TRADE SCENE: STEEL YOURSELF - IT'S A MESS

TRADE SCENE: STEEL YOURSELF - IT'S A MESS

We've got a scoop! The President has opted against import relief for the American steel industry, despite International Trade Commission recommendations for higher tariffs, quotas and tariff quotas. The President, says United States Trade Representative Robert Zoellick, has 'determined that protectionism is not in the national interest. It costs jobs, raises prices and undermines our ability to compete at home and abroad.'

Still, he notes, the 'unprecedented and unacceptable' steel import surge must be dealt with 'swiftly and effectively.'Hold on. Let's check the date of that announcement. Sorry, it's Sept. 18, 1984. The president is Ronald Reagan.

Now, as Reagan did 17 years ago, President Bush is weighing how to help financially strapped U.S. steel producers. The ITC, as in 1984, has found that imports are causing serious injury and urges the president to extend under Section 201 of U.S. trade law tariff and quota relief for America's steel makers..

Though Reagan rejected those recommendations as 'protectionist,' his trade negotiators proceeded to persuade foreign steel exporters to limit their U.S. shipments 'voluntarily.' Steel company balance sheets improved and even after voluntary restraints were lifted in 1993 U.S. steel makers posted higher profits, thanks to strongly rising domestic demand. Then came the 1997-98 Asian financial crash, triggering a new rush of imports. Domestic steel makers have been struggling ever since.

Now it's crunch time. Bush has until mid-February to decide what to do. At least one thing is clear: he will not follow the Reagan path. Voluntary export restraints now are barred under World Trade Organization rules.

Instead, Bush is expected to declare tariff increases and/or import quotas for the next three to four years, exactly the kind of measures dismissed by Reagan as 'protectionist.'

Section 201 import relief is part of the Bush administration's three-pronged strategy to help clear the way, over the long term, for a more competitive U.S. steel industry. It calls on other nations to join in eliminating excess steel-making capacity and to negotiate international rules ending steel-related subsidies and other market-distorting practices.

This Bush plan looks relatively rational, but whether it will work is questionable. For one thing, it asks other nations to improve supply-demand balances while threatening them with new trade restrictions. (It can be argued, of course, that a Section 201 threat might serve as a lever to persuade other countries to cooperate.)

But surely any U.S. section 201 restriction will raise yet another steel policy ruckus at the WTO. The European Union and others are virtually certain to argue that it violates international trade rules, which could lead to reprisals against U.S. exports.

(The United States, incidentally, has had a poor record defending Section 201 at the WTO; in three recent cases, WTO dispute settlement panels have ruled against it.)

Then there is the basic question as to how restrictive Section 201 relief for the steel industry should be. Bush advisors are treading a fine line. Ideally, the restrictions should be enough to help steel producers restructure and become more competitive but not so great as to seriously disadvantage U.S. steel using manufacturers. Is that possible? Many steel consumers, among them Caterpillar Inc., say not.

The Bush 201 decision looms as the U.S. and nearly 40 other countries gather Monday and Tuesday at the Organization for Economic Cooperation and Development in Paris to discuss what lies at the heart of steel industry problems: global over-capacity. Senior officials from each country are to tell how they assess their nation's steel competitiveness and over-capacity, if any. Recent and prospective steel plant closings will be discussed.

What kinds of commitments countries make to winnow down excess or uneconomic steel capacity will be watched closely. What, if any, steps U.S. officials propose may be questioned. A Section 201 action would tend to boost, not reduce, U.S. production capacity. If Bush gives U.S. steel producers the kind of import relief they want, they will invest $10 billion or more in new equipment and technology, it is estimated.

United States officials will surely be pressed at the OECD meeting on how the Bush administration might subsidize a proposed U.S. Steel-Bethlehem Steel merger. The merger, which might include other companies, could pare U.S. steel-making capacity by as much as 7 million tons a year. But it also might involve billions of dollars of U.S. government pay-outs.

Meanwhile, U.S. subsidy-like measures for the steel industry keep mounting. President Bush has signed legislation that not only extends a $1 billion Emergency Steel Loan Guarantee fund but makes it more generous. The federal government now may guarantee up to 950f a commercial bank loan to steel producers.

And, the U.S. Customs Service has just begun disbursing the anti-dumping and anti-subsidy duties it collects to the companies that had requested that the duties be imposed.. The EU and other governments are challenging the disbursements - much of it to steel producers -- as a WTO violation.

What's more, the U.S. has failed to honor its commitment to repeal this year a 1916 anti-dumping law authorizing criminal and treble damage penalties for under-priced imports. The WTO ruled that the law violates an international antidumping agreement.

And the government has still not complied with a WTO ruling last July sharply criticizing its procedures for assessing anti-dumping duties on Japanese hot-rolled steel . We are still working on it, government sources say. Meantime, the U.S. remains vulnerable to Japanese trade reprisals,

All in all, U.S. officials are not entering the Paris steel talks with the strongest possible negotiating hand.