Steel: Legislative and Oversight Issues

Order Code RL31792

CRS Report for Congress

Received through the CRS Web

Steel: Legislative and

Oversight Issues

Updated July 30, 2003

Stephen Cooney

Industry Analyst

Resources, Science, and Industry Division

Congressional Research Service ˜ The Library of Congress

Steel: Legislative and Oversight Issues

Summary

The U.S. steel industry has faced increasing difficulties since the late 1990s.

More than 30 U.S. steel producers have gone into bankruptcy and many workers have

lost their jobs. Many retirees have lost company-funded health care benefits, while

their pensions are being taken over by the federally chartered Pension Benefit

Guaranty Corporation. The condition of the industry is discussed in detail in CRS

Report RL31748, The American Steel Industry: A Changing Profile.

U.S. policymakers responded with a variety of measures. The House of

Representatives in 1999 approved a bill that would have required the President to roll

back imports, and the Clinton Administration reacted with a more aggressive steel

policy. The 106th Congress approved and President Clinton signed laws to establish

a steel loan guarantee program (P.L. 106-51), and to distribute to petitioners duties

collected from AD/CVD cases, (known as the Byrd Amendment to the Agriculture

appropriations bill, P.L. 106-387). These measures did not prevent a new downturn

in the domestic steel industry. Moreover, the World Trade Organization (WTO) has

found that the Byrd Amendment violates its rules; S. 1299 has been introduced to

repeal this law, and to distribute AD/CV duties instead to a new program for

communities negatively impacted by trade. The Bush Administration in its FY2004

budget request proposed elimination of both programs, but both continue to operate.

The Steel Loan Guarantee program expires this year, though H.R. 2881 has been

introduced to extend it through 2005.

President Bush in June 2001 requested that the U.S. International Trade

Commission (ITC) undertake a broad Section 201 trade investigation on the steel

industry, and on March 5, 2002, imposed three-year safeguard tariffs with top rates

of 30% (discussed in detail in CRS Report RL31842, Steel: Section 201 Safeguard

Action and International Negotiations). U.S. trading partners are challenging the

safeguard tariffs and other U.S. steel policy measures under WTO rules (see CRS

Report RL31474, Steel and the WTO). Also, a provision in the 2002 Trade Act (P.L.

107-210) assists retirees not eligible for Medicare, who have lost their health care

benefits because of corporate bankruptcies. H.R. 1999 and S. 1018, introduced in

the 108th Congress, would broaden eligibility for these benefits and extend to 2010

the steel import licensing and monitoring program established under Section 201.

Another bill, H.R. 2365, would change U.S. trade laws to strengthen the position of

domestic industry petitioners for relief from imports.

Some Members of Congress, economists and representatives of steel consuming

industries believe that the steel safeguard tariffs are damaging the competitiveness

of U.S. industry. House Ways and Means Committee Chairman William Thomas on

March 18, 2003, requested that the ITC conduct such an investigation under Section

332 of U.S. trade law. This report will be issued together with the ITC’s mid-point

report on the domestic steel industry, which is required under Section 201.

This CRS report examines recent legislative measures addressing issues in the

steel industry in the 108th Congress. It will be updated as events warrant.

Contents

Congressional Response to Section 201 Steel Safeguard Tariffs . . . . . . . . . . . . . 1

Congressional Role in Section 201 Process . . . . . . . . . . . . . . . . . . . . . . . . . . 1

ITC Reports on Safeguards under Sections 204 and 332 . . . . . . . . . . . . . . . . 4

Other Legislative Measures Affecting the Steel Industry . . . . . . . . . . . . . . . . . . . 9

Antidumping and Countervailing Duties . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

China Safeguards: The Steel Wire Hanger Case . . . . . . . . . . . . . . . . . . . . . 14

The Byrd Amendment (Continued Dumping and Subsidy Offset Act) . . . . 15

The Emergency Steel Loan Guarantee Act of 1999 . . . . . . . . . . . . . . . . . . . 19

Export-Import Bank Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

National Security and Defense Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

Steel Industry Report on National Defense and Economic Security . . 25

Section 232 Investigation on National Security . . . . . . . . . . . . . . . . . . 25

Steel Issues in Defense Procurement . . . . . . . . . . . . . . . . . . . . . . . . . . 27

Steel Issues in Civilian Infrastructure Procurement . . . . . . . . . . . . . . . 27

Industry and Legacy Cost Relief Legislation . . . . . . . . . . . . . . . . . . . . . . . . 28

The Outlook for Legislation on Steel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30

For Additional Reading . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30

Steel: Legislative and Oversight Issues

Congressional Response to Section 201 Steel

Safeguard Tariffs

The U.S. steel industry has been in serious difficulties since the late 1990s (the

causes and impact of these problems are explored in CRS Report RL31748, The

American Steel Industry: A Changing Profile). In recent years, Congress has actively

considered and acted on measures designed to assist the industry. The industry’s

economic situation and future, however, remain generally uncertain.

Members of Congress, as well as industry and union representatives, urged

President George W. Bush to protect the steel industry with safeguard measures

under Section 201 of the Trade Act of 1974. The two major types of domestic raw

steel producers – “integrated” steel mills, which start by making steel from iron ore,

and “minimills,” which generally make a narrower range of products by remelting

steel scrap – both broadly supported safeguard actions under Section 201. As

detailed in CRS Report RL31748, the integrated mills and the minimills both believe

that steel prices have been kept too low and that their ability to invest and modernize

has been impaired by a high rate of imports, which has resulted from global

overcapacity. But on other issues, particularly with respect to assistance to the

industry in paying for pension and health care commitments, the minimills and the

integrated mills have quite different perspectives on resolving industry problems.

After the President decided to launch a Section 201 trade case, Congress

essentially gave President Bush the lead in addressing steel industry trade issues.

President Bush’s Section 201 trade actions, announced on March 5, 2002, have kept

this initiative in his hands. But Congress has remained active in considering the

impact of these actions, as well as additional issues, notably legacy costs, defined as

the pension and health care benefits paid by steel companies.

Congressional Role in Section 201 Process

Sections 201-204 of the Trade Act of 1974, commonly referred to as “Section

201,” permit the President to grant temporary relief, usually “safeguard” tariffs or

quotas, to domestic industries that are found to be seriously injured by an increase in

imports of articles like or directly competitive with products produced by those

industries. Representatives of affected industries may petition the U.S. International

Trade Commission (ITC) for assistance, and the Commission is required to

investigate whether the increase in imports is causing or is likely to cause serious

injury to the industry involved. Investigations may also be initiated by resolution of

the House Ways and Means Committee or the Senate Finance Committee, or may be

requested by the President or the U.S. Trade Representative (USTR). After the

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investigation, the ITC then determines whether action is warranted and, if so,

recommends to the President various forms of import relief.1

Congress played an active role before, during and after the Section 201 process

by which the present steel safeguard tariffs were established. On June 5, 2001,

responding to many requests from Congress, union representatives and steel

companies, President George W. Bush announced that his Administration would call

upon the ITC to begin an investigation on steel under Section 201 of U.S. trade law.

The President also announced that he would seek multilateral negotiations with U.S.

trading partners on fundamental issues of overcapacity and subsidies.2

Senator Jay Rockefeller separately pursued a Senate Finance Committee

resolution that would independently call for an ITC investigation, in addition to the

presidential action. Sen. Rockefeller had considered including upstream inputs in a

different, committee-sponsored request to the ITC, but the final committee resolution

endorsed the Administration action and product list, as well as the effort to seek a

multilateral agreement. Accordingly, the ITC consolidated the Section 201 case

requests from the Administration and Senate Finance.3

The ITC held an extensive series of hearings on the issue of injury to the steel

industry from imports, which began on September 17, 2001. The ITC staff had

grouped the tariff headings forwarded by the USTR into 33 product categories, under

four broad groupings. For each category, the ITC had to determine whether imports

for the period 1996-2001 constituted a “substantial cause of injury or threat of injury”

to domestic producers (i.e., were “important and not less than any other cause”).4

Members of Congress may participate in ITC hearings, and many did so. The

first witness at the first hearing, testifying in support of relief, was Senator Robert

Byrd of West Virginia. He was followed through the course of the hearings by 40

other elected leaders, including members of both parties, both Houses of Congress,

and several Governors, who testified in support of relief. In the subsequent ITC

hearings on remedies, this perspective was balanced somewhat, as Senator Chuck

Hagel of Nebraska and Representative Jim Kolbe of Arizona provided testimony, not

against relief, but to remind the ITC of U.S. interests in maintaining adherence to

World Trade Organization (WTO) rules and the interests of U.S. consumers.

Similarly, Representatives John Isakson and Nathan Deal of Georgia expressed

1

For details, see CRS Report RL31396, Section 201 of the Trade Act of 1974: Summary of

Provisions and History of Investigations by George Mangan.

2

President George W. Bush. Statement by the President Regarding a Multilateral Initiative

on Steel. (June 5, 2001), [http://www.whitehousereleases/2001/0605-4.html]. A detailed

discussion of the Section 201 safeguard actions, associated policies and subsequent

developments is presented in CRS Report RL31842, Steel: Section 201 Safeguard Action

and International Negotiations by Stephen Cooney.

3

American Metal Market (AMM), July 18 and 31, 2001. The Finance Committee resolution

was forwarded by letter to the chairman of the ITC on July 26, 2001. USITC. “Revised

Announcement on Consolidation of Senate Finance Committee Request with USTR Request

of June 22, 2001, for a Section 201 Investigation on Steel,” August 16, 2001.

4

Quoted phrases from 19 USC §2252 (b)(1)(B).

CRS-3

concern about a constituent, an automotive parts manufacturer, whose business could

be adversely affected, they said, by an effective cut-off of steel imports. In view of

the September 11 terrorist attacks on New York and Washington, DC, many

governmental representatives also frequently included in their remarks references to

the importance of a domestic steel industry to U.S. national security.

The ITC announced on December 7, 2001, its findings that 16 of the 33 product

groups under investigation had suffered or were threatened by substantial injury from

imports during the period of investigation. Injured domestic producers, the ITC

found, included makers of products in all four categories covered by the presidential

request: carbon and alloy steel flat, long and tubular products, and stainless steel

products.5 Subsequently, the ITC made a series of recommendations to the President

for remedial actions. These recommendations were not unanimous. Two

commissioners recommended four-year tariffs as high as 40% for most products

(measured by volume of imports), three commissioners recommended tariffs no

higher than half that level, and one commissioner generally preferred quotas instead

of tariffs.6

On March 5, 2002, the White House announced the President’s decision to

apply trade remedy measures to 14 of the 16 product groups for which the ITC found

injury under the Section 201 process. The President adopted safeguard tariffs of 30%

in the first year for high-volume flat and long products, and semi-finished slabs, with

a quota for slab imports with no remedy tariffs (a tariff-rate quota). Lower levels of

relief were provided for some long products, notably concrete reinforcement bars,

and tubular and stainless products. No remedy relief was provided for two product

categories included in the ITC injury findings. Relief was for three years, not four,

possibly to minimize compensation claims under WTO rules, and, as required by

U.S. law, the safeguard tariffs are successively lower in the second and third years.7

Canada and Mexico, the North American Free Trade Area partners of the United

States, are major steel exporters to the United States, but were exempted from all

remedy measures. So were the other U.S. free-trade area partners (namely Israel and

Jordan, which are not major producers). Imports from most developing countries

were also exempted.8 The Administration also excluded some steel products from

the safeguard tariffs on grounds that they are not available from U.S. producers, and

announced that it would undertake a process to review additional possible exclusions,

including any objections by U.S. industry to proposed exclusions. Ultimately, the

Administration granted more than 700 requests for exclusion of specific imports from

the remedy measures. It may add to the list of exclusions in March in each year after

5

A summary of the ITC findings on injury is presented in CRS Report RL31842, Table 1.

6

The recommendations of the commissioners are summarized in USITC Publication 3479.

Steel: Investigation No. TA-201-73 (Dec. 2001), Vol. I: Determinations and Views of the

Commissioners, pp. 2-8.

7

8

The Section 201 safeguard tariffs are summarized in CRS Report RL31842, Table 2A.

Country exemptions from the Section 201 safeguard tariffs are summarized in CRS Report

RL31842, Table 2B.

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subsequent annual reviews.9 The first annual review, completed in March 2003,

added 295 specific products to the exclusion list.10 Members of Congress have been

actively involved in expressing their views to the Commerce Department and to the

USTR regarding the exclusion of products from steel safeguard remedies.11

Representative William Lipinski and 19 co-sponsors also introduced H.R. 2877 on

July 24, 2003, which would allow for the revocation of certain exclusions, when it

could be shown that the only basis for denying an objector’s claim was its lack of

timeliness. Otherwise, the position of the Administration is that exclusions, once

granted, will not be revisited.

The Section 201 statute provides that if the President takes no action or action

different from the ITC recommendation, the ITC’s recommendations may still go into

effect instead of presidential action, if Congress enacts a joint resolution of

disapproval of the President’s decision within 90 days of notification of that

decision.12 Representative William Jefferson, emphasizing the potential damage of

the steel safeguard tariffs and falling imports to the Port of New Orleans in his

district, introduced a resolution under Section 201 to overturn the President’s policy.

Rep. Jefferson noted that the ITC position, from his point of view, was hardly ideal,

since he preferred no remedy tariffs and the ITC tariff levels (as recommended by

three members, and therefore the formal position) were as high as 20%. But this was

still less than the tariffs imposed by the President.13 The resolution was referred to

the House Ways and Means Committee, where it was reported unfavorably on April

24, 2002, and tabled on the House floor on May 8, 2002.14

ITC Reports on Safeguards under Sections 204 and 332

Complaints from U.S. businesses about high steel prices and short supplies

began rolling in as the Section 201 tariffs went into effect and steel prices rose in the

first half of 2002. These groups and their congressional supporters succeeded in

ensuring that the ITC will report on the impact of the safeguard measures on steel

9

President of the United States. Message to Congress (House Doc. 107-185), March 6,

2002.

10

Dept. of Commerce/Office of the USTR. Fact Sheet: Exclusion of Products from

Safeguard on Steel Products and Automatic Adjustment of the Remedy, March 21, 2003. A

summary descriptive list of exclusions, with quotas, was released with these two documents;

the full version is included in 68 Federal Register 15494-544 (March 31, 2003).

11

Sen. Jay Rockefeller, in testimony before the ITC’s Section 204 mid-point review hearing

on July 22, 2003, stated that, “the Administration has excluded a staggering 1,022 products

from the Section 201 measures. As a result, currently only about a fifth of U.S. steel imports

– or roughly 5% of overall U.S. steel consumption – is covered by the tariffs.”

12

CRS Trade Briefing Book , Section 201 of the Trade Act of 1974, by Jeanne J. Grimmett

[http://www.congress.gov/brbk/html/ebtra68.html].

13

BNA. Daily Executive Report (DER), “Rep. Jefferson Announces Challenge to Bush

Decision to Impose Tariffs on Steel,” March 8, 2002.

14

DER, “House Crushes Move to Overturn Controversial Safeguard Steel Tariffs” (May 9,

2002).

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consuming industries, as well as on the steel industry itself, when it issues a report

required by law at the mid-point of their three-year planned duration.

Representative Donald Manzullo, Chairman of the Small Business Committee,

convened a series of hearings beginning in July 2002, which heard witnesses

complain that in the Section 201 tariff decision the steel industry had been favored

at the expense of steel users, that steel prices had risen even higher than the nominal

tariff increases, and that the supply of steel in sufficient quantity and quality had

become unreliable. Many of the companies were manufacturers who supply the Big

Three car manufacturers. They stressed that given the present supply-chain cost

squeeze, the auto makers could well move more sourcing offshore.15 At a Small

Business Committee hearing on September 25, 2002, Under Secretary of Commerce

for International Trade Grant D. Aldonas refused to consider any early termination

of the Section 201 tariffs outside the statutory review process, though he stated that

the exclusion list could be modified, if steel suppliers were shown to have used false

or fraudulent information in successfully objecting to product exclusions.16

Reflecting the concerns of steel users, Representative Joe Knollenberg and six

co-sponsors introduced a resolution in October 2002 that urged the President to

request the ITC to conduct an early review of the safeguard measures and to include

consideration of the impact on consuming industries (the ITC is required to review

the Section 201 tariffs eighteen months after their initiation).17 The resolution was

referred to the Ways and Means Committee, where no action was taken before the

107th Congress adjourned.

On January 29, 2003, Rep. Knollenberg introduced a different version of this

measure as H. Con. Res. 23. The request for an early review of the steel safeguard

tariffs by the ITC was dropped, but the measure urged that the President request the

ITC, “in addition to monitoring and reporting on the items enumerated in Section 204

of the Trade Act of 1974 ... also ... monitor and report on the impact of the temporary

safeguards on domestic steel consuming industries.” By April 2003, H. Con. Res.

23 had 74 co-sponsors. In introducing the measure Rep. Knollenberg explained that,

“The ITC is required to review the effects of the steel tariffs imposed in March 2002

by September 2003, but is under no obligation to consider the effects of the tariffs on

steel consumers ... What good will the tariffs have achieved if there are no customers

15

U.S. House of Representatives. Committee on Small Business. The Unintended

Consequences of Increased Steel Tariffs on American Manufacturers (Hearing, July 23,

2002) and Lost Jobs, More Imports; Unintended Consequences of Higher Steel Tariffs (Part

II) (Hearing, Sept. 25, 2002). See also the reports in AMM, July 24 and 29, 2002. The issue

of effects of the safeguard tariffs on steel consuming industries is discussed in detail in CRS

Report RL31748, pp. 26-31.

16

House Small Business Committee, Part 2 (Sept. 25, 2002), pp. 5-11. DER, “Commerce

Official Rebuffs Call to End Steel Tariffs; Leverage Cited,” (September 26, 2002).

17

Detroit Free Press, Oct. 1 and 10, 2002; AMM, Oct. 10, 2002. Technically, a “mid-point

review” is necessary only when remedy measures apply for longer than three years; 19 USC

§2254(2). President Bush actually proclaimed the steel safeguard remedy measures for a

period of three years and one day.

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left to buy steel from U.S. companies?”18 On March 20, 2003, Senator Christopher

Bond introduced a companion measure, S. Con. Res. 27, which gained seven cosponsors by the end of the month.

Rep. Knollenberg’s point was based on the statutory text of the safeguard

provisions (in Section 204 of the Trade Act of 1974), which makes reference only to

the effects on the injured domestic industries, with respect to the monitoring and

reporting requirements on the ITC. That body is charged with monitoring

“developments with respect to the [subject] domestic industry, including the progress

and specific efforts made by workers and firms in the domestic industry to make a

positive adjustment to import competition.” The ITC must hold a hearing, prepare

a mid-point report on the effects of the safeguard measures and, if requested by the

President, “advise the President of its judgment as to the probable economic effect

on the industry concerned of any reduction, modification or termination” of the

safeguard action.19 (Italics added.)

The steel industry opposed Rep. Knollenberg’s view of the price impact of the

safeguards, and argued that the emphasis on the interests of the consumer in H. Con.

Res. 23 and similar measures is misplaced.20 A coalition has been organized among

steel industry suppliers and customers, claiming 250 members in 29 states, to support

the counter view that steel safeguard tariffs are having a positive effect on U.S.

industry.21

The ITC announced its procedures for the Section 204 investigation on March

10, 2003. It four dates for public hearings, as required in the statute, in July 2003.22

The hearings took place as scheduled, with a broad degree of congressional

participation, all in support of continuing the Section 201 safeguard measures for the

full three years announced by President Bush in March 2002.23 A discussion of the

mid-point hearings is included in an update of CRS Report 31842 on Section 201 and

associated international steel issues.

In deciding whether to take action to “reduce, modify or terminate” safeguard

measures after receiving the ITC report, the President, as explained in the 1988

legislative history of amendments to this section of the law, may base his decision

either on:

18

Rep. Joe Knollenberg. Press release, January 29, 2003.

19

19 USC §2254(a).

20

See quote from Dan DiMicco, Chairman of the American Iron and Steel Institute (AISI)

and CEO of Nucor in AISI. Steel Works News Digest, Feb. 4, 2003.

21

Their website is www.steelcoalition.org.

22

USITC. Steel: Monitoring Developments in the Domestic Industry (Investigation no. TA204-9), March 10, 2003. See also AMM, March 13, 2003. The hearing dates, after some

changes in the initial schedule, were July 10, 17, 22 and 24, 2003.

23

DER, “Steel-State Lawmakers Come Out to Support Retaining Steel Tariffs” (July 23,

2003).

CRS-7

!

“changed circumstances that warrant such reduction, modification

or termination; or”

!

“a majority of representatives of the domestic industry request such

reduction, modification or termination on the basis that the domestic

industry has made a positive adjustment to import competition.”

The statute provides that a “changed circumstances” determination may be made

on the basis that either: (i) “the domestic industry has not made adequate efforts to

make a positive adjustment to import competition,” or (ii) “the effectiveness of the

action taken ... has been impaired by changed economic circumstances.”24 The

legislative history further elaborates that changed economic circumstances may

include developments “such as substantial shifts in currency exchange rates or

attempts to circumvent the action taken.”25 In making a determination on these bases,

the President is required to take into account the ITC report and must also seek the

advice of the Secretary of Commerce and the Secretary of Labor.

In March 2003 the House Ways and Means Committee took two steps

responsive to consuming industry concerns on the impact of the steel safeguards. On

March 18, 2003, the Chairman of the committee, Representative William Thomas,

requested that the ITC, under the authority of its general investigative powers

(Section 332(g) of the Tariff Act of 1930), prepare a separate report on “the current

competitive conditions facing the steel consuming industries in the United States,

with respect to the tariffs imposed by the President on March 5, 2002.” Chairman

Thomas specifically requested that this report be completed no later than the Section

204 mid-point report (September 2003) and be issued with it as a single document.26

The Chairman of the Senate Finance Committee, Senator Charles Grassley,

subsequently supported this request.27

A few days later, on March 26, 2003, the Trade Subcommittee of Ways and

Means, chaired by Representative Philip Crane, held a hearing on the impact of the

Section 201 steel safeguard measures. The hearing listened to testimony of more

than two dozen witnesses, including House Members, representatives of the steel

industry and its major union, numerous manufacturers who detailed how their

business had been hurt since the Section 201 tariffs entered into force, and similar

comments from representatives from Houston and the port of New Orleans.28

Speaking at the hearing, Rep. Knollenberg stated that all he was seeking in his

24

19 USC §2254(b)(1)(A).

25

100th Cong., 2nd Sess. H.Rept. 100-576. Omnibus Trade and Competitiveness Act of 1988:

Conference Report to Accompany H.R. 3 (April 20, 1988), p. 688.

26

Letter from Rep. William Thomas to ITC Chair Deanna Tanner Okun, Mar. 18, 2003.

27

Inside US Trade, “Grassley Backs Linking Steel Safeguard Review with ITC Study,”

including letter of April 1, 2003, from Sen. Grassley to ITC Chair Deanna Tanner Okun

(April 4, 2003).

28

See committee website, [http://waysandmeans.house.gov/hearings], for a complete list of

witnesses. Most of the prepared testimony was reported online by Inside US Trade on March

26, 2003.

CRS-8

resolution was “balance” in ITC reporting on the effects of the safeguard tariffs.

With Chairman Thomas’ request to the ITC, he continued, “I am happy to say the

request in my resolution has been fulfilled.”29

In his opening statement at the hearing, Trade Subcommittee Ranking Member

Sander Levin was more concerned that the Thomas request “indicated a clear

predisposition against the safeguard relief.”30 The Ranking Members of the Senate

Finance and House Ways and Means Committees, Senator Max Baucus and

Representative Charles Rangel, expressed their “serious concern” about Rep.

Thomas’ request in a joint letter to the Chairman of the ITC. While in their letter

they did “not mean to suggest that the [ITC] should not conduct the 332 investigation

requested,” they further noted that “as a legal matter, a request by one congressional

committee cannot amend a statute ...” In their analysis:

The statute on its face neither provides for nor contemplates an

examination of the kind called for by the 332 request letter, a conclusion

that is only reinforced by a review of the legislative history. Indeed, under

Section 204(b), it is not clear how any such information could, consistent

with law, be considered by the President in his decision whether to reduce,

modify or terminate relief. Therefore, it is not possible as a legal matter

for the Commission to comply with the request in the 332 letter to combine

the 332 report and the 204 midterm review.”31

Despite such concerns, the ITC acceded to Chairman Thomas’ request. The ITC

also inquired regarding the views of the USTR, which replied that there was no

objection to a single ITC report, including both the statutorily required report under

Section 204 and the report requested by Chairman Thomas under Section 332.32

Subsequently, the ITC announced a Section 332 investigation, Steel-Consuming

Industries: Competitive Conditions with Regard to Steel Safeguard Measures, to be

completed coterminously and published with the safeguard investigation by

September 20, 2003 (Investigation no. 332-452). The investigation will “address the

effects of the safeguard measures on steel consuming industries and on industries

which rely on steel imports, such as ports.” It will include both the impact on

specific industries and “potential economy-wide effects of the safeguard

measures...”33 The Section 332 hearings were held on June 19-20, 2003, and are

further discussed in an update of CRS Report RL31842. By contrast with the later

Section 204 hearings, a large number of congressional participants in the Section 332

29

Rep. Joe Knollenberg. “Testimony Before House Ways and Means Subcommittee on

Trade, March 26, 2003,” released by his office.

30

DER, “Crane calls for Constructive Dialogue on Tariffs Between Steel Producers, Users”

(Mar. 27, 2003).

31

Letter from Sen. Max Baucus and Rep. Charles Rangel to Chairman Deanna Tanner Okun,

USITC, March 25, 2003.

32

Letter from John Veroneau, Office to the U.S. Trade Representative to Daniel F. Leahy,

USITC External Relations Office, March 27, 2003.

33

USITC. “ITC to Investigate Competitive Conditions in Steel-Consuming Industries with

Respect to Steel Safeguard Measures,” News Release 03-037 (April 4, 2003).

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hearings criticized the Section 201 safeguards as damaging to steel-consuming

industries in their states.

During the Section 204 hearings there were several lively exchanges between

counsel for the respondents’ side and members of the Commission regarding the

scope of the ITC report on the impact of the safeguard measures. Part of the

discussion focused on the degree to which the ITC report should focus on the

economic impact of the safeguards and make any recommendations to the President

regarding their continuation or modification. The statutory language of Section 204

provides that, “Upon request of the President, the Commission shall advise the

President of its judgment as to the probable economic effect on the industry

concerned of any reduction, modification or termination”of the safeguards.34

Commissioner Stephen Koplan noted that the ITC had received no such request from

the President; he and the other commissioners stated that their role should be limited

to monitoring industry developments since the initiation of safeguards. Chairman

Deanna Tanner Okun concluded that, “the Commission does not intend to augment

the content of its Section 204 report beyond that it is appropriate under the statute ...

I would also note that neither Section 204(a)(2) [the provision requiring an ITC midpoint review] nor the Section 332(g) request letter [from Chairman Thomas] require

or request the Commission to make recommendations in its respective reports.”35

Other Legislative Measures Affecting the Steel

Industry

Presidential action under Section 201 has been far from the only action taken

or proposed under U.S. law in defense of the interests of the domestic steel industry.

This section of the report reviews:

!

Actions undertaken by or for the domestic steel industry under U.S.

trade remedy laws beyond the Bush Administration safeguard

measures;

!

The application and impact of other measures passed in recent years

to assist the steel industry;

!

Other issues, particularly legacy cost relief, which have been

proposed and considered for legislative action.

Antidumping and Countervailing Duties

The U.S. steel industry has filed numerous petitions under existing U.S.

AD/CVD trade law. In a report written in 2002, Edward Gresser of the Progressive

34

35

19 USC §2254(a)(4).

This discussion continued over the last three Section 204 hearing days, on July 17, 22 and

24, 2003. Chairman Okun’s formal statement was made at the opening of the July 22, 2004

hearing.

CRS-10

Policy Institute calculated, based on Commerce Department data, that, “...About 130

of the nearly 260 antidumping orders now in force, affecting 32 different countries,

are on steel products; likewise, 30 out of the 50 countervailing duty orders in force

affect steel.”36

AD/CVD cases are still being filed or pursued while the Section 201 safeguard

tariffs are in place. For example, furnace coke producers, whose product was not

covered in the Bush Administration 201 case, instead filed an antidumping case

against products from Japan and China. In this case the ITC in early August 2001

voted 3-2 against a preliminary injury determination, thus terminating the proceeding.

The domestic industry appealed the determination and on May 20, 2003, the U.S.

Court of International Trade reopened the issue by finding that, “The ITC has failed

to demonstrate that the record on the whole contains ‘clear and convincing evidence

that there is no material injury or threat of such injury’... “ to the U.S. coke industry.

The ITC must reply to explain its rationale in the original decision, and may possibly

have to reopen the case.37

A number of other cases involved products that were also subject to the Section

201 investigation. In perhaps the most extensive of such cases, on September 28,

2001, four major U.S. integrated steel producers (Bethlehem, U.S. Steel, LTV, and

National Steel), who at that time supplied the majority of domestically produced

cold-rolled steel, filed an antidumping case against cold-rolled imports from 20

countries. According to a Bethlehem Steel statement, “Imports from these countries

now represent over 80% of all imports of cold-rolled steel products.” The petitioners

also filed a subsidy case against four of the countries (Argentina, Brazil, France and

Korea).38

Meanwhile, in another case, the Department of Commerce found that nine

countries are dumping hot-rolled steel in the United States and that producers in four

countries are receiving countervailable subsidies. The ITC subsequently found

material injury in these cases, thereby allowing final AD/CVD duties to be imposed.39

On April 3, 2002, the Commerce Department announced preliminary antidumping

duties of as much as 370% on wire rod imports from seven countries. The ITC on

October 2, 2002, voted in favor of a positive finding of injury from imports in this

case, despite the continued existence, at that time, of Section 201 remedy relief

established on these products under the Clinton Administration in 2000.40

36

Edward Gresser, Kind to Be Cruel (Progressive Policy Institute report, April 2002), p. 3.

37

AMM, August 13 and September 25, 2001; May 26, 2003 print ed.

38

DER, “U.S. Producers File Trade Case Against Cold-Rolled Steel Exporters,” October 1,

2001; AMM, October 2, 2001.

39

DER, “Commerce Finds Nine Countries Are Dumping Hot-Rolled Steel,” September 26,

2001; U.S. International Trade Commission. Press release 01-129 (November 2, 2001);

AMM, November 5, 2001.

40

U.S. International Trade Commission. “Carbon and Certain Alloy Steel Wire Rod from

Brazil [et al.], But Not Germany, Injures U.S. Industry, Says ITC,” press release 02-090.

AMM, Apr. 3, Oct. 3 and 4, 2002; DER, “ITC Ruling Paves Way for AD/CVD Duties on

(continued...)

CRS-11

But the ITC’s denial of injury claims in three consecutive steel antidumping

cases in May-June 2002 led some observers to conclude that “the ‘door is closed’ to

further trade relief in the wake of the Section 201 import tariffs.”41 Then, in early

August 2002, U.S. domestic petitioners received another setback from the trade

adjudication process when a judge of the Court of International Trade vacated an ITC

decision that had established antidumping duties of more than 100% against tinplate

imports from Japan.42

On August 27, 2002, the impression that trade relief under AD/CVD laws was

harder to obtain while the Section 201 relief is in effect was strengthened by a

negative ITC determination regarding material injury on the first five of the 20

countries charged in the big cold-rolled AD/CVD case. This decision was followed

by a negative finding of injury on imports from the remaining 15 countries, as well

as with respect to injury from alleged subsidies.43 In a joint press release with U.S.

Steel, Bethlehem Steel CEO Robert S. Miller reflected the opinion of much of the

domestic steel industry when he said, “This determination is flatly at odds with

President Bush’s steel program and the law...[it] moves the nation backwards, not

forwards to a free trading future.”44 But on behalf of steel users, Jon Jensen,

president of the Consuming Industries Trade Action Coalition (CITAC) said, “Most

cold-rolled steel is already covered by the Section 201 tariffs of up to 30%. As a

result, U.S. cold-rolled steel prices have increased 70 to 75% and steel consumers

face serious and continuing supply shortages and delays.”45

Other countries have criticized U.S. AD/CVD laws, and have alleged that the

application and administration of the laws may infringe U.S. WTO obligations. The

United States has recently lost a WTO case related to steel against the seldom-used

1916 Antidumping Act, which authorizes a private right of action and criminal

40

(...continued)

Wire Rod” (October 3, 2002). The Clinton wire rod and line pipe safeguard remedies

expired on March 1, 2003. See U.S. Permanent Mission formal notification to the WTO in

documents G/SG/N/10/USA/4/Suppl.2 and G/SG/N/10/USA/5/Rev.1/Suppl.2, released as

WTO documents 03-1683 and 03-1684 (March 24, 2003).

41

AMM, June 25, 2002.

42

AMM, August 13, 2002.

43

USITC. Certain Cold-Rolled Steel Products from Australia, India, [et al.] (Investigations

Nos. 731-TA-965, 971-2, 979 and 981), Determinations and Views of the Commission (Publ.

No. 3536, Sept. 2001); and, Certain Cold-Rolled Steel Products from Argentina, Belgium,

[ et al.] (Investigations Nos. 701-TA-423-5 and 731-TA-964, 966-70, 973-8, 980, and 9823), Determinations and Views of the Commission (Publ. No. 3551, Nov. 2002).

44

U.S. Steel/Bethlehem Steel press release, “Steel Industry Condemns Unjust ITC Ruling;

Decision Ignores Facts and Law,” Aug. 27, 2002.

45

Quoted in Washington Post, August 28, 2002. See also, DER, “ITC Nixes Duties for Five

Countries in Ruling on Cold-Rolled Steel Charges” (Aug. 28, 2002); Inside US Trade, “ITC

Rejects Cold-Rolled Dumping Case Against Five Countries in Final Injury Vote” (Aug. 27,

2002); Forbes.com, “Steel Panel: No Harm, No Foul” (Aug. 28, 2002); Bloomberg News,

“U.S. Says Cold-Rolled Imports Don’t Hurt Steelmakers” (Aug. 27, 2002); Financial Times,

August 27, 2002; AMM, August 28, 2002.

CRS-12

penalties for dumping (Section 801 of the Revenue Act of 1916, 15 USC 72).46

Legislation to repeal the 1916 Antidumping Act was introduced in Congress in 2002,

but was never acted upon. On March 4, 2003, Representative James Sensenbrenner,

Chairman of the Judiciary Committee, and Representative Thomas, Chairman of the

Ways and Means Committee, introduced H.R. 1073 to accomplish the same

purpose.47 Two bills have also been introduced in the Senate. S. 1155, introduced

by Senator Grassley, Chairman of the Senate Finance Committee, would repeal

Section 801.48 Senators Hatch and Leahy, Chairman and Ranking Member of the

Judiciary Committee, respectively, introduced S. 1080, which would repeal the entire

Title VIII of the same law, and would apply to any pending cases, unlike the other

two bills.49

WTO dispute settlement panels have also ruled against the way U.S. law was

applied in countervailing duty cases involving EU member countries and in an

AD/CVD case involving cut-to-length steel plate from India. These cases may not

require any changes in statutory law for the United States to be considered in

compliance with WTO rules, but rather changes in administrative application of

AD/CVD rules.50 However, as the result of a third WTO case in 2001, the Bush

Administration has requested that Congress change statutory AD law, which it

believes will bring the law into compliance with the rulings of the WTO Appellate

Body. This case involves AD duties on hot-rolled steel imports from Japan. The

Commerce Department has already implemented part of the WTO ruling by

modifying the test that it uses to determine “arm’s length” transactions, and by

recalculating and reducing the dumping margins in this case. Japan is reportedly not

satisfied by the reduction or the proposed legislated policy change, and wants more

far-reaching changes – including full termination of the duties.51 On the other hand,

a coalition representing a wide range of agricultural and industrial interests, including

steel, has written key committee leaders urging Congress not to act even on the

Administration request.52 A detailed account of U.S. compliance with adverse WTO

rulings, including those in cases relating to steel, is provided in CRS Report

46

DER, “EU Wants to ‘Mirror’ Illegal U.S. 1916 Act, with Japan Will Make Unique WTO

Request” (Jan. 9, 2002) .

47

See the official U.S. notice to the WTO on the introduction of this bill (WTO ref.

WT/DS136/14/Add.13 – WT/DS162/17/Add.13, doc. Ref. No. 03-1203, March 7, 2003).

48

DER, “Grassley Introduces Measure to Repeal 1916 Dumping Law” (May 27, 2003).

49

Congressional Record (May 19, 2003), S6631-32.

50

WTO cases DS212-213 and DS206, respectively. See CRS Report RL31474 for details.

51

See ibid., under WTO case DS184; DER, “U.S., Japan Agree on Arbitration to Implement

Hot-Rolled Steel Deadline” (Nov. 27, 2001); “WTO Sets Compliance Deadline for U.S. to

Meet Hot-Rolled Steel Order” (Feb. 20, 2002); “Zoellick, Evans Urge Congress to Amend

Antidumping Law to Comply with WTO Ruling” (Apr. 17, 2003); and, “Japan Questions

U.S. Compliance with WTO Hot-Rolled Steel Ruling” (Apr. 21, 2003). Inside US Trade,

“Zoellick, Evans Seek Antidumping Law Change on Hot-Rolled Steel” (Apr. 18, 2003)

includes the text of the joint letter.

52

Letter of “Committee to Support U.S. Trade Laws” Executive Director David Hartquist

to Sens. Grassley and Baucus, May 20, 2003.

CRS-13

RL32014, WTO Dispute Settlement: Status of U.S. Compliance in Pending Cases, by

Jeanne J. Grimmett.

More fundamentally, some Members of Congress are concerned that the U.S.

Trade Representative, in reaching agreement with WTO partners to begin a new trade

negotiation, has accepted that antidumping rules will in some measure be opened for

discussion in that negotiation.53 In response, the Senate adopted an amendment, cosponsored by Senators Craig and Dayton, to its version of the 2002 Trade Act. The

amendment would have required a separate vote on any changes to U.S. trade remedy

laws negotiated at the WTO. An effort to table this amendment was defeated 61-38,

despite reported veto threats by the Administration. More than 100 House

Democrats, including some active on steel issues, wrote Speaker Dennis Hastert to

urge inclusion of the provision in the final bill, but the measure was effectively

dropped in the House-Senate conference on the legislation.54 The amendment was

replaced in the final bill by the establishment as a “principal negotiating objective,”

the preservation of “the ability of the United States to enforce rigorously its trade

laws, including the antidumping, countervailing duty, and safeguard laws, and avoid

agreements that lessen the effectiveness of domestic and international disciplines on

unfair trade, especially dumping and subsidies, or that lessen the effectiveness of

domestic and international safeguard provisions ...”55

On June 5, 2003, Representative Philip English, Chairman of the Congressional

Steel Caucus, and two other members of the House Ways and Means Committee

introduced H.R. 2365, a bill that would make a number of major changes to U.S.

trade law – both the AD/CVD and the Section 201 safeguard process. Similar in

many respects to legislation introduced by the sponsor in the two previous

Congresses, these changes would generally strengthen the position of domestic

petitioners for trade relief, including the domestic steel industry. The changes

proposed include:

!

exclusion of “captive production” (domestic production intended by

a company for its own downstream use, such as semifinished steel

slabs that will be rolled into market products) from AD/CVD

internal market calculations;

53

See, for example, statement of Sen. Robert Byrd, Congressional Record (Nov. 16, 2001),

S11985-6. However, a House resolution initially intended to instruct USTR not to

renegotiate U.S. AD/CVD laws was subsequently replaced by a more flexible version. See

Inside U.S. Trade analysis, “House Effort Could Enable U.S. to Put Trade Laws on Table

at WTO,” (Nov. 9, 2001). Contrarily, an analysis by an expert on the WTO, R.K. Morris,

who attended the WTO meeting, emphasizes that the ministerial declaration allows only a

narrow scope for renegotiating AD/CVD rules, “An NGO Looks Back: Lessons from the

WTO’s Ministerial Meeting in Doha, Qatar,” Global Positions, III:1 (Jan. 7, 2002), pp. 4-5.

54

Congressional Record (May 14, 2002), pp. S4299-4326; DER, “House Democrats Push

to Include Dayton-Craig in Trade Conference Bill” (May 24, 2002) and “TAA Deal,

Dumping of Dayton-Craig Clause Crucial to Agreement on Omnibus Trade Bill” (July 29,

2002).

55

P.L. 107-210, §2101(b)(14)(a). The language reflects that contained in H.Con.Res. 62,

adopted by a 410-4 vote in the House prior to the WTO Doha meeting in 2001.

CRS-14

important alterations to the calculation of prices and injury in

AD/CVD cases;

! reduction of the standard of causation in Section 201 safeguard

investigations, by eliminating the requirement for imports to be a

“substantial” cause of injury (i.e., not less than any other cause).

!

Added in this version of the bill are provisions that exhort the USTR to avoid

international trade agreements that “would weaken existing [U.S.] trade remedy

laws,” would establish a commission to review WTO dispute settlement decisions

“adverse” to U.S. interests, and would encourage the USTR to seek to promote the

attendance and participation of interested private parties in WTO dispute settlement

cases. H.R. 2365 also would establish a licensing and surge monitoring provision for

all types of steel products.

China Safeguards: The Steel Wire Hanger Case

When Congress established permanent normal trade relations with China in

2000, it also approved a special safeguard provision for U.S. domestic industries,

which corresponded to product-specific safeguard provisions accepted by China as

part of its WTO accession package. This China safeguard relief provision, added as

Section 421 of the Trade Act of 1974, operates similarly to a Section 201 safeguard

case. The big difference is that U.S. producers need prove only “material injury” or

threat of such injury resulting from increases in imports from China – not the higher

“substantial injury” standard required under Section 201. After a positive injury

determination from the ITC, the USTR is authorized to negotiate agreements with

China to prevent or remedy the market disruption caused by increased Chinese

exports to the U.S. market, prior to a presidential determination on the application

of safeguard remedies. Also, the President must apply a cost-benefit test on the

national economic impact of safeguard relief as part of his decision.56

The first two cases were brought under Section 421 in 2002. The first involved

pedestal actuators, an electromechanical device used to adjust seats in electrically

motorized carts (known as “electrical scooters”), chiefly used by disabled persons.

While the ITC found injury to the only U.S. pedestal actuator producer in a 3-2 vote,

the President decided against relief, saying “I find that import relief would have an

adverse impact on the U.S. economy clearly greater than the benefits of such

action.”57

The second case involved steel wire garment hangers. The case was brought by

three producers, though other leading producers testified against injury. The ITC

found unanimously in favor of a ruling of material injury. But in the relief

recommendations, all the commissioners rejected a tariff of 1.8¢ per hanger requested

by the petitioners, in favor of an ad valorem tariff, with three commissioners settling

56

57

19 USC §2451.

DER, “Bush Denies Import Curbs in First Case Applying China-Specific Trade

Safeguard” (Jan. 21, 2003); AMM, January 23, 2003.

CRS-15

on a rate of 25%.58 President Bush again decided against any import relief in this

case.59

The Byrd Amendment (Continued Dumping and Subsidy

Offset Act)

Relating in part to the ongoing financial difficulties of parts of the U.S. steel

industry, the Continued Dumping and Subsidy Offset Act (CDSOA), was signed into

law in October, 2000. The CDSOA is known as the “Byrd Amendment,” because the

West Virginia Senator added it to the FY2001 Agriculture appropriations bill (P.L.

106-387).60 It requires antidumping and countervailing duties to be deposited in a

special account and distributed annually to domestic industry petitioners, who meet

eligibility criteria, to offset expenses incurred as a result of the dumped or subsidized

imports. Steel companies have benefitted from distributions under this law, which

has now been successfully challenged in the WTO. The U.S. government has lost its

appeal and has said that it will comply with the WTO finding. The distribution of FY

2003 AD/CV duties is proceeding nevertheless, according to the Customs Service

notice filed on July 14, 2003.61

On June 26, 2001, the Customs Service initially proposed rules to implement

the Byrd Amendment. A list of 2,000 eligible “affected domestic producers” was

identified by the ITC, based on petitioners in 400 active dumping cases, and posted

on the Customs website.62 To be eligible for a distribution, producers must still be

in operation and making the product for which a dumping or subsidy injury was

found. Funds may be used by claimants for a wide range of purposes, including

training, employee health care and pension benefits, as well as improvement of

manufacturing technology and equipment, and R&D expenditures.63 A total of $207

million was distributed in December, 2001, to 130 U.S. companies – about half of

them steel mills and iron foundries. But individual totals in most cases were

relatively small: the largest reported payouts to steel companies were about $4

million each to Bethlehem Steel and AK Steel. The largest single payouts under the

58

DER, “ITC Investigates Wire Hangers from China under Anti-Surge Provision” (Dec. 5,

2002); and, “ITC Makes Affirmative Ruling in Wire Hanger Safeguard Case” (Jan. 28,

2003); AMM, Jan. 21, 2003; USITC. Publ. 3575. Certain Steel Wire Garment Hangers from

China (Invest. TA-421-2.1), Determination and Views of the Commission (Feb. 2003).

59

AMM, April 29, 2003.

60

Included as Title X; codified at 19 USC §1671a. For the legal background, see CRS Trade

Briefing Book, Continued Dumping and Subsidy Offset Act (Byrd Amendment), by Jeanne

J. Grimmett [www.congress.gov/brbk/html/ebtra134].

61

68 Federal Register pp. 41597-654 (July 14, 2003); DER, “Customs Plans to Distribute

Byrd Offsets for Fiscal Year 2003” (July 15, 2003).

62

63

See [http://www.customs.gov/news/fed-reg/notices/dumping.pdf].

66 Federal Register, pp. 33920-26 (June 26, 2001); pp. 40782-40800 (Aug. 3, 2001); pp.

48546-55 (Sept. 21, 2001); and, p. 49451 (Sept. 27, 2001).

CRS-16

program were for $63 million to Torrington Co. and $31 million to Timken Co., two

ball bearing manufacturers.64

For FY 2002, the Customs Service distributed $329 million in AD/CVD duties

to qualifying petitioners. During 2002, Timken acquired the Torrington ball bearing

division from its parent company, Ingersoll-Rand. The two companies, which were

in the process of merging, were together by far the largest recipient of FY 2002 Byrd

Amendment disbursements, at nearly $127 million.65 Another group of big winners

was a small group of U.S. candle manufacturers, which could share up to $65 million

in collected duties owing to a successful antidumping case against Chinese imports,

pending the outcome of a lawsuit in the case.66 By contrast, the many steel company

claimants shared about 20% of the disbursements, according to an American Metal

Market calculation; the top recipient among them was U.S. Steel Corporation at $5.9

million.67

U.S. trading partners believe that diversion of antidumping and countervailing

duties from importers to a competing domestic industry, as under the Byrd

Amendment, contravenes WTO rules. The European Union, Japan, Canada, and

eight other U.S. trading partners initiated a WTO dispute settlement proceeding. On

July 17, 2002, the interim report of the WTO dispute settlement panel found against

the United States and concluded that the only conceivable and effective remedy

would be to repeal the law altogether, a conclusion confirmed in the final report

Publicly circulated on September 16, 2002. Senator Byrd issued a statement that he

found the WTO ruling “appalling” and immediately requested that USTR Zoellick

file an appeal, which the Bush Administration subsequently did.68

The substance of the initial decision was reaffirmed by the WTO Appellate

Body on January 16, 2003. It found that the CDSOA is a “specific action” against

dumping, which is prohibited under WTO rules, though it reversed the panel’s ruling

that the existence of the disbursement mechanism encourages companies to file

AD/CVD petitions in a manner that undermines the industry support requirements

64

U.S. Customs Service. “U.S. Customs Publishes List of First Disbursements under the

Continued Dumping and Subsidy Offset Act of 2000,” press release (Jan. 30, 2002), and list,

“CDSOA FY2001 Disbursements by Claimant;” AMM, April 8, 2002.

65

Waterbury Republican-American, December 31, 2002.

66

Cincinnati Post, January 3, 2003.

67

AMM, “Steelmakers Snack on a Smaller Slice of ‘Byrd Money’ Pie” (Jan. 20, 2003 print

ed.). For the official list, see U.S. Customs Service. CDSOA FY2002 Disbursements by

Claimant/State (Jan. 30, 2003).

68

Inside U.S. Trade, “Nine U.S. Trading Partners File WTO Request on Byrd Law,” July

13, 2001; DER, “WTO Members Outline Case Against Byrd Amendment; First Hearing Set

for February” (Dec. 10, 2001); “WTO Panel Shoots Down Byrd Amendment in Preliminary

Ruling, Urges Straight Repeal” (July 18, 2002); “WTO Issues Final Ruling Condemning

Byrd Amendment” (Sept. 4, 2002); and, “U.S. Must Repeal Byrd Amendment, WTO

Concludes in Its Official Report” (Sept. 17, 2002); Inside US Trade, “WTO Interim Panel

Rules Against Byrd Law Distributing Duties to Private Parties,” July 17, 2002; Sen. Robert

C. Byrd, “Byrd Blasts WTO Ruling as Undermining Congressional Authority,” (press

release) July 17, 2002;

CRS-17

in WTO agreements. In confirming the earlier ruling, however, the Appellate Body

did not call for outright repeal as the only solution to the problem of the Byrd

Amendment being out of compliance with WTO rules. In responding to the

Appellate Body decision and to its confirmation by the WTO Dispute Settlement

Body, U.S. Ambassador to the WTO Linnet Deily refrained from commenting on

repeal of the law, but did say that the United States would “implement [the ruling]

in a manner that respects U.S. WTO obligations.” Meanwhile, the Office of the

USTR quickly noted that the outcome of the case did not adversely affect U.S. ability

to enforce its AD/CVD laws.69

Members of Congress quickly reacted to the Appellate Body decision. Seventy

Senators signed on to a letter that asserted, “The WTO has acted beyond the scope

of its mandate by finding violations where none exists and where no obligations were

negotiated.” The Senators urged that the Bush Administration respond with three

specific actions:

“To seek express recognition of the existing right of WTO Members

to distribute monies collected from AD/CV duties.”

! “To promptly integrate the Administration’s response to this WTO

decision into the strategy announced in the administration’s recent

[December 2002] Report to Congress on the WTO Dispute

Settlement Process.”

! “To consult closely with Congress on the particulars of any approach

taken in negotiations on this issue.”70

!

The 2004 budget proposed by President Bush proposed repeal of the Byrd

Amendment. The President’s FY 2004 budget message did not directly reference the

WTO decision, but argued that the Byrd Amendment disbursements were:

... Corporate subsidies [that] effectively provide a significant “double-dip”

benefit to industries that already gain protection from the increased import

prices provided by countervailing tariffs. While the Administration does

not believe that these payments are inconsistent with U.S. treaty

obligations, repeal of the provision would allow the funds to be directed

to higher priority uses.71

69

Inside US Trade, “WTO Appellate Body Condemns Byrd Law as U.S. Considers Repeal”

(Jan. 17, 2003); AMM, Jan. 17, 2003; DER, “Appellate Panel Upholds WTO Decision

Against Byrd Amendment; EU Seeks Repeal” (Jan. 17, 2003); and, “WTO Adopts Byrd

Amendment Ruling; U.S. Urged to Repeal Dumping Fees Law”(Jan. 28, 2003) . For a good

summary analysis of the Appellate Body decision, see Eliza Patterson, “World Trade

Organization Ruling on US Continued Dumping and Offset Act of 2000 (CDSOA),” ASIL

Insights (American Society of International Law), February 2003.

70

Letter of Feb. 4, 2003, to President George W. Bush, signed by 70 U.S. Senators. For

additional reaction, see AMM, “Steel Backers Circle Wagons after WTO Shoots Down

Byrd” (Jan. 20, 2003 print ed.); DER, “Senate Staffers See No Chance of Repeal of Byrd

Law Following WTO Condemnation” (Feb. 14, 2003).

71

Office of Management and Budget. Budget of the United States Government. Fiscal Year

(continued...)

CRS-18

The WTO reports were formally adopted on January 27, 2003. In reports on the

meeting of the WTO Dispute Settlement Body on February 26, 2003, regarding the

Appellate Body decision and its implementation, the U.S. representative reiterated

that the United States would implement the decision, though it requested a

“reasonable period” to comply with the ruling. Some trading partners reportedly

emphasized in reply the conclusion of the initial panel report that the only

satisfactory means of compliance is repeal of the statute. Since the parties could not

reach a mutual agreement on the compliance deadline they requested that the period

be arbitrated.72 In a report dated June 13, 2003, the arbitrator determined that the

U.S. compliance period will end December 27, 2003.73

Domestic U.S. interest groups have been active for and against maintenance of

the CDSOA. On May 6, 2003, the president of the United Steelworkers (USWA),

Leo Gerard, wrote members of the Senate to affirm that his union “strongly opposes”

repeal of the law. He noted that full repeal of the law might not be necessary in any

case to comply with the WTO ruling. Mr. Gerard also criticized a suggestion that

had been raised in the Senate to replace the Byrd law with “an expansion of aid to

trade-affected communities.” While the USWA supported increased trade

adjustment assistance, he did not believe that this should be substituted for assistance

to companies under Byrd Amendment rules.74

By contrast with views of the USWA on the importance of saving as much of

the substance as possible of the Byrd Amendment, CITAC on May 27, 2003,

announced formation of a new coalition to eliminate the law. Claiming to represent

“such diverse consuming industry sectors as seafood, steel, restaurants, candles and

retail,” CITAC supported what it called the Bush Administration view that Byrd

Amendment payments are “corporate subsidies ... to industries that already gain

protection from increased import prices.”75

The repeal legislation to which the USWA’s Gerard referred was ultimately

introduced on June 19, 2003, as S. 1299, by Senator Olympia Snowe and two cosponsors. Her legislation would switch the beneficiaries of AD/CV duties from the

petitioning parties, as now found to be in violation of WTO rules, to eligible

71

(...continued)

2004, p. 240. See also, Inside US Trade, “Presidential Budget Proposes Repeal of Byrd Law

Reimbursing Petitioners” (Feb. 3, 2003); and, AMM, “Bush Budget Plucks Byrd Tariff

Payouts” (Feb. 10, 2003 print ed.).

72

DER, “U.S. Wants ‘Reasonable Period’ to Comply with Byrd Amendment Ruling” (Feb.

27, 2003); Bureau of National Affairs. International Trade Reporter, “Supachai Appoints

Appellate Body Member to Fix Compliance Deadline for Byrd Ruling” (April 10, 2003).

73

The award of the arbitrator is on the WTO website at “United States – Continued

Dumping and Subsidy Offset Act of 2000 (ARB-2003-1/16) at 50

(WT/DS217/14)(WTDS234/22) (June 13, 2003). See CRS Report RL32014 for more

details.

74

75

Leo W. Gerard, President USWA, Letter to U.S. Senate, May 6, 2003.

CITAC. Press release, “CITAC Announces Multi-Sector Coalition to Stop WTO-Illegal

Byrd Amendment Corporate Subsidies,” May 27, 2003.

CRS-19

communities that would be certified by the Secretary of Commerce as negatively

impacted by trade. Community assistance would be distributed through a new

Community Trade Readjustment Program. The bill would also repeal the existing

Byrd Amendment statute. As of late July 2003, this approach to replacement of the

Byrd Amendment with a substitute program had not been endorsed by the Bush

Administration or congressional trade committee leaders from either party.76

Meanwhile, as the Byrd Amendment remains U.S. law, procedures are under

way to implement distribution of FY 2003 AD/CV duties. This annual round could

substantially increase the total amount of collected duties to be distributed, not

because of steel, but because it will for the first time include AD duties collected

under the case of softwood lumber imported from Canada (ITC cases A-122-838/C122-839).77 There is some question as to what share of these duties may now be

subject to distribution at this stage of the proceedings, but a Canadian publication has

noted that the total value of collected duties is now $1.6 billion.78

The Emergency Steel Loan Guarantee Act of 1999

This law (P.L. 106-51) established a program to guarantee loans for

restructuring and modernizing steel companies that were financially distressed

following the 1997-98 import surge and industry financial crisis. The program

guarantees steel industry loans by private-sector financial institutions up to a total of

$1 billion (maximum of $250 million per company). The program is operated

independently under the auspices of the Commerce Department. Its three-member

board, which must approve all applications for guarantees, consists of representatives

of the Secretary of Commerce, the Chairman of the Federal Reserve Board of

Governors, and the Chairman of the Securities and Exchange Commission.

In the original version of the program, the guaranteed loans could carry a

maturity date no later than the end of 2005. The 107th Congress approved in October

2001 an amendment in the FY 2002 Interior appropriations law (P.L. 107-63, Section

336) to extend and modify the Steel Loan Guarantee Program. It prolonged by 10

years, to the end of 2015, the deadline by when loans guaranteed under the program

must be repaid. The amendment also provided that the portion of a loan covered by

a guarantee may be increased from the present level of 85% to 90% or 95%, provided

that no more than $100 million in total loans may be outstanding at any one time

under program guarantees at each of the higher guarantee rates, nor may any single

loan at each higher rate be greater than $50 million. The amendment extended the

authority for loan guarantees to be issued through 2003.79

76

Inside US Trade, “Snowe Introduces Byrd Repeal-TAA Bill with Little Backing” (June

27, 2003; see also the negative reaction to S. 1299 from Weirton Steel Corp., reported in

AMM, July 1, 2003.

77

68 Federal Register, pp. 41648-49 (July 14, 2003).

78

Financial Post, July 17, 2003.

79

Congressional Record, July 12, 2001, pp. S7559-60, S7566; see also Congress Daily PM,

“Senate GOP Refusing to Agree to Approps Time Limits,” July 17, 2001; and, Inside U.S.

(continued...)

CRS-20

In practice, the loan guarantee program has not played a major role in alleviating

industry problems. It has issued only two loan guarantees that companies have

subsequently been able to take up. Moreover, Geneva Steel, which received the

larger loan of $110 million, has defaulted and is in liquidation.80 However, two West

Virginia-based steel companies, Wheeling-Pittsburgh and Weirton Steel, were

actively seeking new guarantees under the program in mid-2003, and Representative

Alan Mollohan with eight cosponsors introduced on July 24, 2003, a bill to

reauthorize the program through 2005 (H.R. 2881).

The changes adopted in October 2001 did not enable LTV, the third-largest

integrated steelmaker, to gain a loan under the program and avoid the Chapter 7

liquidation process in 2002. The steelmaker was in the process of negotiating a $250

million loan with its bankers and the Steel Loan Board, when the prospects of the

industry suddenly worsened after the September 11, 2001, terrorist attacks and the

further downturn in the economic situation. Negotiations ensued between the

company, its creditors, the USWA, the Steel Loan Board and other interested parties,

particularly the City of Cleveland. But they ultimately failed to create a package that

lenders and the Steel Loan Board believed that the company was likely to repay. In

late November, 2001, LTV’s management asked the bankruptcy court for permission

to liquidate.81

LTV’s closure in late 2001 stimulated a number of legislative initiatives to ease

further the conditions for Steel Loan Program guarantees. A petition was filed in the

House to discharge from committee the sweeping Steel Revitalization Act (discussed

further below), which contained a provision to expand the Steel Loan Guarantee

Program dramatically. The petition did not gain sufficient signatories to force floor

consideration. On November 28, 2001, Representative Peter Visclosky attempted to

add an amendment to the FY 2002 Defense appropriations bill that would have

established a three-year, $2.4 billion government entitlement program for steel

companies seeking to cover retiree health care obligations. He was supported on the

floor by a number of other Members, but his amendment was ruled out of order and

he withdrew it.82 On December 6, 2001, Representative Steven LaTourette and three

co-sponsors introduced a bill that would allow the Steel Loan Guarantee Board to

waive the requirement that a borrowing company must have good prospects for

paying back guaranteed loans, provided that a number of other conditions were met.

On December 20, 2001, Senator Paul Wellstone with six co-sponsors, and Rep.

Visclosky in the House, introduced companion versions of a different steel loan

79

(...continued)

Trade, “Senate Approves Steel Program with Better Loan Terms for Companies” (July 20,

2001); AMM, October 12, 2001. Because of requirements to perform due diligence on

applications, the Steel Loan Board has announced that all applications must be filed by June

30, 2003; AMM, March 12, 2003. On problems previously identified with the program, see

General Accounting Office report, Financial Management: Emergency Steel Loan

Guarantee Program (GAO-01-714R).

80

OMB. FY 2004 Budget., p. 69.

81

See CRS Report RL31748.

82

Congressional Record (Nov. 28, 2001), pp. H8519-23; AMM, November 30, 2001

CRS-21

guarantee reform measure. It would have required a “fair likelihood” that prospective

industry borrowers repay loans, but would mitigate the requirement by allowing

forecasts to “assume vigorous and timely enforcement of our trade laws and general

prosperity in the economy ...” The bill also would have raised the limit on a loan to

any one company to $350 million and increased the maximum share of a loan that

can be guaranteed to 95%. None of these bills was acted on at either the committee

level or the floor of either body during the 107th Congress.83

The Bush Administration essentially considers the program a failure. It has

proposed rescinding the remaining federal outlays required to back up any future

steel loan guarantees in both the FY 2003 and FY 2004 federal budgets. “Despite the

difficult market conditions [for the steel industry], there has been little demand for

the program,” the FY 2004 budget proposal noted, and the Geneva Steel default left

“taxpayers to pick up the loss.” The Administration had recommended rescinding

$96 million in outlays for Steel Loan Guarantee program loan guarantees, and

proposed rescission of the remaining $26 million in “no-year” outlays in the FY 2004

budget.84 Such measures would in effect terminate the program, even with most

outstanding loan guarantee authority still unused, because no funds would be

available to back up a loan default, as occurred in the Geneva Steel case. However,

the FY 2003 Consolidated Appropriations Resolution (H.J.Res. 2), approved by

Congress in February 2003 and signed into law by President Bush, did not include

the requested $96 million rescission for the Steel Loan Guarantee program. Nor was

the rescission requested by the President included in the FY 2004 Commerce, Justice

and State appropriations bill (H.R. 2799) approved by the House on July 23, 2003.

As the Steel Loan Guarantee program continues in operation, Representative

Bart Stupak on February 5, 2003 introduced H.R. 629, which would seek to prevent

loans guaranteed by the program from benefitting foreign iron ore and steel

production. The bill provides that no proceeds from a loan guaranteed under the

program may be invested in a foreign iron or steel production facility. It would also

not allow such proceeds to be used to pay for imports of iron ore or semi-finished

steel from any country subject to U.S. trade remedies related to iron and steel.

In a closely watched decision, the Steel Loan Board on February 28, 2003,

initially rejected the application of Wheeling-Pittsburgh Steel for a loan guarantee.

The company had been in bankruptcy for two years, and had hoped to use the federal

loan guarantee to help modernize its steelmaking operations by the installation of an

electric arc furnace. The company in its annual financial statement had said that its

restructuring under Chapter 11 was “contingent on the approval of a $250 million

83

For a discussion of bills in the 107th Congress to amend the Emergency Steel Loan

Guarantee program, see Stephen Cooney, CRS Report RL31107 Steel Industry and Trade

Issues (last updated Oct. 10, 2002), pp. 58-60.

84

OMB. FY 2004 Budget Proposal, p. 69. See also Inside US Trade, “Bush Budget

Proposal Seeks Elimination of Funding for Steel Loan Program” (Feb. 4, 2003); AMM,

“Default Prods Call to Nix Steel Loan Funds” (Feb. 10, 2003).

CRS-22

loan guarantee” from the Board. But the Steel Loan Board reportedly “was

unconvinced the company had the earning potential to pay the loan.”85

The company re-applied almost immediately with an amended loan guarantee

request. Reportedly, the states of Ohio and West Virginia, which are financing $27

million of the total loan package, agreed to ease their repayment terms, and the

company’s suppliers also agreed to finance $8 million of the non-guaranteed portion

of the loan. These improved terms apparently led the Board to reverse its decision

and approve the guarantee, though the funds will not be released until the company

has emerged from Chapter 11 bankruptcy protection.86 The company achieved a

major step in this direction on June 26, 2003, when it reached a deal with the USWA

for a new labor agreement. The agreement was sent to union members for

ratification. Wheeling-Pittsburgh also reached agreement with the Pension Benefit

Guarantee Corporation, whereby the government-chartered company agreed to

rescind its earlier takeover of the steel company’s pension fund.87

Meanwhile, Weirton Steel ended a long battle against bankruptcy in May 2003,

and requested Chapter 11 reorganization status. To help finance its reorganization

and modernization projects to help the company return as a viable competitor,

Weirton also sought a $175 million loan guarantee from the Steel Loan program on

June 30, 2003, the last possible date for new applications under existing program

procedures.88

The Wheeling-Pitt and Weirton applications have particularly drawn the ire of

U.S. minimill executives, who openly criticized the pending guarantees as subsidies

to struggling competitors in the integrated steel industry.89 And Federal Reserve

Board Governor Edward Gramlich, who is serving as Federal Reserve Board

Chairman Alan Greenspan’s representative on the Steel Loan Board, has publicly

criticized the loan guarantee process as an ineffective means of assisting industries

in financial difficulties.90

85

Wheeling-Pittsburgh Steel Corp. “Wheeling-Pittsburgh Steel Announces Results for

2002,” press release, Feb. 24, 2003; Herald-Star (Steubenville, OH), March 2-3, 2003; Wall

Street Journal, March 3, 2003.

86

Association of Iron & Steel Engineers (AISE). Steel News, “Wheeling-Pitt’s Loan

Guarantee Is Approved” (March 27, 2003); AMM, March 28, 2003.

87

AISE. Steel News, “Wheeling-Pittsburgh Reaches New Labor Agreement” (June 26,

2003). AMM, June 27 and July 14, 2003. Reuters, “WHX Says PBGC Won’t Terminate

Pension Plan” (July 25, 2003); New York Times, July 26, 2003.

88

AISE. Steel News, “Weirton Steel to Seek $175 Million Through Loan Guarantee

Program” (June 26, 2003); AMM, July 2, 2003.

89

90

AMM, June 27, 2003.

DER, “Gramlich Calls Loan Guarantee Boards Ineffective Way to save Failing Industries”

(April 25, 2003). A summary of his April 24 remarks before the National Economists Club

is available at www.federalreserve.gov/boarddocs/speeches/2003.

CRS-23

Export-Import Bank Loans

Members of the 107th Congress became seriously concerned over the possibly

negative impact on U.S. steel producers of loans made or guaranteed by the U.S.

Export-Import Bank (Exim) for transactions benefitting foreign competitors. This

concern led to modification of Exim economic impact review procedures, after a

December 2000 loan guarantee of $18 million, over the reported objections of the

Clinton Administration, to upgrade the Benxi, China steel mill, which the Commerce

Department subsequently found to be dumping in the U.S. market.

The Senate Banking Committee on July 18, 2001, considered an amendment to

the Exim reauthorization bill to prevent it from lending to any project associated with

a foreign company accused of dumping, although the amendment was withdrawn.

Meanwhile, Exim itself on July 16, 2001, had announced proposed modifications to

its procedures for consideration of potentially adverse U.S. domestic economic

impact of proposed Exim loans and guarantees. On the House side, Representatives

Peter Visclosky and Alan Mollohan co-sponsored an amendment to the FY 2002

Foreign Operations appropriations bill to reduce Exim support, which passed by a

vote of 258-162. The amendment transferred $18 million from Exim to the child

health and survival programs in Title II of the same bill.91

On September 20, 2001, Exim announced the changes to its revised procedures.

It decided not to prohibit outright financing for a company subject to a preliminary

AD or CVD investigation, but that such an investigation is a “potential indicator” of

commodity oversupply. It would serve as a “yellow flashing light,” though not a

“stop sign,” for a proposed transaction. The next day Representative Patrick Toomey

offered an amendment in a Financial Services subcommittee markup of the Exim

reauthorization bill, to ban financing for “any entity” subject to AD/CVD and Section

201 investigations. This amendment was criticized by supporters of Exim and U.S.

business interests, and lost by a single vote (11-10).92 He then reintroduced a

modified version of his amendment at the full committee level on October 31, 2001,

and this version was approved by voice vote.93

Final action on Exim reauthorization was not agreed until late May 2002. It was

approved by the House on June 5, 2002, on a vote of 344-78, and by the Senate on

a voice vote the next day. The bill reauthorizing Exim through FY2006 was signed

into law by President Bush as P.L. 107-189.94 Exim is now prohibited by statute

from providing a loan or guarantee “for the resulting production of substantially the

same product that is the subject of”either a preliminary AD/CVD order or a Section

91

Congressional Record, July 24, 2001, pp. H-4437-47.

92

DER, “House Panel Narrowly Defeats Amendment Restricting Exim Funding,” September

24, 2001.

93

DER, “Exim Bank Reauthorization Bill Clears House Panel with New Restrictions on

Loans,” November 1, 2001.

94

AMM, May 24, 2002; DER, “Short-Term Exim Extension Expected, as Lawmakers

Complete Conference Bill” (May 23, 2002) and “Exim Bank Conference Report Cleared for

President’s Signature” (June 11, 2002).

CRS-24

201 injury determination. Exim was also required to establish procedures to insure

that any loans to such entities do not result in increased imports of “substantially the

same products” as are under investigation.95

Exim quickly aroused further interest under the new rules, specifically with

reference to a proposed $19 million loan for an export of steel pickling equipment

from a Texas company, Delta Brands Inc. (DBI), to the Turkish steel company

Erdemir. Critics charged that the equipment would increase the capacity of the

Turkish mill’s production, although Turkey had been specifically granted a

developing country exemption from U.S. steel safeguard tariffs for most products.

Rep. Toomey protested the Turkish deal to Exim and the Exim board on August 15,

2002, voted not to proceed with the deal. American Iron and Steel Institute (AISI)

president Andrew Sharkey expressed approval of the outcome, but DBI’s president

emphasized in a letter to President Bush that the rejection would aid his European

competitors, while he was also losing business to them among U.S. steelmakers.96

The House Appropriations Committee in its report on approving the Foreign

Operations appropriations bill stated that it “expects the Export-Import Bank to

report back to the Committee any steel-related proposals posted on the agenda of the

Export-Import Bank’s Board.”97 On November 26, 2002, Exim announced a further

redrafting of its economic impact review procedures, pursuant to the changes in its

charter made in the reauthorization of June 2002.98 Exim has now established

“screens” to determine if proposed transactions may be associated with specific

legislative prohibitions and a potential cause of substantial injury to the U.S.

economy. If a subject capital goods export will enable a foreign buyer to establish

or expand production of an exportable good, the transaction is further analyzed under

one of the following three categories:

95

!

Capital goods transactions relating to products not subject to final or

preliminary U.S. trade remedy actions are subject to a “detailed

economic impact analysis,” if the transaction value is more than $10

million and if the establishment or expansion of foreign production

capacity totals 1% or more of U.S. production.

!

Transactions subject to “final trade measures” are subject to

automatic prohibition, without any detailed economic analysis,

unless the applicant can show that the exporter or the U.S. economy

will be “extraordinarily harmed” by denial of Exim support. Final

P.L. 107-189 §18.

96

AMM, July 29 and Aug. 1, 16 and 26 (print ed.), 2002; DER, “Export-Import Bank Denies

Loan Guarantee for Exports to Turkish Steel Plant” (August 16, 2002).

97

House Report 107-663, p. 6; similar language was adopted in the manager’s statement on

the FY2003 Consolidated Appropriations Resolution (H.Rept. 108-10, p. 934), signed into

law as P.L. 108-7 by President Bush on Feb. 20, 2003.

98

Export-Import Bank of the U.S. “Ex-Im Bank Revises Economic Impact Procedures,”

press release, November 26, 2002.

CRS-25

Board action on such a determination would require a 14-day public

notice and comment period.

!

Transactions over $5 million that are subject to preliminary

AD/CVD injury determinations or over $10 million that are subject

to a Section 201 investigation initiated by the executive or legislative

branch (but not private parties) must be provided a 14-day notice and

comment period. If, based on comments received, the Exim staff

determines that the transaction “poses the risk of substantial injury,”

then it will not go forward until Exim has conducted a detailed

economic impact analysis.99

National Security and Defense Issues

The role of steel in U.S. national security has been raised frequently during

discussions of various steel-related issues. In particular, a number of Members of

Congress mentioned the issue during appearances before the ITC.

Steel Industry Report on National Defense and Economic Security.

On December 6, 2001, three steel industry associations, in cooperation with the

USWA, issued a special report emphasizing the critical role of steel in U.S. national

defense and economic security. The report examined the direct and indirect uses of

steel that are critical both in direct defense applications and to “U.S. economic and

infrastructure security.” The report claims that even opponents of industry trade

relief acknowledge the importance of specialty steels in defense applications, such

as the F-22 and F-18 E/F jet fighters, but that only a broad and commercially viable

domestic steel industry can remain a reliable collaborator with the Defense

Department, or in programs such as the Specialty Metals Processing Consortium with

Sandia National Laboratory. The report estimates that 5.5 million tons of steel are

directly or indirectly utilized annually in all forms of defense applications. Beyond

such direct Defense Department procurement use, the report also stresses the role of

steel in maintaining infrastructure critical for U.S. economic security. The report

argues that foreign sources cannot be relied upon with respect to either price or

timeliness, if a broad and viable domestic steel industry is not maintained.100

Section 232 Investigation on National Security. Under Section 232 of

the Trade Expansion Act of 1962, the President may act to “adjust imports,” if the

Secretary of Commerce has found that they threaten to impair national security.

Among the criteria for determining the effect on national security are the effect on

“the economic welfare of any domestic industry essential to our national security”

and the “displacement of any domestic products causing substantial

unemployment...” Administrations have rarely taken positive action under Section

99

Ibid. “Fact Sheet: Economic Impact Procedures” (March 2003).

100

A Strong U.S. Steel Industry: Critical to National Defense and Economic Security.

Jointly issued by AISI, Specialty Steel Industry of North America, Steel Manufacturers

Association and USWA (December, 2001).

CRS-26

232, although in 1979 and 1982, Section 232 was used as the legal basis to ban oil

imports from Iran and Libya.101

In January 2001, Representatives James Oberstar and Bart Stupak wrote thenSecretary of Commerce Norman Mineta to request a Section 232 investigation into

the upstream iron ore and semi-finished steel industries, which have been under

heavy pressure from import competition.102 On February 1, 2001, the Commerce

Department announced that it was initiating an investigation under this provision to

“determine the effects on the national security of imports of iron ore and semifinished steel.” The report was released to the public on January 9, 2002. It

concluded that while iron ore and semi-finished steel were important to U.S. national

security, “imports of these items do not threaten to impair U.S. national security.”

The report found that 20% of U.S. iron ore and 7% of semi-finished steel are

imported. Even though one major iron ore mine was in the process of closing,

sufficient other capacity exists to secure a domestic source of supply for the long

term, the report found. Moreover, the primary sources of imports were Canada,

Mexico and Brazil, all nations with which the United States has friendly relations,

and one of which is a close military ally.103

The Defense Department (DOD) participated in the Section 232 process. It

estimated that its demands for iron and steel for weapons systems are a small portion

of the domestic industries’ annual output: 325,000 tons annually, or about 0.3% of

the total. Current demand was based on earlier defense plans to be able to maintain

a “two major theater war,” but as the quadrennial defense review had moved away

from this standard, it was probable that DOD demand would be flat or lower for steel

over the next five years, according to the Commerce Department report. The final

report noted a wide variety of steel usage in other products procured by DOD, but

stated that for all of these uses, domestic production levels were easily sufficient to

meet industry needs. Furthermore, the report also noted that about half of this

general domestic supply was met by minimills, which do not use iron ore or imported

semi-finished slabs. Based on these findings, the Commerce Department

recommended no action under Section 232 of the Trade Act.104

Reps. Stupak and Oberstar criticized the Commerce Department finding, as both

noted continuing closures and pressure from imports in the iron ore and steel

industries. USWA president Leo Gerard believed the findings incompatible with

statements made by President Bush and Homeland Security Director Tom Ridge

regarding the national security importance of the steel industry.105

101

U.S. Department of Commerce. Bureau of Export Administration, Office of Strategic

Industries and Economic Security. Section 232 Investigations: The Effects of Imports on the

National Security (January, 2001).

102

Text of letter in Inside U.S. Trade (January 26, 2001).

103

U.S. Department of Commerce Bureau of Export Administration. The Effect of Imports

of Iron Ore and Semi-Finished Steel on National Security (October 2001).

104

Ibid., pp. 13-16, 37.

105

DER, “Iron Ore/Semi-Finished Steel Imports Not Seen Threatening National Security,”

(continued...)

CRS-27

Steel Issues in Defense Procurement. The House passed on November

28, 2001, the FY 2002 Defense appropriations bill, which contained a provision to

require that “steel; or equipment, products or systems that are necessary to national

security or national defense and that are made of steel” use only steel that is “melted

or poured in the United States...”106 This provision is much more sweeping than

existing language in the Defense acquisition regulations, based on previous

legislation. The Senate version of the bill contained a provision that was based on

the narrower existing law and regulations. It refers only to “carbon, alloy or armor

steel plate,” and requires that such products must be “melted and rolled” in the

United States (and Canada) to be eligible for procurement using DOD acquisition

funds. The Senate language was adopted and included in the final Defense

appropriations bill, which was signed into law by President Bush on January 10,

2002.107

In the Second Session of the 107th Congress, a bill was introduced similar to the

House-passed requirement of November 2001. But the FY2003 Defense

appropriations bill approved in both Houses and which President Bush signed into

law contained only a provision similar to that included previously, limited to carbon

steel armor and armor plate.108

On February 5, 2003, Reps. Stupak and LaTourette introduced H.R. 628, which

once again proposed the broad prohibition on Defense Department procurement of

equipment made with foreign steel. However, both the House and Senate versions

of the FY 2004 Defense appropriations bill (H.R. 2658 and S. 1382) again only

contained the previous language on armor plate, in both cases as Section 8030.

In the FY 2003 Military Construction appropriations law, there was also a new

provision which required that “American steel producers, fabricators and

manufacturers” must have the opportunity to compete for steel procurement in any

military construction project.109 Such a provision is again included in the FY 2004

Military Construction appropriations bill, as approved in both Houses (H.R. 2559,

Sec. 108).

Steel Issues in Civilian Infrastructure Procurement. In the House

version of the Coast Guard appropriation for FY 2003, a provision established a form

of preference for U.S.-made “steel, iron and manufactured products” in projects

designed to alter bridges for navigation purposes. This provision was included in the

final FY 2003 consolidated appropriations law. Funding for such projects was made

contingent upon use of U.S.-produced products, “unless contrary to law or

105

(...continued)

Jan. 10, 2002; and “USWA Blasts Administration Ruling on Imports of Iron Ore, SemiFinished Steel,” Jan. 11, 2002.

106

Section 8158, H.R. 3338.

107

P.L. 107-117 §8033 (See House Conference Report 107-350).

108

P.L. 107-248 §8030.

109

P.L. 107-249 §108.

CRS-28

international agreement, or unless the Commandant of the Coast Guard determines

such action to be inconsistent with the public interest or the cost unreasonable.”110

A “Buy America” steel provision was also included in legislation introduced on

June 26, 2004, by Representative Jerry Costello and 34 cosponsors, to provide

funding for a major infrastructure investment program (H.R. 2615). Section 1005

authorizes federal funding for a project only if “steel and manufactured goods used

in the project are produced in the United States,” with a 25% price preference level.

The bill was referred to multiple committees of jurisdiction. On July 15, Senators

Feinstein and Durbin introduced a similar bill (S. 1409).

Industry and Legacy Cost Relief Legislation

Congress in recent years has addressed the threat posed by steel company

bankruptcies to employee health care and pension benefits (“legacy costs”). The

legacy cost problem, including effects on industry consolidation and the impact on

worker and retiree benefits, is discussed in detail in CRS Report RL31748. That

report describes how the Trade Adjustment Assistance Act (TAA) was expanded in

the Trade Act of 2002 to provide limited relief in covering the health care costs of

retired steelworkers and others who receive pensions through the Pension Benefit

Guaranty Corporation (PBGC).

The USWA and many Members of Congress do not believe that this measure

adequately addresses the loss of benefits by steel workers and retirees. President

Gerard of the USWA, for example, testified in May 2003 before the Senate

Appropriations Committee’s Labor, Health and Human Services and Education

Subcommittee that:

The United States must either repair its employer-based health-care system and

relieve a considerable disadvantage for American manufacturing firms, or the

nation must abandon our current system for a system similar to Canada’s or

other industrialized nations’”111

A number of measures were considered in the 107th Congress to deal with this

issue. One of the most sweeping was Title II of the Steel Revitalization Act

introduced in the House by Representatives Peter Visclosky and Jack Quinn on

behalf of the Congressional Steel Caucus. It would have established a 1.5% sales tax

on U.S.-made steel products and imports to finance the health care benefits of

steelworker retirees and a federally administered health care program for steel

workers. The bill gained 228 cosponsors by April 2002, but never made it to the

110

Conference Report on H.J.Res. 2 (H.Rept. 108-10), Division I, Title I (p. 381, “Alteration

of Bridges”).

111

Quoted in AMM, May 15, 2003.

CRS-29

House floor.112 This approach to the legacy cost problem was strongly supported by

the USWA, but not by steel companies or the industry’s trade associations.

In the Senate during the 107th Congress, other legislation was proposed by

Senator Jay Rockefeller and others that would have provided more comprehensive

relief for retiree steelworkers than the TAA amendment ultimately adopted. An

effort to add a comprehensive steelworkers’ legacy cost provision to an energy bill

failed in April 2002.113 Another effort to adopt a broader TAA amendment for

steelworkers lost on a cloture vote in May 2002.114 Several pieces of legislation on

steel retiree health care relief similar to the Rockefeller bill were also introduced in

the House and a hearing was held there on the issue, but no further action was

taken.115

In the early months of the 108th Congress, there has been minimal activity on the

legacy cost issue. The PBGC takeover of bankrupt steel company pension funds,

industry consolidation with new labor agreements, and the limited relief of retirees

through tax credits for health care in the 2002 Trade Act have resolved some of the

problems.

Representative Peter Visclosky asserted that amendments to tax legislation

supported by Chairman Thomas of the Ways and Means Committee would have

excluded some retirees from bankrupt steel companies from participating in the

coverage provided by the Trade Act TAA amendments. As leaders of the

Congressional Steel Caucus, he and Representative Phil English introduced the

Health Care Tax Credit Enhancement and Steel Security Act (H.R. 1999) on May 7,

2003. This bill would:

Clarify the status of retiree applicants so that they would not have to

finance three months’ worth of health care coverage on their own,

before becoming eligible for coverage under the new law;

! Lower the age of eligibility for the TAA health care tax credit from

55 to 50 years of age and establish eligibility of spouses of retirees

for the tax credit, if they are not in the age band covered by the law;

!

112

The House bill number was H.R. 808, and the Senate number was S. 957. Sen.

Rockefeller also introduced a bill containing only the health care and environmental titles

of this legislation as S. 910. A House discharge petition introduced in late 2001 gained

only 124 signatures (House Petition 107-5).

113

Washington Post, April 19, 2002. The amendment was based on S. 2189, a bill

introduced by Sen. Rockefeller. But Rockefeller and other supporters opposed the energyrelated initiative, because of opposition to the underlying provision in energy legislation.

114

Congressional Record (May 16, 2002), S4505-6; (May 21, 2002), S4581-91; Roll Call

Daily, May 21, 2002; Inside US Trade, “Steel TPA Amendment Fails on Procedure,

Withdrawn by Sponsors” (May 21, 2002).

115

Bill numbers included H.R. 4574 and H.R. 4646. On September 10, 2002, the

Subcommittee on Commerce, Trade and Consumer Protection of the House Energy and

Commerce Committee held a hearing on the Dingell bill.

CRS-30

!

Prolong until 2010 the monitoring and licensing provisions on steel

imports that were established by President Bush as part of the

Section 201 safeguard actions.116

By late July 2003, H.R. 1999 had gained 116 cosponsors. A Senate version (S. 1018)

introduced by Senator Evan Bayh has five cosponsors.

The Outlook for Legislation on Steel

Congress gave President Bush the lead in resolving steel trade issues, after the

President decided to launch a Section 201 trade case. President Bush’s Section 201

trade remedies, announced on March 5, 2002, essentially kept the initiative in his

hands. The measures taken by the President have engendered a strong international

reaction and are being challenged under WTO rules.117 But by taking a remedy action

that went some way to meeting industry demands under Section 201, the President

appears to have so far obviated separate actions in Congress that would have changed

current U.S. trade law.

The impact of the Section 201 safeguard tariffs on domestic industry remains

a hotly debated subject. Much of the U.S. steel industry remains financially troubled.

However, the closure of some domestic capacity because of financial distress, a

substantial rise in prices in early 2002, the Section 201 trade relief, and a recent fall

in the dollar’s exchange rate against the currencies of some major competing

producers all helped provide a better year for the industry as a whole in 2002.

Conversely, some industries that use steel complain that higher domestic steel prices,

resulting at least partly from trade remedy action could delay or derail the consuming

industries’ recovery from the recent economic recession, or even drive some of them

offshore. Thus, some companies and Members of Congress are supporting a review

of the situation of steel consumers in the ITC midterm report on the steel safeguard

tariffs and a possible moderation or elimination of the safeguard tariffs. But with

markets and prices weaker in 2003 than in 2002, the steel industry strongly supports

maintenance of President Bush’s relief measures for the full duration.

For Additional Reading

CRS Report RL31748, The American Steel Industry: A Changing Profile, by Stephen

Cooney.

CRS Report RL31842, Steel: Section 201 Safeguard Actions and International

Negotiations, by Stephen Cooney.

CRS Report RL31474, Steel and the WTO: Summary and Timelines of Pending

Proceedings Involving the United States, by Jeanne J. Grimmett and Stephen

Cooney.

116

117

AMM, May 8, 2003.

On these international challenges, see CRS Report RL31474, CRS Report RL31842, and

CRS Report RL32014.