Repeal of steel tariffs 'all but set in stone'

Steel mills will attract fewer investors without the tariffs, a WCI official said.
STAFF/WIRE REPORTS
WASHINGTON -- The Bush administration has decided to repeal most of its 20-month-old tariffs on imported steel to head off a trade war that would have included foreign retaliation against products exported from politically crucial states, administration and industry sources said.
The officials would not say Sunday when President Bush will announce the decision but said it is likely to be this week. The officials said they had to allow for the possibility that he would make some change in the plan, but a source close to the White House said it was "all but set in stone."
Local impact
It's too soon to say how a repeal would affect WCI Steel in Warren, spokesman Tim Roberts said this morning. "Right now our order book is quite strong, and we can't comment specifically because we don't know the plan," he said.
WCI, the largest steel producer in the Mahoning Valley with 1,800 employees, is operating under Chapter 11 bankruptcy protection.
Repeal of the duties would certainly have a long-term effect on the steel industry in general, Roberts said.
"I think the major concern is how investors and venture capitalists will react," he said. With the tariffs in place, he explained, investors have been more confident putting their money in steel.
Roberts would not comment specifically, however, on how a tariff repeal would affect WCI's need for more operating cash from its parent company, the Renco Group, part of its three-part strategy to emerge from bankruptcy.
China has been buying up large supplies of foreign steel in recent months, reducing the flow of cheap foreign imported steel that hurts domestic steel makers, Roberts said. If and when China's buying binge ends, however, cut-rate imports will likely be a problem here again.
"We've known the president is under tremendous pressure from the European Union and foreign producers to repeal the tariffs," Roberts said. "But if he does, it's going to send a message that the U.S. is a dumping ground for steel."
International pressure
European countries had vowed to respond to the tariffs, which were ruled illegal by the World Trade Organization, by imposing sanctions on up to $2.2 billion in exports from the United States, beginning as soon as Dec. 15. Japan issued a similar threat Wednesday. The sources said Bush's aides concluded they could not run the risk that the European Union would carry out its threat to impose sanctions on orange juice and other citrus products from Florida, motorcycles, farm machinery, textiles, shoes and other products.
Bush advisers said they were aware the reversal could produce a backlash against him in several steel-producing states of the "Rust Belt" -- including Pennsylvania, West Virginia and Ohio. That arc of states has been hit severely by losses in manufacturing jobs and will be among the most closely contested in his re-election race.
The sources said Bush's aides agonized over the options to present to the president, and they considered it one of the diciest political calculations of this term. A source involved in the negotiations said White House aides looked for some step short of a full repeal that would satisfy the European Union but concluded that it was "technically possible but practically impossible."
What was imposed
Bush decided in March 2002 to impose tariffs of 8 percent to 30 percent on most steel imports from Europe, Asia and South America for three years. Officials acknowledged at the time that the decision was heavily influenced by the desire to help the "Rust Belt" states, but the departure from Bush's free-trade principles drew fierce criticism from his conservative supporters. After a blast of international opposition, the administration began approving exemptions.
The WTO's ruling against the tariffs was finalized three weeks ago, clearing the way for the retaliatory levies, and Bush's economic team concluded unanimously that the tariffs should be scrapped. The source involved in the negotiations said the consensus in the White House was that "keeping the tariffs in place would cause more economic disruption and pain for the broader economy than repealing them would for the steel industry."
A White House spokesman would not comment beyond saying that it is "still a matter under review by the president, and we'll make announcements when we have announcements to make."
Officials said the repeal could help Bush in Michigan, where automakers and parts factories are heavy consumers of steel and were hurt by the tariffs, but they said that was not the reason for the decision. In 2000, Bush won Ohio and West Virginia, a traditionally Democratic state. He lost Pennsylvania and Michigan, and they are among his top targets in 2004.
Bush travels today to Michigan to make remarks on the economy. Tuesday he flies to Pittsburgh, headquarters of U.S. Steel Corp., which is the nation's largest domestic steel producer and led efforts to pressure the administration to retain the tariffs. Bush is going there for a fund-raiser for his campaign. One of the organizers is Thomas J. Usher, U.S. Steel's chairman and chief executive.
A trade war could be used to bolster Democrats' claims that Bush has been a poor steward of jobs and could force his campaign to focus on manufacturing states where he would otherwise be safe. Republican officials, who had hoped the tariffs would help them make inroads with steel workers, were disappointed in August when the United Steelworkers of America endorsed Rep. Dick Gephardt, D-Mo., for president.
The administration had foreshadowed the decision, most bluntly when U.S. Trade Representative Robert Zoellick told reporters last month that the tariffs had already helped the steel industry to restructure. "The safeguard gave the industry an opportunity to do what we hoped it would do," Zoellick was quoted as saying. Zoellick said when the tariffs were announced last year that they were meant to provide "breathing space" of "a temporary nature to try to give steel companies and steel workers a chance to get back on their feet."
Feeling betrayed
Steel executives, who have said they will feel betrayed by a repeal, argue that they made the investments and changes the White House envisioned when the three-year tariffs were announced and that the administration should not buckle to European pressure. Industry sources said that with the decision all but made, the White House recently asked steel companies to present a proposal that would phase out the tariffs instead of eliminating them. These sources said they were pessimistic Bush would accept the proposal.
Administration officials are bracing for blistering news coverage from "Rust Belt" states they have been courting, and a lobbyist said unions and the industry plan to organize "a strong and negative response." But a Republican source said Bush's aides have calculated that the decision alone will not swing the election in any of the steel states.
XVindicator business writer Cynthia Vinarsky contributed to this report.