DECISION MEMO FOR TUESDAY'S CABINET MEETING ON CARBON AND ALLOY STEEL IMPORT RELIEF

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP86M00886R002000020003-8
• Release Decision: RIFPUB
• Original Classification: C
• Document Page Count: 20
• Document Creation Date: December 21, 2016
• Document Release Date: December 3, 2008
• Sequence Number: 3
• Publication Date: September 17, 1984
• Content Type: MEMO

Approved For Release 2008/12/03 : CIA-RDP86M00886R002000020003-8
WASHINGTON
UAt31Nt 1' AF't'AlttS S"1'A11'YINLi V1Emut(ANNDUM
Date: 9/18/84 Number: 169067CA Due By:
Subject: Cabinet Council on. Commerce and Trade with the President
Tuesday, September 18, 1984 - 2:00 P.M. - Cabinet Roo
m
ALL CABINET MEMBERS
Action FYI
^ ^
CEA
Action FYI
IJ ^
Vice President
State
T
CEQ
OSTP
^ ^
^ ^
^ ^
reasury
f
D
ltd ^
^ ^
ense
e
0
Attorney General
^ ^
Interior
Agriculture
Commerce
Labor
HHS
HUD
a
LLJ Q
Baker
Deaver
Darman (For WH Staffing)
Mc Farlane
^
/ LvJ
Transportation
o' 0
Svahn
,
E
^ ^
nergy
Ed
ti
Cl
^ ^
on
uca
^ hQ
Counsellor
^ ^
OMB
^ ^
^
CIA
^ ^
UN
USTR
GSA
^/~~LT
l d
^ ^
Executive Secretary for:
CCCT
CCEA
^ ^
EPA
^ ^
CCFA
^ ^
NASA
^ ^
CCH R
^ ^
OPM
^ ^
CCLP
^ ^
VA
^ ^
CCMA
^ ^
SBA
o ^
CCNRE
^ ^
The President will chair a meeting of the Cabinet Council on
Commerce and Trade today, September 18, at 2:00 F.M., in the
Cabinet Room.
Tl RL rA
ti ,a
AT%ACHMENT3
)~~7
A~q 7-0~
RETURN TO:, 01
d Craig L. Fuller ^ Don Clarey ^ Tom Gibson ^ Larry Herbolsheimer
Assistant to the President Associate Director
for Cabinet Affairs Office of Cabinet Affairs
Approved For Release 2008/12/03 : CIA-RDP86M00886R002000020003-8 am 129. 0EOB
 CABINET COUNCIL ON COMMERCE AND TRADE
September 18, 1984
Cabinet Room
 p~r~~~~-.-TIP.I
THE UNITED STATES TRADE REPRESENTATIVE
WASHINGTON
20506
MEMORANDUM FOR THE PRESIDENT
FROM: WILLIAM E. BROCK
SUBJECT: DECISION MEMO FOR TUESDAY'S CABINET MEETING ON
CARBON AND ALLOY STEEL IMPORT RELIEF
By September 22, 1984, you must determine whether to provide
import relief to the U.S. industries producing carbon and alloy
steel. The case was brought before the U.S. International Trade
Commission (USITC) under Section 201 of the Trade Act of 1974
by the United Steelworkers of America and the Bethlehem Steel
Corporation.
The USITC determined that imports of certain carbon and alloy
steel products have seriously injured U.S. producers and recommended
a combination of tariffs and quotas to remedy this serious injury.
The case has been thoroughly reviewed by the interagency Trade
Policy Committee, which has prepared four options for your consi-
deration.
Option 1:
Option 2:
No action under Section 201, but direct
the impementation of a comprehensive
fair trade policy for the steel industry.
The major components are: negotiation
of arrangements to control surges for
five years; reaffirmation of existing
voluntary restraint measures and legislation
to make them enforceable; consultations
with our trading partners to seek the
elimination of trade distortive and
trade restraining practices; and rigorous
enforcement of all our unfair trade
laws.
Provide import relief under Section
201 by instructing the USTR to negotiate
orderly marketing agreements with Brazil,
Korea and Spain and to seek a commitment
irtnrl ITI I
Approved For Release 2008/12/03 : CIA-RDP86M00886R002000020003-8
 CONFIDENTIAL
of prudence from Japan and Canada with
respect to exports to the United States.
Further import problems may be dealt
with by unfair trade remedies, voluntary
restraints or possibly orderly marketing
agreements.
Option 4: Provide relief under Section 201 in
form of: a tariff quota for semi-finished
steely quotas on sheet and strip, plate,
structural shapes and units, and wire,
determined by the larger of either
import penetration ratios or minimum
import levels, based on imports during
the recent representative period 1979-1981;
and increased tariffs on imports of
wire products. The option affects
all suppliers of these products but
leaves allocation decision to the
Executive Branch. (USITC Recommendation)
A paper discussing these options is attached at Tab A.
In my view, Option 3 is overly restrictive while Option 1 ignores
the realities of world steel trade and the serious financial
condition of American steel companies. I therefore recommend
you select Option 2. My principal reasons are:
1. The United States has become virtually the only open steel
market and therefore the world's steel dump. American
steel firms and workers face an unprecedented and unacceptable
surge of imported steel resulting in large measure from
import restraints abroad and massive unfair trade practices
such as subsidies and predatory below-market pricing. (A
summary description of these restraints and practices is
attached at Tab B.) We must deal effectively and 'swiftly
with both the import surges and the unfair practices behind
them if the industry is to have a breathing space to adjust
and restore its competitive ability.
2. In responding to this pressing import problem, we must
do all we can to avoid protectionism, to keep our market
open to free and fair competition, and to provide certainty
of access for our trading partners. This Administration
has repeatedly, and most recently at the London Economic
Summit, committed itself to 'resist continuing protectionist
pressures, to reduce barriers to trade, and to make renewed
efforts to liberalize and expand trade in manufactures,
commodities and services.'
rn,l.Ir,-- IfFI,JI
Approved For Release 2008/12/03 : CIA-RDP86M00886R002000020003-8
 Approved For Release 2008/12/03 : CIA-RDP86M00886R002000020003-8
CONE IDF .J! ~! .
3. It is not in the national economic interest to take actions
which put at risk thousands of jobs in steel fabricating
and other consuming industries or in the other sectors
of the U.S. economy that might be affected by compensation
or retaliation measures that our trading partners would
be entitled to under Section 201.
4. This Administration has already taken many steps to deal
with the steel import problem. In 1982, you approved the
negotiation of a comprehensive arrangement restraining
steel imports from the European Community. This Administration
has also conducted an unprecedented number of antidumping
and countervailing duty investigations of steel imports,
in most cases resulting in the imposition of duties or
a negotiated settlement. In addition, the governments
of Mexico and South Africa have unilaterally imposed voluntary
restraint on exports, leading to the termination of unfair
trade complaints.
5. In view of the above, I believe that a combination of actions
-- swift action=to prevent surges, consultations to eliminate
unfair practices and reestablish a level playing field,
and vigorous enforcement of our unfair trade laws (including
self-initiation of cases) -- can effectively deal with
the remainder of the industry's import problems without
the imposition of overly restrictive barriers. In this
way, international trade in steel can be governed more
by market forces rather than government intervention, and
the steel industry will be given the chance to complete
its modernization and restructuring.
Option 1 -
Option 2 -
Option 3
_
Option 4 _
Attachments
A - Options Paper
B - Summary of Foreign Import Restraints
and Unfair Practices
.,n- irinrlITI AI
Approved For Release 2008/12/03 : CIA-RDP86M00886R002000020003-8
\JV111 ?_-
 CARBON AND ALLOY STEEL SECTION 201
IMPORT RELIEF
The Petitioners' Claims. This import relief case was brought
by Bethlehem Steel and the United Steelworkers, who claim that
increasing imports from all sources have seriously injured the
U.S. steel industry. The petitioners supported their claim
by pointing out that the share of the U.S. market taken by imports
has risen from just over 15 percent in 1979 to over 25 percent
through July of 1984, and asserted that there is a direct link
between this import increase and the fact that domestic production
and shipments have steadily fallen over this same period. They
concluded that they have exhausted their ability to generate
funds for further modernization without import relief, and that
several firms will be unable to bridge the next economic downturn
unless relief is provided. -
USITC Injury Finding The U.S. International Trade Commission
(USITC) determined by a 3-2 vote that imports of five steel
products -- carbon and alloy steel sheet and strip, plate, structural
shapes and units, and wire and wire products -- have been a
substantial cause of serious injury to the domestic industry.
The USITC also voted by the same margin that imports of semi-finished
steel are a substantial cause or, threat of serious injury to
domestic producers of these products. It determined, unanimously,
that imports of steel bars, wire rods and railway products have
not been a substantial cause of serious injury. Similarly,
it determined by a 3-2 vote that imports of carbon and alloy
pipes and tubes are not a substantial cause of serious injury
to domestic producers.
USITC Recommended Remedy The USITC recommended that the President
proclaim five years of import relief to remedy the serious injury
described above. The remedy includes tariffs on imported wire
products; market share quotas on imported sheet and strip, plate,
structural shapes and units (excluding light structurals), and
wire; and a tariff-rate quota on imported semi-finished products
to remedy the serious injury described above. Two of the Com-
missioners that were in the majority recommended that continued
import relief be conditioned on the presentation of plans by
the industry that described how the period of relief will be
used to facilitate an orderly adjustment to import competition.
The President's Mandate. The USITC transmitted its report to
the President on July 24. Under the statute, the USITC makes
nvcussIFIW_0N-"
Approved For Release 2008/12/03 : CIA-RDP86M00886R002000020003-8
 the determination of whether the industry has been seriously
injured by imports and suggests a remedy. The President must
decide whether the imposition of the USITC remedy, or any alternative
remedy, "is in the national economic interest." This consists
of essentially a determination of whether the benefits of relief
outweigh the costs to the whole economy. This decision must
be made by September 22, 1984.
Previous Import Relief Measures
The U.S. Government first provided import relief to the steel
industry in 1968 in the form of negotiated voluntary restraint
agreements (VRAs) with the European Community (EC) and Japan.
A second set of VRAs was negotiated in 1971 for the period 1972-
1974. The unexpected boom in world steel demand in 1973 and
1974 caused these restraints to go unfilled and they were allowed
to expire in 1974.
Imports began to surge again in 1977 and numerous antidumping
cases were filed by U.S. steel companies. As an alternative
to processing these cases, the Trigger Price Mechanism (TPM)
was developed to monitor steel imports for evidence of dumping.
When such dumping was found, the government agreed to self-initiate
antidumping investigations. In March 1980, the U.S. Steel Corpora-
tion filed dumping complaints against EC steel producers, causing
the TPM to be suspended. In October 1980, the U.S. Steel Corporation
withdrew its petitions and the TPM was reinstated in a somewhat
modified form. This form of relief also failed to work to the
satisfaction of the domestic industry and numerous unfair trade
cases were filed again. In January 1982, the US-EC Steel Arrangement
was concluded, U.S. steel producers withdrew their cases against
EC producers, and these unfair trade investigations were terminated.
In addition to the petitions brought against the EC, U.S. steel
producers have brought 101 additional countervailing and antidumping
cases against a wide range of countries and products since January
1981.
Presidential Decision
The President must first decide whether he wants to provide
any new relief to the domestic steel industry against surging
imports. If the answer to this question is no, then he must
proclaim that granting any relief is not "in the national economic
interest."
If the President determines that something should be done to
assist the industry, he must decide whether to provide relief
under Section 201 or through some other mechanism. The alternatives
become:
 a) should the U.S. Trade Representative be instructed
to negotiate only voluntary restraint agreements and
informal understandings to control surges in steel
imports; or
b) should the U.S. Trade Representative be instructed
to use the autJiority of Section 201 to negotiate a
combination of formal and informal arrangements with
important surging suppliers.
c) should the President impose import relief as recommended
by the U.S. International Trade Commission.
In either of the first two cases the emphasis could be on unfair
trading countries.
When this decision is made, the President can decide what the
level of import relief should be. No proposal is presented
here for a binding import penetration limit. Proposals 2 and
3 do, however, recommend that the U.S. Trade Representative
predict that the set of actions decided by the President will
lead to a specified import level. This, of course, would not
be a commitment to reach that level. The level in both proposals
is approximately an 18.5 percent rate of import penetration
for steel mill products excluding semi-finished steel.
Finally, if the President grants relief, he may decide what
the duration of that relief will be.
To aid in making these decisions, there follow four options
and pros and cons on each.
The President rejects import relief in this case on the grounds
that such relief is not in the national economic interest and
that the steel industry's import problems resulting from unfair
trade practices are being adequately addressed under our unfair
trade laws.
 This industry has had import protection for the majority
of years since 1968. During these years it has done little
to become competitive. Increasing wages and restrictive
work practices continued unabated until the recent collective
bargaining concessions. In 1970 workers' pay in the steel
industry was already 130 percent of the national industrial
average. After three waves of protection in 15 years,
their pay rose to 176 percent of the national industrial
average. Average manufacturing productivity growth and
real investment were greater than that in the steel industry
during this period.
Protection for the steel industry would put many other
trade-dependent U.S. industries and workers at a greater
competitive disadvantage. Due to increased steel prices,
consuming industries (autos, machine tools, etc.) would
be less competitive in domestic and export markets.
While costs to the consumer of import relief programs vary,
they do have one common denominator -- they are high.
For example, the Federal Trade Commission (FTC) estimates
the annual costs of the USITC option at $239 million or
$99,000 per job affected in the steel industry. The TPSC
Task Force estimates range from $389 million in annual
consumer costs to $2.4 billion (depending upon the degree
of relief granted), with costs ranging between
$143,000
and $253,000 per job. Hence, the range is $99,000
with a median of $176,000 per job.
to $253,000
There is no guarantee that in exchange for these costs,
substantial adjustment will occur in the steel industry.
Industry experts predict that disinvestment will occur,
regardless of whether import relief is granted. Further,
if history is our guide, import relief may, in fact, discourage
the industry from making the most difficult, painful adjust-
ments.
Another cost, though less tangible, will be the effect
of import relief on the credibility of the U.S. commitment
to liberalize trade. This Administration has repeatedly,
and most recently at the London Economic Summit, committed
itself to "resist continuing protectionist pressures, to
reduce barriers to trade, and to make renewed efforts to
liberalize and expand trade in manufactures, commodities
and services." Any form of import relief might be viewed
as a departure from our Summit commitment and undermine
support for a new trade round.
Import relief will also affect us vis-a-vis developing
countries. At a time when a number of LDCs are undertaking
 the painful political and economic process of structural
adjustment, restricting access to our market could deprive
them of a politically sensitive source of export earnings.
The cooperative attitude we have had to date could be politi-
cized and a confrontational situation could be substituted
for it.
Finally, granting import relief under Section 201 requires
that we compensate affected trading partners. Should we
be unable to reach agreement on compensation, we could
be subject to retaliatory measures that could conceivably
affect strong U.S. export industries such as agriculture,
aircraft, and electronics.
The steel industry reported that it lost $6 billion in
1982 and 1983. Most firms have only begun to return to
a limited level of profitability and many may again experience
losses in the third quarter of this year. Deployment levels
remain 40 percent below 1979 levels. Imports have captured
a growing share of the U.S. steel market. Import penetration
averaged 25 percent through the first seven months of this
year, compared to 20 percent in 1982 and 1983 and 16.8
percent from 1979-1981.
Despite the losses of the past two years, this industry
has initiated a major restructuring effort. It has lowered
its costs and improved productivity through a variety of
measures that have included employment reductions, a 10-15
percent wage concession, plant closings resulting in a
net reduction in capacity of 20 million tons, the installation
of new technologies, cutbacks in overhead costs and the
selling of certain assets.
Import relief could provide the industry with a "breather"
to regain its international competitiveness. The USITC
found that certain segments of the industry are experiencing
serious import injury that prevents it from undertaking
capital investments necessary to improve its competitiveness.
The USITC concluded that five years of import relief are
necessary to allow this industry to generate additional
income, make investments in modernizing facilities, and
thus to adjust to import competition.
Some of the steel industry's current problems arise because
of government intervention by other countries in steel
trade. This intervention takes the form of subsidies,
government ownership and domestic markets that are closed
to steel imports. The effect of this intervention is to
put additional import pressure on the U.S. industry. Certain
countries (i.e., Brazil and the EC) claim that they will
 phase out some of their government intervention in the
future. The U.S. industry might benefit from a period
of import relief as a bridge to that time when global trade
in steel becomes less distorted by government intervention.
Import relief would provide a more comprehensive approach
to dealing with the "serious" import injury identified
by the USITC. The petitioners have argued that the expense
of pursuing dumping and subsidy complaints against these
and other products from a myriad of foreign producers is
becoming increasingly prohibitive and, because of potential
trade diversion, ineffective.
Addressing the steel import issue under Section 201 would
reaffirm the use of the established statutes as the appropriate
method of addressing import problems in contrast to VRAs
or other informal agreements. VRAs have been spreading
and may continue to do so. The U.S. Government has little
control over the scope, duration or restrictiveness of
these informal agreements. It would be more consistent
with our international obligations if these actions were
brought under the discipline of GATT Article XIX and Section
201.
Denying relief gives new strength to the steel quota bill,
which already has enough co-sponsors to pass the House,
with growing support in the Senate. The Congressional
Budget Office estimates that passage of this bill would
cost consumers $4.8 billion a year.
Failure to provide import relief could also 1) raise pressure
for 201 reform to remove Presidential discretion after
USITC injury findings, 2) promote calls for legislated
relief for other industries, given the perception of Adminis-
tration reluctance to use Section 201 and 3) reduce the
chances of enacting a continuation of the Generalized System
of Preferences which currently assists many developing
countries.
2. A Non-201 Import Relief Option
The President could reject import relief under Section 201 authority
on the grounds that it is not in the national economic interest,
explaining the adverse downstream impacts and international
repercussions as delineated in Option 1.
However, the President would recognize that there is a serious
trade problem in this sector and that he intended to take the
following actions:
 1VI1N30UN00
A. Note that a small number of countries have been taking
undue advantage of U.S. recovery by means of triple digit
rates of import growth. Add that the United States is
the most open market while others are closely controlled,
and as a result is seeing substantial surges in imports
and indeed has become the steel dumping ground of the world.
Direct the U.S. Trade Representative to seek 'surge control"
arrangements with surging countries.
B. Direct the U.S. Trade Representative to monitor developments
in the steel industry closely and seek such arrangements
and/or suspension agreements for five years. Direct the
U.S. Government to self-initiate unfair trade cases including
antidumping, countervailing duty, and Section 301 cases
to ensure fair competition.
C. Establish a monitoring range of 1.7 million tons for semi-
finished steel. Note short-run need for these imports
to protect U.S. steel jobs.
D. Indicate that surge control agreements along with the EC
Arrangement, South African and Mexican voluntary export
restraints and prudent practices by some other traditional
suppliers should reduce import shares in the coming years.
These and other voluntary arrangements would be made enforce-
able.
E. Seek industry adjustment and modernization actions designed
to strengthen its competitive position and request the
USITC to monitor these adjustment efforts.
F. Establish an interagency group to analyze all U.S. Government
domestic tax, regulatory and anti-trust laws and policies
which could hinder the ability of the steel industry to
modernize.
G. Direct the Department of Defense and the Federal Emergency
Management Agency to analyze domestic steel plate rolling
capacity in relationship to emergency needs and recommend
appropriate actions if inadequacies are found to exist.
B. Under this proposal, the above actions are expected to
maintain steel imports at around 18.5 percent of U.S. con-
sumption, excluding semi-finished steel products.
DpNFIDENj1A~
 Approved For Release 2008/12/03 : CIA-RDP86M00886R002000020003-8
Avoids the confrontational aspects of forcing our trading
partners to accept quotas. Encouraging rather than forcing
our trading partners to limit surges is more in keeping
with our desire to solve bilateral trade problems in a
constructive, cooperative atmosphere.
Not implementing strictly enforced 201 quotas is less distortive
to our economy; there is less likelihood of supply disruptions
and significantly increased consumer costs.
Rejecting use of Section 201 in this case sends a signal
to domestic industries that 201 will not be used as a "one-stop"
means for dealing with unfair trade problems.
Requiring interagency review of future considerations to
limit surges, enter suspension agreements, etc., will provide
greater certainty that such actions will be in the "national
interest."
This option would provide some leverage over the industry
to encourage greater industry adjustment efforts.
Combining these trade measures with a commitment to develop
possible legislative proposals to change domestic government
policies would give the option greater political appeal.
Seeking industry adjustment could encourage investment
efforts and help restrain wage increases.
The Council of Economic Advisers (CEA) believes that these
actions are likely to result in an increase in consumer
costs of about $2 billion per year, a reduction in employment
in steel-using industries of about 14,000 and a potential
threat to U.S. export industries. CEA estimates that only
8,000 jobs will be created in the steel industry.
Encouraging import restraint from our trading partners
while rejecting Section 201 is inconsistent with our interna-
tional obligations and many U.S. pronouncements and contributes
to the spread of "gray area" trade measures taken outside
of our statutes.
Actions taken outside of our established procedures lack
discipline on duration and product coverage which the Section
201 procedures provide for.
 Approved For Release 2008/12/03 : CIA-RDP86M00886R002000020003-8
By rejecting Section 201 relief this option limits the
future flexibility of the Administration in dealing with
steel trade.
Actions taken outside Section 201 offer little leverage
over our trading partners to reduce surges. Under a 201
action, we could threaten to impose more restrictive unilateral
measures if our trading partners did not cooperate. It
is conceivable that certain countries, like Korea, will
simply refuse to cooperate.
This action contemplates efforts to reduce surges of all
steel imports, including those not found by the USITC to
have been a "substantial cause of serious injury to domestic
producers."
Granting relief outside of Section 201 provides a lesser
likelihood of achieving real import reductions.
Administration "promises" to talk to our trading partners
about import surges may be perceived as a weak response
which could cause a Congressional backlash in which the
quota bill might pass both Houses.
Action perceived by Congress as insufficient could also
1) raise pressure for 201 reform to remove Presidential
discretion under this statute, 2) promote calls for legislated
relief for other industries given Administration unwillingness
to use Section 201 and 3) make difficult the enactment
of the continuation of the Generalized System of Preferences
which currently assists many developing countries.
3. Provide Import Relief Under Section 201
The President would accept the USITC finding of injury and reject
its proposed remedy. Instead he would rely on existing import
restraint commitments, unfair trade cases, three Orderly Marketing
Agreements (OMAs), and jawboning to roll back the level of import
penetration from its current level to a target at or about 18.6
percent, excluding semi-finished steel (1983=20.3 percent).
In announcing his action, the President would state that the
United States is the most open market in the world and as a
result is seeing substantial surges in imports. Indeed, the
United States has become the steel dumping ground of the world.
 Approved For Release 2008/12/03 : CIA-RDP86M00886R002000020003-8
I IML_
A. The President would determine that action under Section
201 is appropriate. However, he would reject the proposed USITC
remedy recommendation. In its place:
(1) The President would instruct the U.S. Trade Representative
to negotiate OMAs on the affirmative Section 201 products
with three countries: Brazil, Korea, and Spain.
The objective would be a reduction in import levels.
The agreements would be for three years, renewable
for two additional years. VRAs covering steel products
on which there was no USITC injury determination could
be simultaneously negotiated with the same three coun-
tries. Throughout the period of relief the President
would have the authority to order additional OMAs
with countries whose exports surge. None, however,
are contemplated at this time, nor is there a belief
that they would be needed.
(2) The President would adopt a somewhat liberalized USITC
recommended remedy with respect to semi-finished products.
This would be a tariff-rate quota that permits quantities
of these products (higher than recommended by the
USITC) to enter our market before the higher duty
would become effective.
B. The President would direct the U.S. Trade Representative
to contact the Governments of Canada and Japan to seek commitments
that they exercise prudence when exporting to our market. The
objective would be a reduction in their 1984 export level.
C. The US-EC Arrangement and the VRAs that have been announced
by Mexico and South Africa would be continued.
D. The enforcement of countervailing and antidumping duty
laws would address the problem of unfair imports from most other
producing countries. Under existing unfair trade laws, VRAs
may be appropriate alternatives to the imposition of countervailing
duties, although it is not our policy to seek such restraint.
E. Management and labor would commit to adjust in return for
relief provided. The USITC would be asked to provide periodic
reports on industry adjustment efforts.
F. Administration officials would indicate that if this policy
were implemented, import penetration should reach approximately
18.6 percent by the end of 1985.
This option, when combined with measures currently in effect
(both voluntary and through formal agreement), could provide
 Approved For Release 2008/12/03 : CIA-RDP86M00886R002000020003-8
limited but sufficient relief from the injury resulting
from increased imports, increasing steel industry employment.
It would largely address the heart of the import problem
as cited by the petitioners -- the dramatic increases from
the largest non-traditional suppliers. It would be perceived
more favorably by the industry than the non-201 option
because it provides for broad product coverage, enforcement
under Section 201, and the statement of a global target
import penetration number.
By putting in place a remedy under Section 201, the President
would be acting under a GATT-acceptable framework for addressing
serious injury. Its limitation to a fixed period is also
more consistent with the GATT and our free trade commitments
than the non-201 option.
The use of Section 201 as the basis of a remedy would 1)
reduce chances of steel quota legislation passage, 2) diminish
industry pressure for Congressional action to eliminate
Presidential discretion under Section 201, and 3) facilitate
enactment of.:Administration-backed trade legislation.
Korea, Brazil and Spain have all pressed the U.S. Government
to enter into steel arrangements with them. Thus, this
option is very likely to be acceptable to them.
It would not restrict projected needed imports of semi-finished
steel products, but would guard against massive semi-finished
imports and the possible shutdown of the portion of these
plants which produce semi-finished steel. Such a measure
would be highly important to the steel worker.
This option entails specific restrictions on steel imports,
which would be inconsistent with the Administration's free
trade principles.
-- Restrictions are aimed at two large LDCs with major debt
problems. Such an action would be perceived by some as
yet another example of developed countries solving their
problems on the backs of the LDC5. Also, a particularly
large reduction would be difficult to obtain from Korea.
The option includes the possibility of import relief on
products for which no injury determination was made by
the USITC (i.e., pipe and tube). If this is provided through
VRAs, it would be less consistent with GATT principles
than granting relief strictly under Section 201.
 Approved For Release 2008/12/03 : CIA-RDP86M00886R002000020003-8
are likely to lead to an increase in consumer costs of
about $2.9 billion, a reduction in employment in steel-using
industries of about 19,000, and a potential threat to U.S.
export industries. CEA estimates that steel employment
would increase by only 12,000.
The President would apply the USITC recommended remedy based
on: 1) a tariff quota for semi-finished steel, 2) quotas on
sheet and strip, plate, structural shapes and units and wire,
determined by the larger of either import penetration ratios
or minimum import levels, based on imports during the recent
representative period 1979 through 1981; and 3) increased tariffs
on imports of wire products. Import relief would be in effect
for five years, with liberalization of the relief effective
in the fourth and fifth years. Separate quotas and import volumes
are provided for sub-products within the sheet and strip category
The USITC did not develop a recommendation for allocation of
the quotas in its proposed remedy.
The USITC found that the semi-finished steel industry is threatened
with serious injury. However, the USITC noted the expanding
domestic market for semi-finished products. It therefore recommended
a quota level twice as high as 1983 so as to accommodate this
structural change. The increase in the rate of duty on imports
entered above the base quota level was intended to deter future
increases in imports above the quota level.
The USITC recommended quantitative restrictions on sheet and
strip, plate, structural shapes, and wire based on imports entered
during the period 1979-81. The 1979-81 period was chosen by
the USITC as the most recent representative period for imports
because this period directly preceded two years of the most
serious injury in the domestic industries and conformed to the
USITC's practice of choosing a two to five year representative
period. Second, market forces affected the level of imports
during these three years since quantitative restraints were
not in effect. The USITC noted that the Trigger Price Mechanism
(TPM) had a limited effect on import market share after 1979.
The USITC recommended a tariff for wire products. Because this
category is composed of a large number of different types of
products, the USITC believed a quota could result in shortages
of some products, and a shift in imports into higher-priced
articles within the wire product category. The USITC recommended
tariff was based on considerations of the change in import volume
required for an appropriate remedy, the responsiveness of imports
to an increase in a tariff rate, and the potential for absorption
Approved For Release 2008/12/03 : CIA-R DP86M00886R002000020003-8
 of increased tariffs by exporting countries. The USITC noted
that developing countries are the major sources of imports of
wire products, and believed the potential for absorption of
the tariff was, therefore, greater.
The USITC has also recommended the exclusion from import relief
of four products: bandsaw steel, razor-blade steel, bread-knife
steel, and shoe-die knife steel. The USITC recommended that
the President review the record of additional exclusion requests
made to the Commission.
In addition, two of the three Commissioners recommending relief
suggested that it be conditioned on the presentation of plans
that describe how the period of relief will be used to facilitate
adjustment to import competition. One Commissioner recommended
that these plans be submitted no later than 120 days following
implementation of the relief.
Market share quotas providing for plates, sheet and strip,
structural shapes and units, and wire result in a reasonable
amount of certainty. With quotas, the quantity or share
of imports is established--an important factor in a volume
sensitive industry like steel. The greater the predicta-
bility of a relief package, the more effective it will
be in promoting investment and modernization in the industry.
In comparison to fixed tonnage quotas, quantitative restraints
based on import penetration ratios are more flexible and
market oriented. In a growing market, the import penetration
ratio quotas allow greater tonnages to enter, creating
fewer distortions than a straight quota during a period
of strong demand. A minimum import volume assures our
trading partners that the volume of exports will not fall
below a given level in a declining market.
The USITC recommendation on semi-finished steel is relatively
liberal, allowing nearly double the historical record imports
in this category of expected rapidly growing demand for
foreign steel. Future need for imports of semi-finished
steel should be well above current levels. To guard against
the threat of injury, the USITC recommended a tariff-quota
set at a threshold after which importers will have to pay
the higher tariff, without creating the disruption of supply
which a quota could cause.
The tariff for wire products would avoid the difficulty
of administering quotas on many diverse products. The
USITC fears that quotas on the number of wire products
 included in this category could result in shortages of
some products and a shift in imports into higher priced
articles within product categories. Minor distinctions
between the large number of articles constituting this
portion of the industry make separate quotas for each article
difficult to determine and administer.
The adjustment requirement suggested by two Commissioners
is designed to increase the likelihood that the industry
makes a maximum effort to improve its competitiveness while
relief is in effect.
An estimated range of between 6,000 and 12,000 employment
opportunities may be saved or gained in the steel industry
if this option were implemented.
The USITC remedy, because of its limited product coverage
and the base period chosen, would grant the domestic industry
considerably less relief than they wanted. In fact, the
industry has said that the USITC recommendations "not only
will not solve the problem of injurious imports but can
lead to further serious injury."
The potential diversion issue appears to be a very real
and troublesome aspect of the USITC injury finding and
recommendation.
Coverage of semi-finished steel and wire and wire products
in any import relief could cause a foreign policy problem
with the EC, as restraints on EC exports of these products
would be outside the existing US-EC Arrangement. Similarly,
tariffs on any products would be incompatible with the
US-EC Arrangement. The EC has warned that any change in
duration or scope of the Arrangement would cause its termi-
nation.
Any country allocated quotas based on an historical period
as chosen by the USITC (1979-1981) would discriminate against
newer suppliers.
Restraints, even relatively liberal ones, on imports of
semi-finished steel, could impede the adjustment of the
various domestic steel producers who are now, or might
in the future, be importing semi-finished material. Therefore,
import relief on this product category is particularly
unlikely to promote the adjustment of these domestic steel
producers.
Quotas, especially if allocated by country, transfer some
of the benefits of reduced competition to foreign suppliers.
Approved For Release 2008/12/03 : CIA-RDP86M00886R002000020003-8
 As a result, to the extent that import prices rise during
a period of quantitative restraint, the foreign producers
and their agents can capture the additional consumer cost.
Unless there are negotiated solutions to the imposition
of these recommended quotas, demands by our trading partners
for compensation or retaliation could run quite high.
Similarly, increased tariffs will also generate compen-
sation/retaliation claims which cannot be negotiated away
as easily as quotas.
-- The annual consumer costs of this option have been estimated
to range between $1.5 billion and $2.3 billion or about
$196,000 to $253,000 per employment opportunity gained
in the steel industry.
The inherent disadvantages of global quotas are numerous. Global
quantitative restraints:
-- Introduce rigidities into the market by freezing relative
market shares (as between imports and domestic production, between
different foreign suppliers, or between different products);
-- Can give undue market power to domestic producers if they
are few in number;
-- Could create political forces which make it difficult to
close inefficient plants or to disinvest. (If the whole nation
is willing to bear the burden of import relief, what right does
a company have to close a plant and wreak serious havoc in a
regional economy, or move resources out of the protected industry
into other kinds of business, or off-shore?) Thus a firm attempting
to increase its competitiveness could find it impossible to
get rid of inefficient capacity and not feel free to channel
new resources into their most productive uses, such as off-shore
production, or diversification.
-- Can create serious distortions about the profitability of
potential investments in the affected industry, leading to investment
in equipment which, though modern, cannot compete effectively
against imports when relief ends.