US steel decision no help - Taurus - Brief Article

Business Asia, April, 2002 by Tim Fischer

COLD HARD STEEL is once again to the fore as the largest economy in the world introduces punitive tariffs and wonders why it is so often misunderstood worldwide. It is absolutely the case that the Emperor has no clothes, likewise this decision by Washington needs to be further exposed.

This is so for several reasons, not the least of which is that cold hard steel right now is in danger of being the catalyst for bringing on bitter division and a very damaging trade war.

President George W Bush decided to adopt a package of tariffs which was something less than demanded, but still represented a lurch towards short-term protectionism of the worst kind.

It is well timed to get the administration through before the US Congressional Elections due in November 2002 and the next Presidential election in November 2004. After that, it is to sunset and the cynics might say "pigs might fly" (or perhaps more accurately "pig iron might fly").

100 years ago, interestingly enough, the then British Conservative Government took a big step towards protectionism. Churchill jumped ship to the Liberals and the Conservatives were swept from Office at the following general elections.

There are always two sides to these major trade issues, and there is no such thing as a level international playing field. There is some scope for transitional assistance. However, in the case of this USA steel decision, it is far too much for far too long at absolutely the wrong time in terms of the cycle of trade negotiations, let alone the cycle of international security and defence.

Specifically there are four major criticisms (and many minor criticisms) which pertain.

Firstly, the USA steel decision poisons the atmosphere at the very start of the Doha Millennium Trade Negotiations Round, notably between Europe and the USA. Maximum confidence and cohesion is needed to move these broad trade negotiations forward.

So, as this delicate process cranks up in Geneva, someone has decided to walk in with a steel capped sledgehammer creating havoc along the way. The fact that that someone is the world's largest economy, with some 50 years of membership of the GATT and WTO under its belt, is particularly irksome.

Secondly, it comes at a very critical juncture with the new membership of the WTO of China (mainland) and Chinese Taipei, remembering that Hong Kong has been a member for many years.

In their first year of membership, with China facing huge transitional tasks involving thousands of jobs being churned and changed and abolished outright, suddenly the USA adds to the burden by whacking on 30 per cent tariffs, particularly hard hitting against Chinese steel exporters.

It gives the diehard faction in Beijing a chance to make curry and say "we told you so", with this risking the pathway of further economic reform in China.

It is unwise in the extreme to put all of this under pressure. It is a case almost of China being a better member and a better-behaved member of the WTO in its first year of resumed membership than the USA in its 50th plus year of membership.

Thirdly, there is the matter of what truly is in the best interests of the USA, which does have the right to reasonably look after its own interests, but this is best done on a medium- to long-term basis and not short-term.

The reality is, whilst I do not rule out the value of some short-term sunset assistance in some circumstances, in the past and again now US steel will simply defer again the radical reform steps necessary if they wish to be competitive in the 21st century.

Finally, there is the issue of whether just one set of decisions relating to just one industry can be so devastating, all things considered.

As Australia has found out, managing economic change involves a lot of agony and some big decisions. In respect of steel in Australia, this has involved gigantic changes at Newcastle and a great deal of modernisation at Wollongong and Whyalla, with many jobs being churned. Many other industries in both the agriculture and manufacturing sectors also faced radical change and are now truly world competitive. All of this has involved making the right decisions, and quite often hard decisions, when the critical junctures have been reached. There is not much choice as Australia produces five times more than it consumes and must trade to the world.

The US steel decision may well be one set of decision relating to one industry but, each and every time there is a deferral of correct policy making and reform, it is deeply injurious to the people of the USA and, indirectly, to the world.

So of course we look to the USA for its considerable leadership on many matters, and the security alliance between Australia and the USA is vital. But I say of the USA and its steel decision -- wrong call at exactly the wrong time, creating much wreckage worldwide.