Global steel war and the World Trade Organisation (WTO)

When the United States of America (US) increased its steel tariffs in March this year on certain steel products from certain countries entering its borders to 30%, for a period of three years, countries across the world condemned it, saying that it had violated World Trade Organization (WTO) rules. But the US disagrees. Jeffrey Ndumo , Numsa's researcher, takes a look at who is correct? 

The US insists that the tariffs are legal under the WTO Safeguard rules. These state that Safeguard Tariffs “may be imposed only when it has been determined that the imports cause or threaten to cause injury to a domestic industry.” Safeguard tariffs should not last more than four years, but can be extended to eight years.

The US cites as reasons for the imposition of tariffs: “30% of US steel-making capacity has filed for bankruptcy. Domestic steel prices in the last quarter of 2001 were at their lowest for 20 years and nearly all US steel operations … were spilling red ink. Since 1997, 45 000 steelworkers have lost their jobs.” US Trade Representative, Robert Zoellick.

The new tariff policy covers a list of steel products ranging from tin mill steel, carbon steel, alloy fitting, flanges and stainless steel including slab steel, which is the US' biggest steel import. In line with WTO Safeguard rules, it affects only those countries that export more than 3% of these products into the US . By this definition, countries affected by the new tariffs include European Union countries, Russia , Ukraine , Brazil , Canada , Japan , China , South Korea and India .

Four Aims of the of World Trade Organisations (WTO)

To expand free trade concessions equally to all member states; To establish freer global trade with fewer barriers; To make trade more predictable through establishing rules; and To make trade competitive by removing subsidies

By exempting the tariff from developing countries that export less than 3% of the product into its market, the USA has kept within WTO rules. And it has ensured that some countries will benefit from the tariff imposition while others will not, therefore dividing opposition to its policy.

However European Union (EU) countries are questioning the US ' actions. According to the EU, the value of US steel imports fell 23% in 2001. This figure fails to justify safeguard measures as imports were not the cause of the decline in demand.

Anne Krueger, the deputy-managing director at the International Monetary Fund (IMF) agrees with these countries' views. She argues that the US decision is not totally in accord with international trading rules. For her, although the WTO rules allow governments to impose temporary import tariffs if a domestic industry is being harmed, the problem is that imports into the US have fallen in each year and in 2001 were 30% below 1998 levels. These facts clearly disprove the US position that imports are the problem.

Moreover, she believes that factors other than imports have been the cause of the string of US steel bankruptcies. One of these is the refusal of the US steel industry to cut down costs and restructure so as to be competitive in the world market. Another is the massive global oversupply of steel affecting all steel producers.

What recourse do countries affected by the US measures have?

On safeguard measures, the WTO rules stipulate that the country imposing the measures must pay compensation to members whose trade is affected. Or it must offer them equivalent concessions (eg. offering to reduce the tariff on other goods that the affected country exports into the country that is imposing the tariffs). Affected countries can only retaliate once the WTO Panel has ruled on the issue or the three years of the safeguard measures are completed.

Even if, as the affected countries argue, the US is hiding behind safeguard measures and has instead increased tariffs beyond the agreed international limit, the rules say that the imposing country must start compensation negotiations with the country that has imposed the tariffs. Affected countries can only retaliate 90 days after the imposition of the tariffs.

However, despite the complaints and efforts of many of the affected countries to negotiate changes to the tariffs, and receive equivalent concessions from the US, the US has reneged on compensating and providing equivalent concessions, let alone agreeing to reverse the imposed tariffs.

Meanwhile some affected countries have already responded with their own measures that are not ‘legal' in terms of the WTO rules. See the chain of events below:

6 March: US imposes tariffs of up to 30% on certain steel imports from certain countries

10 March: Russia bans imports of US frozen chickens

25 March: Canada imposes tariffs of up to 71% on US tomato imports

24 May: China imposes an import tax of 24% on Soybean Oil from USA , for just under three years.

Despite some countries instituting these 'illegal' retaliatory measures, other countries have followed WTO procedures and requested it to set up a panel to decide whether the US ' actions are legal. The panel will be composed of three experts from different countries who will examine the evidence and rule on which party is right. If the Panel finds that the US has acted illegally, then the US must carry out the recommendations of the Panel.

If the US does not follow the recommendations of the Panel, it must negotiate with the complaining countries. If it fails to do this, the WTO can impose sanctions.

However, if the US disagrees with the Panel's report, it can appeal. If the Appeal upholds the Panel's report, then the US must act accordingly.

Lengthy legal process

The problem is that the WTO legal process can take years before any ruling can be made. In the example in the box below, it took 2 years for the WTO process to establish that the US had acted unfairly in an earlier imposition of tariffs on South Korean imports. In this current case, the US could again get away with its ‘safeguard measures' because by the time the WTO rules on the issue, the three years could be over!

Case study This case shows that the WTO rules are ineffective and can easily be violated by powerful states, with little effective legal recourse by the affected states. It also shows that powerful states have less regard for WTO rules, especially if these rules directly affect their interests. In fact, it appears that these institutions are tools manipulated by powerful states to promote unfair and unequal trade relations between states.

18 Feb 2000 US imposes a tariff on import of circular welded carbon quality line pipe from South Korea

First year – 19% tariff on all imports over 9000 tons

Second year – 15% tariff on all imports over 9000 tons

Third year – 11% tariff on all imports over 9000 tons

15 June 2000 S Korea complains to the WTO

28 July 2000 S Korea and US fail to resolve their dispute

14 Sep 2000 S Korea requests the WTO to establish a panel to examine the matter

23 Oct 2000 WTO establishes a panel

22 Jan 2001 Panelists appointed

29 Oct 2001 Panel Report released

6 Nov 2001 US notifies WTO of its intention to appeal against Panel Report

15 Jan 2002 Oral arguments presented to appeal hearing

31 Jan 2002 Findings of Appeal Board made public


Can South Africa institute safeguard measures?

For a country to use safeguard measures, it has to draw up regulations and then lodge them with the WTO to get their approval. South Africa does not yet have these regulations in place. The BTT has focused on drawing up anti-dumping measures to prevent countries like China and India dumping in this country. Once these measures have been published, then the BTT will move onto drawing up regulations for safeguard tariffs.