AGENDA AND PAPERS FOR THE JUNE 17 MEETING

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP87T00759R000100170006-3
• Release Decision: RIPPUB
• Original Classification: K
• Document Page Count: 17
• Document Creation Date: December 22, 2016
• Document Release Date: November 16, 2010
• Sequence Number: 6
• Publication Date: June 14, 1985
• Content Type: MEMO

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 Sanitized Copy Approved for Release 2010/11/16: CIA-RDP87T00759R000100170006-3 --
Executive Re
June 14, 1985
MEMORANDUM FOR THE ECONOMIC POLICY COUNCIL
FROM: ROGER B. PORTER 4 /
SUBJECT: Agenda and Papers for the June 17 Meeting
The agenda and papers for the June 14 meeting of the
Economic Policy Council are attached. The meeting is scheduled
for 10:30 a.m. in the Cabinet Room.
The first agenda item is an overview of U.S.-E.C. trade
relations. At the June 5 meeting, the Council requested the
Department of State and the Office of the U.S. Trade Represen-
tative to prepare a strategy paper for U.S.-E.C. trade relations.
A copy of that paper was circulated to Council members on
June 11.
The second agenda item concerns the Section 301 Citrus
case. The President must decide by June 20 on what action,
if any, to take in response to the European Community's
practice of discriminating against U.S. exports or citrus
products. A memorandum on this issue was circulated to
Council members on June 3 and discussed at the June 5 meeting.
The third agenda item concerns the status of the Presi-
dent's steel program announced on September 18, 1984. The
Office of the U.S. Trade Representative has prepared a paper
on the President's Steel Program which reviews the status of
steel trade negotiations, the recent pattern of imports,
and the options the Administration faces on four specific
issues. This paper has not yet been reviewed by other
departments and agencies. It lays out the central issues
and options for discussion and is not intended to serve as
the basis for reaching any decisions at this meeting.
85- 2210/6
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June 17, 1985
10:30 a.m.
Cabinet Room
AGENDA
1, U.S.-E.C. Trade Relations
2. Citrus Section 301 Petition
3. Status of the President's Steel Program
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June 14, 1985
President's Steel Program
Issue: The President's steel program is at a critical juncture.
The Administration needs to decide what additional
measures, if any, need to be taken to ensure full
implementation of the program.
This paper reviews the status of steel trade negotiations
the U.S. Trade Representative has held, the recent pattern of
imports, and the options the Administration faces on four
specific issues:
1. The substantial increase in imports of "consultation
products" from the European Community (EC);
2. The greater-than-expected shipments from Canada;
3. Surges from new suppliers that have not previously been
significant exporters to the U.S.;
4. Complaints about the adequacy of the semifinished steel
target.
Status and Effects of Negotiations
Since September 18, 1984, the U.S. Trade Representative has
held negotiations with 16 countries aimed at concluding voluntary
restraint agreements. (Table 1 summarizes the status of these
negotiations as of June 13, 1985.) Thus far, the U.S. has
reached agreements with 14 countries, of which 12 have been
formally signed and implemented.
These agreements cover about 58 percent of total imports
and, everything else being equal, will reduce the 1984 finished
steel import level from 26 percent by about 4.6 percentage
points. The EC steel arrangements cover another 22 percent of
total imports. With the negotiation of strengthened provisions
on pipe and tube imports, total imports from the EC should fall
by about 0.7 percentage points to about 5.2 percent. It should
be noted that the 100,000 ton exception for EC line pipe recently
provided for the All American Pipe Line will increase imports by
about 0.1 percentage points. Thus, all of the agreements should
reduce imports by a maximum of about 5.3 percentage points and
would likely reduce them by about 5.1-5.2 points. Such a
reduction would result in imports still being about 2 percentage
points above the 18.5 percent target.
The agreements are gradually having an effect on imports as
shown by the following table:
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-2-
Imports as a Percentage of
Apparent Consumption
Including
Semifinished
Excluding
Semifinished
1984 -
Year
26.6
25.8
1984 -
Fourth quarter
28.5
27.2
1985 -
January
30.9
29.6
February
27.1
26.0
March
24.5
24.1
April
23.0
n.a.
As a number of suppliers -- including Japan -- reduce
exports to compensate for overshipments in the October-March
period, import penetration should fall even further.
Surge of Imports
Despite the effectiveness of the agreements in reducing
imports, these reductions have been partially offset by surges of
imports from three major sources:
o European Community. Imports of unlicensed "consultation
products" in 1984 were 224 percent above the 1981 benchmark
and further increases have occurred this year (see Table 2).
This increase has added about 0.4-0.5 percentage points to
the finished steel import level. The decision to aim for an
18.5 percent target assumed a 4.9 percent share for the EC.
The pipe and tube arrangement would reduce the 1984 5.9
percent level to about 5.2 percent.
o Canada. The decision not to seek a voluntary restraint
agreement from Canada resulted from a combination
of two factors: (1) its steel producers are not very
vulnerable to antidumping and countervailing duty charges;
and (2) as an exporter of numerous small overland
shipments, it would be uniquely affected by any formal
restraint agreement. (As the program has evolved, the
licensing requirement would minimize the Customs clearance
problems that concerned the Canadians.) Despite several
assurances that Canada will not exploit the restraints of
others, Canadian shipments continue at the 2.9-3.2 percent
level, well above the historical level or the 2.4 percen*
level originally assumed in the program.
o New Suppliers. There has been an explosion of new suppl:.-rc
to the U.S. market in recent years, including unlikely
suppliers like Thailand, Algeria, Portugal, and Zimbabwe.
In some cases, the rate of increase has been dramatic with
countries reaching a significant market share in a limited
number of products in just one or two years. (Table 3
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summarizes some of the most dramatic examples.) The program
originally assumed no or insignificant imports from new
suppliers, which now account for approximately 2-2/ percent
of domestic consumption.
Policy Options
Issue 1: Europe: How should the Administration address the
substantial increase in imports of "consultation
products" from the EC?
Secretary Baldrige has succeeded in establishing a framework
for negotiation of a comprehensive solution to our steel trade
dispute with the EC. The framework comprises three major
elements:
1. Negotiation by July 15 of a solution to the dispute
over the "consultation products" that were not
specifically limited by the 1982 Arrangement.
2. Agreement by October 31 on extending the scope and
duration of the Arrangement (which expires December 31,
1985) to make it consistent with the other voluntary
restraint agreements under the program.
3. Immediate release of 100,000 tons of line pipe to
permit the uninterrupted construction of the All
American Pipe Line.
The Administration clearly prefers a negotiated settlement
to a confrontation over the consultation products. However, the
Administration should consider now what action, if any, to take
if the U.S. and EC cannot agree by July 15 on a solution to the
dispute over the consultation products. There are strong
indications that a badly fragmented EC industry will stoutly
resist Commission efforts to implement the burden-sharing
required by any solution. Hence, the Administration may well
face the decision of what action to take after July 15.
Option A: Communicate during the negotiations that if an
agreement is not reached by July 15, the
Administration will unilaterally enforce the provision
on consultation products in the 1982 Arrangement.
Advantages
o Communicating a decision to take unilateral action as a
last resort would bolster the Administration's position
in the current negotiations.
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o This approach increases the prospects for success in
the current negotiations, which in turn would make it
more likely that the Administration will reach the 18.5
percent target. Without a reduction in the
consultation product imports from their 1984 level,
which was twice the 1981 benchmark for finished
products and seven times the 1981 benchmark for
semifinished products, it is difficult to see how the
18.5 percent target can even be approximated.
o The prospect that the Administration would take
unilateral action if an agreement is not reached by
July 15 increases the likelihood that the EC Commission
would explore a quasi-negotiated settlement based on a
U.S. unilateral action to which the EC could acquiesce.
Disadvantage
o The EC has threatened to retaliate if the U.S. takes
unilateral action. However, it may acquiesce to the
action if the U.S. action were sufficiently limited.
Option B: Decide now that if an agreement is not reached by July
15, the Administration will fold the issue into the
broader renegotiation of the Arrangement.
Advantages
o This approach would avoid confrontation with EC at a
time when there are numerous other contentious issues
on the agenda (e.g., agricultural exports).
o The EC would not retaliate against the U.S.
Disadvantages
o Avoiding any action now would seriously jeopardize the
Administration's credibility in negotiations across a
wide range of issues since we have already conceded to
allowing the conditional entry of 100,000 tons of line
pipe.
o A delay in resolving this problem makes it more likely
that imports of these products will continue to surge,
making it more difficult for the Administration to come
close to meeting the 18.5 percent target.
Issue 2: Canada: How should the Administration address the
greater than expected shipments from Canada?
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After the EC, Canada is the only source that by itself could
disrupt the program. Both the Canadian Government and its steel
producers have repeatedly assured the U.S. Government that they
want to cooperate, but on several occasions have told the U.S.
steel industry that they are not obligated to do anything at all.
The nature of U.S.-Canada trade is complex, with significant
tonnage traded between steel producers on both sides of the
border. Even accounting for such trade though, Canadian
shipments of such products as pipe, wire products, and cold
finished bar appear to have increased substantially.
Option A: Seek to negotiate a voluntary restraint agreement with
Canada at the 1981-1983 level (2.4 percent) or higher.
Advantages
o This option would treat Canada on the same basis as
other major steel exporters to the U.S., including some
countries which can also claim to not dump or subsidize
exports.
o A formal restraint would be more effective than the
status quo in reducing overall imports by as much as
0.8 percentage points.
Disadvantages
o The political fallout from the U.S. pressuring Canada
for a voluntary restraint agreement could be
considerable.
o Canada would likely object that it should be excluded
from the program because its producers trade fairly.
o Canada would argue that a formal restraint presents
unique customs clearance problems for small, overland
Canadian shipments.
o This restraint could disrupt certain intracompany trade
across the border.
o The U.S. will have little leverage to encourage Canada
to agree to voluntary restraint because of their
relative invulnerability to unfair trade complaints.
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Option B: Continue to express concern over the level of current
shipments especially in sensitive products and seek to
enhance customs cooperation to minimize transshipments
and fraudalent practices by third countries.
Advantages
o This option would avoid the political fallout that
would result from the U.S. pressuring Canada for a
voluntary restraint agreement.
o This option avoids substantially complicating trade
between steel producers across the U.S.-Canadian
border.
Disadvantages
o This option is unlikely to reduce Canadian steel
imports significantly.
o Continuing to exempt Canada from the program maintains
resentment by other "fair traders" which have had to
sign formal restraint agreements.
Issue 3: New Suppliers: How should the Administration address
the surge in imports from new suppliers?
Certain domestic steel brokers have sought to stay one step
ahead of the program by finding new suppliers as other suppliers
cut back their exports. It is difficult to control the inflow of
a new supplier because our negotiating leverage over it is
visible only after it has exported a significant quantity of
dumped or subsidized steel. An importer is able to attract new
suppliers by moving large quantities of steel rapidly into the
market, with the expectation that the worst outcome would be a
voluntary restraint agreement guaranteeing the exporter a market
share it never had before.
The result may be that for the forseeable future, the
Administration will have to pursue new suppliers one by one using
recently filed cases as leverage. Ultimately, there will have to
be many agreements, instead of the few initially expected.
Moreover, these new suppliers can force the Administration to
retreat from the overall 18.5 percent target because the market
share guaranteed by each new agreement must be added to the
market share already guaranteed to suppliers under the original
program.
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Option A: While imports from new suppliers are at relatively low
levels, aggressively pressure new suppliers to agree
to restrain shipments and/or self-initiate unfair
trade actions against them (including Section 301
petitions).
Advantages
o Only by addressing the imports from new suppliers at
low levels can the Administration hope to come close to
the 18.5 percent target.
o Some steel producers, led by Bethlehem, prefer this
approach in which surges could be controlled before
they rise to high levels.
Disadvantages
o It may be difficult to persuade new suppliers
to agree to restrain shipments at the current levels at
which they are exporting to the U.S.
o Some steel producers, particularly wire rod producers,
generally oppose further voluntary restraint
agreements, preferring remedies under the unfair trade
statutes. These producers believe they are cost
competitive with any producer and have been pressured
to drop their current cases (20 or more) as part of the
agreements reached to date.
In most of these rod cases, remedy under an unfair
trade statute would have severely curtailed imports.
In the case of Argentina, this remedy has totally
eliminated its rod exports to the U.S. for an entire
year.
Option B: Continue to rely on the leverage generated by domestic
industry unfair trade cases and wait for foreign
governments to request negotiations to settle them.
Advantages
o Given the likely reluctance of new suppliers to agree
to restrain shipments, this may be the only realistic
approach.
o This approach focuses the Administration's response
this surge in imports on unfairly traded steel.
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Disadvantages
o This approach is likely to result in eventually
negotiating voluntary restraint agreements with new
suppliers only after they have attained a significant
market share, with dozens of restraint agreements and
total imports significantly above the 18.5 percent
target.
o This approach runs the risk that otherwise acceptable
agreements with foreign countries could be blocked by
some domestic producers refusing to withdraw their
unfair trade cases.
Issue 4: Semifinished Steel: How should the Administration
address the apparent inadequacy of the semifinished
steel target?
At the insistence of the major integrated producers, the
Administration agreed to a target of 1.7 million tons of
semifinished steel: ingots, billets, blooms, and slabs, all of
which are subsequently rolled into intermediate or final shapes.
While that target would represent a record level of imports, it
is viewed by some producers as inadequate given the needs of the
industry over the next 5 years.
Estimates of demand for semifinished imports run as high as
5 million tons with the next 2-3 years. Reports suggest that if
semifinished imports are limited to the 1.7 million ton target, a
number of domestic producers will be forced to curtail operations
they otherwise would have had running.
Semifinished steel is imported for several reasons:
o For competitive reasons, no producer wants to rely for its
raw material supply on a direct domestic competitor.
o Continuously cast slabs and certain types of billets will
not be readily available in the U.S. until considerable
additional investment has taken place.
o Where steelmaking and finishing facilities are not balanced,
semifinished imports permit the fuller utilization of
rolling mills, helping to drive down unit costs.
o During start-up or modernization, individual mills need
external sources of semifinished steel to stay in business.
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A number of U.S. producers are heavily dependent on imported
semifinished steel, for example, California Steel, Tuscaloosa
Steel, Cyclops, and Raritan River. Other producers, including
Bethlehem and LTV, import at least some semifinished steel and
are reported as having approached Brazilian, Venezuelan, and EC
producers for more. Even U.S. Steel is reported to have
discussed importing semifinished steel from South Korea.
Some observers may find hypocritical the pressures by
integrated producers to keep the 1.7 million ton semifinished
target while importing such products themselves. When pressed,
senior management of integrated producers will declare that they
would cease all semifinished imports if necessary, although their
purchasing managers continue to explore the possibility of
increasing imports.
Thus far, USTR has allocated about 1.5 million tons to the
countries with voluntary restraint agreements. Imports from the
EC (666,000 tons annual rate) and Sweden (300,000 tons annual
rate) continue to be strong. But imports from Canada, the only
other unrestrained foreign supplier, have declined sharply to
about 70,000 tons per year. However, without a sharp reduction
in the EC level of at least 50 percent, it will in all likelihood
not be possible to keep close to the target of 1.7 million tons.
Option A: Attempt to maintain the 1.7 million ton target through
a combination of voluntary restraint agreements and
the filing of unfair trade cases.
Advantages
o Maintains commitment the Administration made to
industry leaders in September.
o Such a restriction would help producers (e.g.,
Bethlehem) investing in new steelmaking equipment.
Disadvantages
o Such a restriction would severely curtail operations of
smaller producers who want to increase finished steel
production with the aid of semifinished imports.
o Maintaining this target would make it harder to reach
agreement with the EC given the rate at which it has
thus far exported semifinished steel to the U.S.
o It would also pose a problem for Brazil whose minimum
contractual commitments already exceed the 700,000 ton
limit agreed to in December.
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o This limit places the U.S. Government in the awkward
position of having to allocate semifinished imports
among domestic companies and thus determining which
particular firm will be able to operate at desired
levels.
Option B: Raise the limits negotiated to a level closer to
predicted peaks.
Advantages
o Such an increase in limits would enable some domestic
producers to continue to produce finished steel.
o An increase in the semifinished target would provide
the Administration additional leverage with countries
wishing to export finished steel to the U.S.
Disadvantages
o Some integrated producers may object that the
Administration has reneged on its commitment to the 1.7
million ton target.
Option C: Impose a tariff on all semifinished imports.
Advantages
o Although the price of semifinished imports would be
higher than it otherwise would be, domestic producers
would at least be able to import any quantity they need
to meet demand.
o A tariff system would obviate the need for the U.S.
Government to allocate shares of semifinished imports
among domestic companies.
Disadvantages
o Some integrated producers would likely object that the
Administration has reneged on its commitment to the 1.7
million ton target.
o If the tariff is not at a high enough level, large
semifinished imports would jeopardize the modernization
efforts of a number of integrated producers.
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Option D: Impose a tariff-rate quota on all semifinished
imports, with tariff-free quantities based on the
voluntary restraint agreements already negotiated and
on historical levels for other suppliers (principally
Canada, Sweden, and the EC).
Option D would have the same advantages and disadvantages as
Option C except the following.
Advantages
o A tariff-rate quota would permit importers to enjoy
some benefit from the limits they have already
negotiated.
Disadvantages
o Unlike a simple tariff, the Administration would be
forced to take action against specific countries, in
particular Canada and Sweden, which have thus far
expressed no interest in negotiating voluntary
restraint agreements.
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STATUS OF VRA TALKS
Pending Under
Import
Penetration
Implemented Signature Negotiation
1984
Y88
Japan
X
7.05
5.80
Korea
X
2.48
1.90
Brazil
X
1.42
.80
Spain
X
1.45
.67
S. Africa
X
.59
.42
Mexico
X
.83
.36
Finland
X
.30
.22
Venezuela
X
.51
.20
Australia
X
.20
.18
Romania
X
.28
.16
E. Germany
.29
.11-12
Poland
.14
.10
Czechoslovakia
X
.07
.04
Hungary
X
.04
.04
Austria
.34
--
Argentina
.31
--
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IMPORTS OF CONSULTATION PRODUCTS FROM
THE EUROPEAN COM1IUNITY
(000 OF NET TONS)
Benchmark
(1981)
1984
1985*
Finished
331
632
888
Semifinished
112
809
848
TOTAL
443
1,441
1,736
* Three months, annualized.
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TABLE 3
(000'S OF TONS)
1
] 984
1985 (annualized)
Romania**
9
272
693
Sweden
214
639
615
Venezuela**
154
491
Austria*
35
326
E.Germany**
13
274
Taiwan
177
160
Portugal
0
55
Norway
2
61
Trinidad-Tobago
66
67
Israel
2
9
India
8
10
Chile
0
8
Singapore
0
1
Thailand
0
0
680
2,373
3,273
+249
+38
* Negotiations under way
** Restraint agreement concluded
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