President Bush today lifted controversial tariffs on foreign steel imports ahead of threatened European retaliatory sanctions, saying that the U.S. measures had "achieved their purpose" in helping the nation's steel industry become more competitive.
"I took action to give the industry a chance to adjust to the surge in foreign imports and to give relief to the workers and communities that depend on steel for their jobs and livelihoods," Bush said in a statement issued at a White House press briefing. "These safeguard measures have now achieved their purpose, and as a result of changed economic circumstances it is time to lift them."
To help soften the impact on U.S. steel makers, Bush said he would continue a system to license and monitor steel imports so that the government "can quickly respond to future import surges that could unfairly damage the industry."
The tariffs, which were imposed in March 2002 and subsequently declared illegal by the World Trade Organization, officially end at midnight tonight, 16 months ahead of schedule, U.S. officials said.
The European Union immediately responded by dropping its threat to impose sanctions on $2.2 billion worth of U.S. exports, a retaliatory measure that the 15-member organization portrayed as the key factor in the U.S. decision.
The threatened sanctions, designed to affect politically important states such as Florida, California and the Carolinas by targeting citrus and textiles, "were there as a tool for compliance," EU Trade Commissioner Pascal Lamy said. "They've complied, and the sanctions will disappear." The sanctions had been scheduled to take effect in mid-December.
For their part, U.S. officials denied the president's decision was prompted by the EU and WTO actions, insisting instead that it was based on an independent assessment of the costs and benefits of continuing the tariffs.
"I don't think this president would ever seek a trade war," U.S. Trade Representative Robert B. Zoellick told reporters at the White House. "But this determination was made on another basis. . . . The decision the president made was based on an independent analysis." He cited a report issued in September by the U.S. International Trade Commission, which found that the costs to the U.S. economy of continuing the tariffs generally outweighed the benefits.
Zoellick portrayed the dropping of the scheduled EU sanctions as a fringe benefit of the president's decision.
"We're very delighted there was no retaliation," he said.
Zoellick fended off reporters' questions about the political dynamics behind Bush's decision, which is seen as helping the president's 2004 reelection campaign politically in some states while hurting it in others. He insisted that in his own meetings with Bush, the issue of reelection "did not come up." But he acknowledged that politics played a background role.
"You can't have trade policy in a vacuum," Zoellick said. He said imposing tariffs to help an ailing industry "obviously . . . helps you with congressional politics, in trying to get support for trade. . . . In that sense, the politics are part of trying to accomplish an agenda."
When they were imposed last year, the steel tariffs ranged from 8 percent to 30 percent and affected 10 categories of steel products. The tariffs were subsequently lowered, with the highest rate dropping to 24 percent. A number of countries were exempted, including Canada, Mexico, Israel and Jordan -- which joined free trade agreements with the United States -- as well as most developing countries belonging to the WTO.
Bush's decision to impose the tariffs was based in part on a December 2001 recommendation by the U.S. International Trade Commission, which found that imports of certain categories of steel had surged to such an extent that they were causing "serious injury" to U.S. industry.
U.S. officials said the move to lift the tariffs early relied on a commission report issued in September that outlined adverse impacts on some of the nation's steel-consuming industries.
The report said an "economy-wide analysis" of the tariffs found that increased tariff revenues of nearly $650 million were more than offset by costs, resulting in "an estimated annual GDP loss of $30.4 million." It indicated that those losses would grow if the tariffs continued.
In particular, the motor vehicles parts and steel fabrication industries "indicated that employment, profitability and international competitiveness would fall if the safeguards were continued but would increase if the safeguards were terminated," the report said.
In announcing the end of the tariffs, President Bush, in a statement read by White House spokesman Scott McClellan, said the U.S. steel industry "wisely used the 21 months of breathing space we provided to consolidate and restructure," increasing productivity, lowering production costs and "making America more competitive with foreign steel producers." He said that as a result, "U.S. steel companies are once again well-positioned to compete both at home and globally."
But the United Steelworkers of America, which represents nearly 1 million active and retired steelworkers, charged that Bush had abandoned them and vowed to seek protection from Congress.
The union said Bush had come under "intense pressure from steel importers and 'free' trade fundamentalists to kill the steel safeguards" in an action that "could sabotage American steel's recovery and restructuring."
Free trade advocates, on the other hand, argued that the tariffs were unnecessary to begin with and motivated mainly by politics.
The tariffs "played no real role in encouraging the restructuring of the steel industry," said Brink Lindsey, director of the Center for Trade Policy Studies at the Washington-based Cato Institute. Before the tariffs were imposed, he said, a mechanism already existed to restructure the steel industry: the federal bankruptcy law.
The restructuring of the U.S. steel industry "has occurred because companies went into bankruptcy," not because of the tariffs, Lindsey said.
"Steel tariffs were never about policy, they were always about politics," he said. Primarily, they were used to "consolidate political support, or buy votes, for the president's trade-promotion authority" and to "help out potentially vulnerable Republicans" in steel-producing states in the 2002 mid-term elections," Lindsey said. He noted that trade "fast-track" legislation had passed the U.S. House of Representatives by one vote and that the GOP had done well in the 2002 elections, so that "those calculations seem to have panned out."
According to the ITC, more than 30 U.S. steel companies have filed for bankruptcy protection since January 1999, seven of them since the imposition of tariffs. Most of them subsequently merged with other companies, but "several have liquidated," the ITC said.