Steel Retaliation Will Knock US Ag Exports Out of Balance

Steel Retaliation Could Knock US Ag Exports Out of Balance

By Elizabeth Haws[1]

The World Trade Organization (WTO) Appellate Body will soon release its decision on the Section 201 case United States – Definitive Safeguard Measures on Imports of Certain Steel Products. The decision could trigger retaliation against many U.S. agricultural exports. Unlike other WTO decisions in which retaliation may be delayed by as much as 15 months, the punitive rebalancing tariffs against U.S. products in this case could be activated within days of the WTO Dispute Settlement Body adopting a ruling against the U.S., because this case was brought under WTO Safeguard provisions. The Safeguard provisions provide an expedited process for compensation and rebalancing of tariffs to the countries claiming injury. As much as 100 percent additional duty could be tacked on U.S. exports of dried vegetables, fresh apples, pears, fruit juices and rice. Many other U.S. agricultural exports such as avocados, citrus, nuts pineapples, and grapes could be hit with 15 percent duties. The entire proposed retaliation list encompasses more than $2 billion of U.S. exports. The full list of proposed duties can be viewed at: http://europa.eu.int/eurex/pri/en/oj/dat/2002/l_157/l_15720020615en00080024.pdf

The WTO Appellate Body ruling is expected in early November. The WTO Dispute Settlement Body must then adopt the ruling. The retaliatory “rebalancing” sanctions could be imposed on U.S. goods as early as December 2003. It is estimated the U.S. would owe the WTO members between $2.2 and $3.8 billion in trade compensation.

On June 20, 2002 the European Union (EU) notified the WTO Council for Trade in Goods of its intent to impose additional tariffs on U.S. goods five (5) days after any negative WTO Appellate Body decision in the steel case is adopted by the WTO Dispute Settlement Body (DSB). Japan, China, Norway and Switzerland also weighed in with similar notices.

How Did This Happen?

On October 22, 2001, the U.S. International Trade Commission (ITC) issued a determination that certain steel products were being imported into the U.S in such quantities as to cause injury to the U.S. industry. On December 7, 2001, a majority decision by the ITC commissioners recommended the President impose a 20 percent tariff on most flat-rolled, cold-rolled and carbon and alloy steel products, to be phased out over four years. Under Sections 201 and 203 of the Trade Act of 1974, 19 U.S.C. Section 2251 et se., the President has final authority to impose import relief .

On March 5, 2002, the U.S. Administration through a Presidential Proclamation[2] imposed 30 percent tariffs on most imported flat-rolled steel products and 15 percent tariff on rebar and stainless steel. These tariffs were to be imposed for three years, during which time the rates would decline. The tariffs were squarely aimed at steel imports from Europe, Japan, Korea, Brazil and Russia. Imports from Canada, Mexico, Israel and Jordan were excluded from this tariff.

Almost immediately, the European Union, Japan, Korea, Brazil cried fowl, and filed a case against the U.S. safeguard tariff with the WTO under the dispute settlement procedures. In September 2002, the WTO established a Panel to review the case. After consideration of the parties written submissions and oral arguments, the Panel issued an interim report on March 26, 2003, declaring that the U.S. steel safeguard violated the WTO Safeguards Agreement. On July 11, 2003 the Panel issued its final report finding the U.S. steel safeguard measures were invalid.[3] The U.S filed its appeal on August 11, 2003. As this is a very complicated case, the Appellate Body may utilize its full 60 days or until November 10, 2003 before it issues a report.

Under Article 17:14 of the Rules and Procedures Governing the Settlement of Disputes (DSU) which is Annex 2 to the WTO Agreement, the report must be adopted by the Dispute Settlement Body (DSB) and unconditionally accepted by the parties, “unless the DSB decides by consensus not to adopt the Appellate Body report within 30 days following circulation to Members.”[4] Therefore, if there is no consensus, the DSB could adopt the Appellate Body’s report on or before December 10, 2003. An adverse finding by the DSB against the U.S. would activate the punitive rebalancing tariffs against U.S. agricultural exports five days later.

WTO Panels have been very critical of previous attempts by countries to impose import restrictions. All prior safeguards which have been challenged under the dispute settlement procedures, has declared the safeguard violated the WTO rules by the Panel or Appellate Body.

If the retaliatory tariffs are imposed against U.S. products, it could seriously hinder the recent economic rebounds of the domestic economy.

[1] Elizabeth Haws is an attorney with the firm and is the Manager and Counsel for the American Association of Crop Insurers. Prior to joining McLeod, Watkinson & Miller, she was the General Counsel and Director of Government Relations for the National Grain Trade Council. In 1992 she was Counsel and Legislative Assistant for Congressman Fred Grandy for agriculture and trade issues.

[2] Presidential Proclamation No. 7529, March 5, 2002, 67 Fed. Reg. 10553 (March 7, 2002)