The US Provides
Section 201 Relief For The American Steel Industry
By Eliza Patterson
On March 5, 2002 the President signed
a proclamation imposing, effective March 20, increased
tariffs on imports of certain steel products.  The action triggered immediate
and adverse reaction from US trading partners. The
case is expected to trigger retaliation against the
US directly in the form of increased tariffs on US exports
and indirectly in the form of World Trade Organization
(WTO) complaints being filed against the US on unrelated
issues. More importantly, it may affect the recently
launched Doha round of multilateral trade negotiations
under the WTO if other nations follow the US lead and
impose or retain restrictions, particularly against
US exports. 
The President's action was taken pursuant
to Section 201 of the Trade Act of 1974.  The duties are
referred to as "safeguard measures." Duties were increased
on certain flat steel, hot-rolled bar, cold-finished
bar, rebar, certain welded tubular products, carbon
and alloy fittings, stainless steel bar, stainless steel
rod, tin mill products and stainless steel wire. A
tariff rate quota was applied to steel slabs. The duties
were imposed for a three-year period and are to be progressively
reduced as required by the WTO.  The duties range
from 30% ad valorem to 8% ad valorem in
the first year; 24% ad valorem to 7% ad valorem
in the second year; and 18% ad valorem to 6%
ad valorem in the third year.
The duties apply to all imports of the
covered products regardless of origin as required by
 with two notable exceptions. First,
pursuant to Section 312 of the North American Free Trade
Agreement Implementation Act, imports from Canada or
Mexico are exempt because the President determined that
imports from Canada and Mexico did not contribute importantly
to the serious injury to the US steel industry found
by the International Trade Commission, or ITC (a US
government agency). Second, pursuant to Article 9 of
the Agreement on Safeguards, imports from most developing
countries that are members of the WTO are exempt because
no single country's share of imports into the US during
the period under investigation exceeds 3 percent, and
all developing country WTO members collectively account
for not more than 9 percent of total US imports of the
This case began in June 2001. On June
5 President Bush announced a comprehensive initiative
to respond to the challenges facing the US steel industry.
As part of that initiative the President directed the
US Trade Representative, Robert Zoellick, to request
the ITC to initiate an investigation under Section 201
of the effect of steel imports on the US steel industry.
The ITC initiated the investigation on June 22, 2001.
Section 201 investigations proceed in
two phases. The first phase is devoted to determining
whether the US industry is "seriously injured" and whether
that injury is caused by increased imports of like or
directly competitive imports. If serious injury and
causation are found the ITC proceeds to the so-called
"remedy phase" in which it determines what import relief
to recommend that the President grant the domestic industry.
While the President generally follows an ITC recommendation,
he is not required to do so. Section 201 does not require
a finding of an unfair trade practice by US trading
partners for relief to be granted.
For the purposes of this investigation
the ITC divided steel imports into 33 product categories.
In October 2001 the ITC reached affirmative injury determinations
for 12 product categories, negative injury determinations
for 17 product categories and was evenly divided on
the remaining 4 categories.
These determinations on the question of
injury were notified to the WTO on November 11, 2001,
pursuant to Article 12.1(b) of the Agreement on Safeguards.
The United States offered to hold consultations with
countries having substantial interests as exporters.
On January 18, 2002 the EU accepted the US offer and
consultations were held on February 13. The consultations
centered on the EU's concerns regarding the ITC determination
that increased imports had been the cause of the economic
problems of the US steel industry.
On the basis of ITC recommendations announced
in December 2001, the President imposed the increased
tariffs on steel on March 5, 2002.
Under GATT Article XIX and WTO Agreement
on Safeguards Article 12, countries taking safeguard
measures are required to compensate WTO member-trading
partners for their trade lost as a result of safeguard
measures. The theory is that the trading partners have
not engaged in any unfair trade practice and therefore
should not be made to bear the cost of actions taken
by an importing country to protect its industry. The
amount of the compensation is to be determined by the
parties during mandated consultations. Generally the
compensation takes the form of a reduction in duties
on other products exported by the affected trading partners.
The President's March Proclamation contained an offer
to consult that already has been accepted by the EU,
Japan, Australia, and New Zealand. The EU claims that
it alone is owed $2.5 billion in compensation, representing
the amount of steel trade it claims will be lost as
a result of the US action.
If these US-initiated consultations do
not result in an agreement on the level of compensation,
US trading partners will be entitled under the Agreement
on Safeguards to retaliate by imposing restrictions
on an amount of US exports "substantially equivalent"
to the amount of trade they lost as a result of the
US safeguard measures.
 The selection of which US exports to
restrict is made by the importing country. In this
case it probably would not be limited to the steel sector.
Any retaliation would take effect within 120 days of
March 20, the date the US imposed increased duties on
imported steel. If the US objects to the retaliation
it could bring a case under the WTO Dispute Settlement
Understanding. Such a case likely would take several
years, during which time the retaliation would remain
In addition to seeking compensation under
the Agreement on Safeguards, US trading partners have
the right to challenge the US action under the WTO's
dispute settlement provisions. The EU initiated that
process on March 7 by requesting consultations. In
its request letter to the US, the EU claimed that the
US measures are in breach of the US obligations under
the GATT 1994 and the Agreement on Safeguards. Specifically
the EU claimed that the US (i) failed to prove imports
had increased;  (ii) provided relief
beyond what was required to prevent or remedy any injury;
 (iii) applied safeguard measures to
some developing countries (Czech Republic, Poland, and
Slovakia) even though their imports fell below the 3%
exclusion threshold; and (iv) violated the non-discrimination
obligation of the Agreement on Safeguards and the GATT
by exempting Canada and Mexico.
If the EU-initiated consultations do not
result in an agreement the EU may request a panel,
 which would have 9 months to reach
a decision. An appeal would take an additional 12 months.
If the EU prevailed, it would be entitled, as it would
under the Agreement on Safeguards discussed above, to
retaliate by imposing restrictions on US exports in
an amount equal to the amount of trade it lost as a
result of the US action.
Many expert observers expect a victory
for the EU in this case. They note that while US imports
of steel rose significantly in 1997 and 1998, as the
US claims, the value of US overall steel imports have
declined by about 25 percent between 1998 and 2001-
a more relevant period for the purposes of the Agreement
on Safeguards. An EU victory might trigger similar cases
by other trading partners that together could result
in substantially increased tariffs on US exports worldwide.
 South Korea's restrictions on American
movies, Russia's restrictions on US poultry, and the
European restrictions on a host of American agricultural
products and financial services are frequently cited
examples of restrictions that might now remain in place.
 Agreement on Safeguards, Article
8:2. The Agreement provides that the right of retaliation
may not be exercised during the first 3 years after
the safeguard measure is imposed, provided that the
safeguard measure was taken as a result of an "absolute
increase in imports." The Agreement does not specify
the time period over which such an increase must occur
but WTO practice is to look at the last 3 years. The
ITC report indicates that import volumes of the covered
steel products actually declined from 1998-2000.
About the Author:
The author is a trade lawyer currently adjunct teaching
at Temple University and working with the Center for
International Environmental Law on a trade and the
environment project. She can be reached at erpatterson@Msn.com.
She graduated from Harvard Law School in 1975.
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