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On its face, it seems contradictory: The solidly free-trade Bush administration is sending signals that it may impose quotas on imported steel. But for President George W. Bush, putting up barriers to protect the beleaguered U.S. steel industry may be a small price to pay for what he really wants � fast-track trade authority. Bush will have to display considerable finesse to pull off such a political horse trade. He needs to cobble together a coalition of free-traders and steel protectionists in Congress while placating domestic steel consumers and withstanding pressure from abroad. It won’t be easy. Fast track — or as Bush prefers to call it, trade promotion authority — would allow the president to negotiate trade agreements and present them for a simple yes or no vote, without allowing Congress to make any amendments. Bush highlighted his desire for it in his address to Congress. Bill Clinton was forced to negotiate without such authority after Congress stripped him of it in 1994. Unions and many Democrats have already said they won’t support fast track in exchange for steel protection. “There’s no way we’re going to allow our members’ livelihoods to be held hostage to the administration’s push for fast track,” says Leo Gerard, president of the United Steelworkers of America. But some swing voters — House Republicans previously opposed to fast track — sound more receptive. “I will not rule out considering that,” says Rep. Bob Ney, R-Ohio, mimicking the language used by U.S. Trade Representative Robert Zoellick in a recent meeting on steel. With 16,000 steel jobs in his district, Ney is both a champion of the $50 billion industry and a strong opponent of fast track; in 1998, he led Republican resistance to the proposal. The measure was defeated 243-180, with 151 Republicans voting in favor and 71 against. But Ney adds, “Pure fast track, I’m not going to support that. A lot of people won’t.” Others think a direct quid pro quo — steel for fast track — is unlikely, but say a move by Bush to protect U.S. steel will create “progress and momentum that will help when they get to other, more difficult issues,” according to a spokeswoman for steel caucus member Rep. Sander Levin, D-Mich. Adds David Phelps, president of the American Institute for International Steel, which supports free trade: “The steel industry and their friends were a major reason why Clinton didn’t get fast track … . I think the Bush administration understands that.” Experts and onlookers put the odds of new steel import quotas — with or without a direct fast track link — at better than 50-50. Last week, Credit Suisse First Boston upgraded its ratings on steel stocks to “buy,” based in part on anticipation that the U.S. government may act to limit imports. “I know of no trade problem that has been given as much high-level attention in recent years,” says Alan Wolff, a partner in the Washington, D.C., office of New York’s Dewey Ballantine who represents domestic steel companies. “Every report I get is of great seriousness of purpose in remedying the problem.” Ironically, despite strong pressure from organized labor, the Clinton administration turned down steel industry requests for help. The Bush administration may be more receptive in part because of the series of bankruptcies — 10 in the last five months — that have rocked the industry. USTR officials did not return calls seeking comment. “This industry cannot continue to go on like this,” says Gregg Warren, spokesman for the Weirton Steel Corp. in West Virginia. “We’ve got to do something.” PUTTING ITC ON THE CASE Domestic steel producers say that the United States has been the dumping ground for excess world production since 1998, when the economies of East Asia, Russia, and Brazil tanked. In addition, European producers who previously sold steel in Asia began diverting their products to the United States. The result? A surge in steel imports, from 30 million tons a year to 38 million, and a price decline from $330 per ton of hot rolled sheet, for example, to $220 — $50 below cost for most U.S. producers. The industry has aggressively filed antidumping cases, but it is looking for broader, industrywide help. Steel industry and union officials say Zoellick has told them that the administration is considering their request to launch an investigation at the International Trade Commission. Such a procedure, known as a Section 201 investigation, provides a way for the United States to erect trade barriers without violating World Trade Organization obligations. On April 6, Bush appeared to pave the way by rescinding the nomination of ITC Commissioner Thelma Askey. One of six ITC commissioners, Askey was targeted as an enemy of steel after voting against the industry in a dumping case. When her term expired in December, Clinton filled her slot with the recess appointment of steel favorite Dennis Devaney. Shortly after taking office, Bush renominated Askey, a move that triggered howls of protest from steel supporters. Sen. John Rockefeller IV, D-W.Va., actually vowed to “lie down in front of a truck” to stop her nomination. Faced with the certainty of a bitter fight, the White House appeared to back down, shunting Askey off to the tiny U.S. Trade and Development Agency instead. A White House spokeswoman declines comment. The move has energized steel supporters. “If I could,” says Rep. Ney, “I would be doing cartwheels across the rotunda of the Capitol.” The makeup of the ITC is a key piece of the puzzle. If the president launches a Section 201 investigation, it is the ITC commissioners who make the threshold determination of whether imports have been a “substantial cause of serious injury” to an industry. If at least three commissioners vote yes, they then recommend a remedy to the president, who has total discretion to decide what relief, if any, will be offered. If the majority votes no, the case ends there. To some observers, withdrawing Askey’s nomination amounts to “an attempt to stack the ITC,” says Jon Jenson, chairman of the Consuming Industries Trade Action Coalition, which represents the interests of steel-consuming companies like automakers and oil and gas drillers. “It sent a terrible signal,” agrees Russell Smith, special counsel at the D.C. office of New York’s Willkie Farr & Gallagher, which counts Japanese and Brazilian steel makers as clients. “It shows the steel industry can successfully intimidate the administration on a crucial issue like the independence of the ITC.” Mark Glyptis, president of the Independent Steel Workers Union, bristles at the suggestion. “We didn’t think she was objective, so we didn’t think [her removal] compromised the ITC’s objectiveness.” Askey could not be reached for comment. BUILDING BARRIERS Unlike dumping or countervailing duty cases, Section 201 investigations require no finding of an unfair trade practice. A petition can be brought by the president, the USTR, Congress, industry, or unions, but it is seldom pursued — in the past 11 years, just 11 cases have been filed. The reason? Although the ITC commissioners determine if there is injury, the president decides the remedy. “You could spend a lot of money and time, and if [the president] doesn’t support it, it’s a waste,” notes Glyptis. Of previous Section 201 investigations, perhaps the best-known is the Harley-Davidson case, decided in 1983. Then-President Ronald Reagan agreed to impose a declining five-year tariff on competing motorcycles from Japan. During this time, the company reorganized and actually asked for the tariffs to be removed one year early. But free-trade supporters argue that the Harley-Davidson case worked because it was targeted to a single company. “How do you evaluate injury to an entire industry?” says Jenson of the steel consumers trade group. Jenson’s group has been lobbying Congress and the administration against protectionism, stressing that for every one job in steel, there are 50 jobs in companies that use steel in their products. Still, Jenson admits that for many such companies faced with a cost increase in raw materials, “their approach is not necessarily to go to Washington.” Indeed, a D.C. lawyer who follows steel closely says steel consumers are not as well-organized as steel advocates. By contrast, he says, in the current dispute over Canadian lumber, consumers like Home Depot and the Lowe’s Cos. have vigorously fought against additional trade barriers. “The noise [from steel advocates] is not being balanced by broader interests,” he says, speculating that steel consumers may be reluctant to antagonize suppliers. The extent of consumer resistance will be determined in large part by the scope of Section 201 relief. The two major issues are whether to make relief contingent on industry restructuring, and whether to add quotas on top of existing dumping orders and tariffs. If the end result is quotas plus tariffs, Phelps of the American Institute for International Steel predicts, “Customers will be coming out of the woodwork screaming bloody murder.” The United States must also walk a fine line when it comes to dealing with the international community. “Every major trading country in the world is watching the U.S. to see what we do on steel,” says Smith of Willkie Farr & Gallagher. “A bad decision on steel will almost certainly result in the U.S. losing economic credibility.” Later this month, Bush will travel to Quebec to meet with leaders from 33 other Western Hemisphere nations to discuss creation of a Free Trade Agreement of the Americas. Steel onlookers predict he will take no action until after the conference, sparing him the awkward position of pushing for open markets, except when it comes to U.S. steel. But the administration’s moves have already alarmed Japan, Korea, and the European Union. The Korea Times reports that Korean and EU steel-makers met on March 21 to take a common stance against U.S. protectionism, and Korean and Japanese steel-makers met April 9 in Tokyo. “Japan is very upset with the proceedings,” says Charles Butler of the Japan Steel Information Center in New York. “Seventy to 75 percent of steel production is already affected by one dumping duty or another.” Adds Phelps: “What would be the value of fast track if half the world is pissed off at us for closing this market? It would be a Pyrrhic victory of devastating proportions.”

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