COVER STORY: The US steel decision
by Peter Westmore
News Weekly, March 23, 2002
The decision of the American President, George Bush, to impose a 30 per cent tariff on imports of flat steel products, and a range of lesser tariffs on other steels, led to anger from two opposing groups: apologists of free market economics, to whom the US has always been the model to which other nations should aspire; and left-wingers, who argued that Australia should sever its strategic links with a nation which treated its allies in this way.
Neither response is helpful or appropriate. The fact is that the United States has acted no differently, in principle, than it did towards Australian lamb exports, or the Howe Leather company, when they successfully encroached on the US domestic market.
Last year, the Weekly Times rural newspaper reported that total US direct assistance to US farmers under the six year 1996 US Farm Bill has averaged $9 billion to $10 billion a year; but despite this, the new Chairman of the US Farm Bureau Federation, Bob Stallman, was reported as saying that existing supports were "woefully inadequate", and needed to be doubled. (Weekly Times, January 24, 2001)
In the event, the US Government's 2002 Farm Bill proposed subsidies of some $US340 billion over the next five years.
The Europeans are no different. European governments routinely support both manufacturing industry and agriculture.
The web site of the UK government's Scottish Office lists direct subsidies for a number of agricultural industries in Scotland, alongside net farm income, for the years 1987 to 1997. For cereal producers, it says, net farm income in 1997-98 was just £4,511 ($A11,870), but this was topped up with an average direct subsidy of £33,110 ($A87,000). For other industries, the figures are generally not as dramatic, but ranged from 65 per cent for dairying, up to a massive 1771 per cent for mixed farming.
Similar subsidies operate in other parts of the UK, and in continental Europe.
As far as the US steel industry is concerned, cheap foreign imports of steel from Asia and Latin America have made integrated US steel mills unprofitable for years, preventing the large expenditures necessary to upgrade old and technologically outdated plant and equipment.
The subsidies offered by President Bush are for a three year period, giving the US industry a short period in which to close down uneconomic plants, and retrain their workers for other jobs.
Subsequently, the Bush Administration announced that some 80 per cent of Australian steel exports would be exempted from the tariffs, after a new steel mill owned by BHP on the American west coast said that it would go under, without the supply of 250,000 tonnes a year supplied by BHP Steel from Australia.
The relaxation of the US government tariff apparently had less to do with Australia's importance to the US, than that the steel plant in question had been designed to process steel from Australia, and could not handle steel manufactured in the US. The decision therefore was linked with the preservation of jobs and industry in the US, rather than a particular concession to Australia.
Japan, the European Union and New Zealand have all filed complaints against the new American steel tariff. Under WTO rules, this is the first step in taking sanctions against the US.
The United States and the European Union are already in dispute over a number of other trade issues, including $4 billion in tax breaks for US exporters. The WTO last January found that massive tax breaks for firms like General Electric (GE), Boeing and Microsoft amounted to illegal export subsidies. The ruling paved the way for the EU to impose punitive tariffs on imports from the US.
Other trade issues include a European ban on imports of US beef raised with growth-promoting hormones, and banana exports, where the WTO had found in favour of the United States, resulting in sanctions on EU exports.
In response to the US steel tariffs, the European Union has already decided to impose import restrictions on steel imports from the rest of the world, to prevent cheap steel being dumped in Western Europe.
This shows that almost every country in the world protects its own industries, while seeking to gain export markets for its products.
In fact, one of the few major manufacturing industries in Australia which still enjoy a measure of support is the motor vehicle industry, as a result of which three major manufacturers produce cars in Australia. The sole reason for the survival of this industry is that tariffs have been maintained on imports.
As a result, the automotive industries are also Australia's sixth largest export earner.
Australia - along with New Zealand - is one of the few countries in the world which have unilaterally removed import protection from most of its secondary industries, with the inevitable result that employment in manufacturing industry in Australia has collapsed to a point where, proportionately, it is now almost the lowest in the developed world. Only Greece, among the OECD countries, is below us.
While every country preaches the virtues of free trade, Australians (and New Zealanders) are the only ones silly enough to practise it. It's time we joined the real world.
- Peter Westmore is President of the National Civic Council