Steel Trap: How Bush could harm free trade.(protection of US steel industry)(Industry Overview)

Since taking office, President Bush has repeatedly voiced strong support for free trade-often in stirring terms. In a May 7 speech before the Council of the Americas, for example, he declared: "Open trade is not just an economic opportunity, it is a moral imperative." Yet not quite a month later, on June 5, the president announced that he was initiating a "Section 201" investigation that could end up imposing comprehensive import quotas on foreign steel. Whatever happened to that moral imperative?

The sausage grinder of domestic trade politics, that's what. The Bush administration has mapped out an ambitious agenda of trade negotiations: at the bilateral level, deals with Chile, Singapore, and others; at the regional level, a 34-nation Free Trade Area of the Americas; and at the global level, a new round of talks at the World Trade Organization. But to negotiate successfully at any level, the administration needs a grant of "trade promotion authority"-TPA, formerly known as fast track-from Congress. Such a grant commits Congress to an up-or-down vote on trade agreements, thus assuring other countries that the deals they strike with the U.S. executive branch won't be rewritten by the legislative branch.

Once granted more or less routinely, TPA in recent years has become a kind of Sisyphean boulder. The last such grant expired over seven years ago, and efforts to secure one failed in 1997 and 1998. A third failure would more or less doom the Bush trade agenda; indeed, it would call into serious question the whole future of America's postwar commitment to ongoing, negotiated trade liberalization. Administration officials are therefore understandably white-knuckled about a TPA vote that may happen as soon as this summer-and they are determined that no potential "yes" vote be left behind.

Which explains the apostasy on steel. In economic terms, the U.S. steel industry is a pipsqueak: It employs fewer than 200,000 people in an economy with 140 million workers. But politically, it is a bruising heavyweight. In particular, the Congressional Steel Caucus-which boasts 100 members in the House and 33 in the Senate-is a ferocious advocate of steel-mill and steel-union interests. The administration needs many of those votes if TPA is to pass, and getting at least some of them will be easier if the White House gives the steel lobby what it wants.

And what it wants, plain and simple, is protectionism. In 1992, the first Bush administration allowed comprehensive steel quotas-in the form of so-called "voluntary restraint agreements"-to expire. Ever since, the steel industry has been struggling to rebuild the protectionist wall. Multiple barrages of antidumping and countervailing-duty petitions have resulted in cripplingly high duties on specific products from specific countries, but to little avail: Demand has shifted to other products, and third-country suppliers have rushed in to fill the vacuum. In 1999, in the aftermath of a flood of imports triggered by the Asian financial crisis, the steel lobby pushed hard for import-quota legislation. The House passed it easily, but the Senate killed it-largely because of its egregious inconsistency with WTO rules.

Enter Section 201 of the U.S. trade law, a seldom-used provision that exploits a loophole in WTO free-trade disciplines. Under Section 201, if the U.S. International Trade Commission finds that increased imports are causing "serious injury" to a domestic industry, the president can impose temporary trade barriers-including quotas-without violating WTO rules. Normally Section 201 investigations begin with an industry petition. In those cases, even if the protection-seeking industry convinces the ITC, it can still come up empty if the president declines to grant relief. By launching an investigation on its own authority, the White House has signaled that the president's finger is on the steel-quota button. As soon as the ITC gives the go-ahead, the button will be pushed.

In explicitly endorsing steel protectionism, the Bush administration has caved in where the Clinton White House held firm. President Clinton stood up to steel-industry pressure and refused to self-initiate a Section 201 case-even when doing so in the fall of 2000 could well have made a difference for Al Gore in West Virginia or Ohio, and thus tipped the national election.