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Bush lifts steel import tariffs

Industry angry; trade war averted

WASHINGTON -- President Bush yesterday lifted tariffs on imported steel, averting a trade war with European and Asian nations but drawing criticism from unions and steel manufacturers that he had caved in to foreign pressure.

The tariffs, imposed by the White House in March 2002 after years of job losses and bankruptcies in the steel industry, were declared illegal recently by the World Trade Organization, and members of the European Union had threatened to imposed their own duties on products made in states that happen to be crucial to Bush's reelection effort.

But in announcing that the three-year sanctions program would be ended immediately, 16 months before it was scheduled to expire, the administration insisted that the WTO ruling and the threat of retaliatory sanctions had not motivated Bush to scrap the tariffs.

"These safeguard measures have now achieved their purpose, and as a result of changed economic circumstances, it is time to lift them," Bush said in a statement announcing the policy shift.

The White House portrayed the move as an exclusively positive step, taken because the US steel industry has consolidated and improved productivity. But steel companies did not share that assessment.

"This decision will complicate the historic restructuring that is ongoing in the industry and will be particularly difficult for weaker industry players," said Thomas J. Usher, chairman and chief executive officer of US Steel, the largest steel producer in the country. "Without the discipline of these tariffs in the US market, it will be much more difficult to get our trading partners to seriously address the [overseas] subsidies and other unfair practices that have plagued the global industry for decades and that have led to hundreds of millions of tons of excess capacity."

Leo W. Gerard, president of the United Steelworkers of America, said Bush buckled to foreign pressure in lifting the tariffs.

"Our trading partners obviously engaged the administration in a game of guts poker," Gerard said. "Instead of telling them to `bring it on,' the president blinked."

Bush pledged to continue talks with the EU aimed at assuring that overseas steel producers do not flood the US market with underpriced steel to harm American manufacturers. Many economists said the loss of the tariffs would hurt US steel companies, but added that more US jobs probably were lost in industries, such as automotive, that rely on lower-priced overseas steel than were saved in the domestic steel industry. "The tariffs have raised prices for steel used by many US firms and have probably caused many more job losses in those sectors than the number of jobs saved by the steel tariffs," Kent A. Jones, chairman of the economics division at Babson College in Wellesley, said yesterday.

Tariffs are fees imposed by a government on goods imported from another country. Countries are allowed to impose emergency tariffs to protect industries from temporary and unusual threats, but those designed to give a permanent advantage are generally not permitted under rules of the WTO. EU countries, as well as the United States and several Asian nations, have signed agreements pledging to use the WTO as an arbiter in trade disputes.

Maintaining the tariffs in the face of a WTO ruling against them also would have jeopardized an international framework of trade rules that generally benefit the US economy, Jones said.

"If the US were to defy the WTO ruling, that would be a signal for all other countries, including the EU, to ignore or defy future WTO rulings, and the trading system would suffer greatly," he said.

Any decision on the tariffs was certain to engender anger at Bush. The tariffs had been seen as a political plus for Bush in such steel-producing states as Pennsylvania, Ohio, and West Virginia. But the tariffs were not seen as a plus in places like Michigan, home to the auto industry, a major consumer of imported steel. Auto industry officials protested that the tariffs have led to higher prices for steel, driving up their costs. The WTO ruling that US steel tariffs were illegal had cleared the way for other nations to impose their own sanctions on US goods.

Foreign steel producers -- Japan and countries that make up the European Union -- were upset by the tariffs, too, saying they are an illegal form of protectionism. Criticism of the administration's policies was sharpest in England, where, just before Bush arrived for an official state visit last month, business executives demanded that Prime Minister Tony Blair persuade the American president to eliminate the tariffs.

Blair, already weakened politically because of opposition at home to his support of the US-led war in Iraq, raised the issue with Bush in one-on-one talks.

The WTO ruling, released three weeks ago, had bolstered Blair's case and presented Bush with the painful prospect of seeing more than $2 billion of US goods -- textile products from the South, citrus from Florida, and motorcycles from the Midwest -- slapped with retaliatory tariffs. Each of those areas is crucial to Bush's reelection effort.

Pascal Lamy, trade commissioner for the European Union, said the threat of sanctions served its purpose in getting the United States to heed the WTO ruling. "These [retaliatory] sanctions . . . were there as a tool for compliance," he said. "They've complied, and the sanctions will disappear." But criticism of Bush's decision is likely to linger.

"Refusing to see the steel relief program through to its conclusion is yet another example of President Bush's failed leadership," said US Representative Richard A. Gephardt of Missouri, one of nine contenders for the Democratic presidential nomination.

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