubular products, stainless steel bars and stainless steel rods. Last, carbon, flanges and alloy fittings imports will attract a duty of 13 per cent, whereas stainless steel wire will attract a tariff rate of 8 per cent.

The authorities also set a tariff rate quota (TRQ) of 5.4 million tonnes of semi-finished slabs that can enter the US duty-free each year. The tariffs will be in place over three years (see Table).

Is imposing tariffs legally permissible? This is particularly pertinent at a time when the WTO has prohibited member-nations from raising tariff barriers. Actually, the decision to impose temporary tariffs and quotas is not inconsistent with WTO provisions.

Such action is permissible under Article XIX (safeguard clause) of GATT. According to the safeguard clause, a country can impose temporary restrictions (through tariff or quota) when there is a surge in import. Before the Uruguay Round, a country using the safeguard clause has to compensate its trading partners by lowering tariffs on other items of interest to the partner trading countries. However, under the new Uruguay Round Safeguards Agreement, there is no need to compensate the trading partners during the first three years of restrictions. Given that the newly imposed tariff is valid for three years, legally the US does not need to pay any compensation to its trading partners.

In fact, many of the US' major trading partners, including the EU, Japan, Korea, Brazil, and even India, have imposed safeguard measures covering a wide range of products. On their behalf, the US argued that subsidised foreign steel, produced in excess of global demand, had flooded US markets. This has resulted in 30 per cent of the US steel-making companies filing for bankruptcy. Hence, the US government felt it necessary to impose safeguard measures.

Thus, the disgruntled trading partners cannot drag the US to the WTO Dispute Settlement Body (DSB) on this ground. But there is a glitch, and this can be found in Article 2 of the Safeguards Agreement. It reads: "Safeguard measures shall be applied to a product being imported, irrespective of source". The irate partners can certainly take the US before the DSB for violating this clause as it has, in this case, favoured such countries as Russia, Turkey, Brazil and Argentina.

The officials did not wanted to inflict any pain on Russia and Turkey, two of America's important allies in its war against terrorism. Accordingly, they granted Moscow 25 per cent of the annual quota on imports on slab steel.

The administration largely exempted the main steel imports from Turkey. Also exempt is Brazil, which the US President, Mr George Bush, needs to help to push forward his free trade agenda, and Argentina, which is in the middle of a financial meltdown.

The other lucky countries that are exempted from paying tariffs are members of the North American Free Trade Agreement (NAFTA), including Canada and Mexico. But this is anyway permissible under Article XXIV of GATT, dealing with the formation of regional trading blocs.It remains to be seen how much India will be affected because of this decision. In fact, it may not be hit too hard. True, the US is a major trading partner, but we are not the major sellers of iron and steel products in the US. India only forms a 0.8 per cent of the world trade share in steel and iron products. Of late, India is losing market share because of low-priced steel from the EU, Japan and China. Recent data reveals that, while in 1999-2000 India recorded a 47.2 per cent rise in steel export growth, the corresponding figure for 2000-2001 was just 20.8 per cent (Economic Survey, 2001-2002). The US primarily imports steel from Latin American countries, such as Venezuela and Argentina, apart from the EU, China, South Korea and Japan. So, these will be most affected countries. The EU and China have threatened that they will take the US to the DSB.

However, Indian interests may get hurt through an indirect route. First, any retaliation by the EU and Japan will have considerable impact on exports originating from India. For instance, the EU Trade Commissioner, Mr Pascal Lamy, went on record to say that the EU would impose its own trade barriers to protect its steel companies from redirected steel exports from Latin America and Asia.

Second, it can stall any further negotiation at the WTO ministerial round. The US has warned the EU and China that it would wage a brawl over genetically modified seeds if the latter imposed any restrictions in response to the US safeguards. And that means a sure failure of the forthcoming WTO negotiations. This is unfortunate, given that the forthcoming round is meant to benefit developing nations in Africa, Asia and Latin America.

(The author is an independent economic analyst. Feedback may be sent to nilbanik@cc.usu.edu)

Send this article to Friends by E-Mail

Stories in this Section
Fog over foreign stake

Copyright © 2002, The Hindu Business Line. Republication or redissemination of the contents of this screen are expressly prohibited without the written consent of The Hindu Business Line