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Summary

If the President decides that import restraints are necessary, it is essential that product exclusions be a permanent part of the administration of such restraints. A rational plan of administration must include the following:

• Import restrictions on steel cannot possibly exist without a procedural safety valve based on exclusions of products from import restrictions. The only rational and equitable alternative to such a process is no import remedies at all.
  
  
• Quotas or TRQs will effectively permit imports that are needed in the economy when demand is high. Case by case exclusions will still be needed for specialty products and spot shortages.
  
  
• Temporary product exclusions will balance the interests of steel producers and steel users and be WTO-consistent. Failure to permit temporary product exclusions would devastate many U.S. steel-consuming manufacturers.
  
  
• A temporary exclusion process must be administered with great care to be fair to all interested parties. There must be no "veto" power by interested parties. Procedures must consider all relevant evidence. Any government agency handling these cases must be sensitive to the importance of making a fair and practical decision.
  
  
• As a procedure involving fairly traded products, price must be a relevant consideration.
  
  
• The burden of persuasion must be on those that claim the ability and willingness to supply a product. Applicants cannot be expected to prove a negative.

1. Introduction

As the time for the President's remedy decision on steel nears, the steel industry's demands for protection are becoming louder. The evidence is clear that import restrictions, whether in the form of tariffs, quotas, or tariff rate quotas ("TRQs") will hurt American businesses that use steel, as well as U.S. exporters who will face retaliation from justifiably angry trading partners. Protectionism hurts more than it helps, and this case is no different. In addition, import restraints will probably not save the weakest of America's steel producers.

In the event that import restriction form a part of the President's steel policy, they must take account of fundamental realities of the steel market. The first reality is that America needs more steel that it can produce. There is no policy that the President could implement that would alter this fact in the near future. The second reality is that there are clearly products that are not available domestically that are needed by American manufacturers. Denying U.S. companies access to these products is reckless and illogical as well as damaging.

Any safeguard measure that restricts imports must address both realities. This paper discusses the reality of a need for an ongoing product exclusion process in connection with any import-restrictive regime.

2. Import restrictions cannot rationally exist without a system for exclusions.

Steel import restrictions could take the form of tariffs, quotas or a combination ("TRQs"). Tariffs are the worst choice for steel consuming industries because every covered steel product would be taxed, regardless of whether there is a domestically available alternative. Twenty to 25 percent of domestic steel demand must be supplied by imports, because domestic production is insufficient, even at full capacity, to supply the entire domestic demand for steel products. There is no dispute on this point. /

Thus, tariffs as an import remedy would result in the greatest dislocation. An ongoing product exclusion process would be essential to prevent systemic relocation of steel-consuming industries outside the United States.

If quotas or TRQs were chosen as a remedy, imports would be permitted to enter the U.S. market in certain volumes free of duty. So long as the quota level permits the volume of imports necessary to satisfy domestic demand, the need for a product exclusion procedure would be limited to products for which there is no practical domestic alternative.

In either case, however, the cost of import restrictions would increase dramatically, perhaps exponentially, if no systematic product exclusion process were available. Import restrictions, in any case inadvisable, would be irresponsible in the extreme without a system of product exclusions.

3. An ongoing process for exclusions must be a feature of import restrictions.

The current process for considering product exclusions from any Section 201 remedy is flawed in several respects. First, the machinery of government is clearly overwhelmed by the sheer number of these exclusions. While counts differ, the most-often heard number of exclusion requests is approximately 1,000. Many of these products fill highly specific requirements. Domestic producers and consumers disagree in many instances on whether domestic producers make or can make these products, in part because domestic steel producers are not familiar with these products, since they are not currently made in the United States. Only with time and, in many cases, trial orders by customers, can these issues be resolved. There is no way to settle all these issues in advance of any relief.

The only practical solution to this problem is to process exclusion requests throughout the period of any import restrictions. This problem will rise and fall with domestic capacity utilization, investment decisions, and the advent of new steel-containing products. It is simply not feasible to pretend that the problem can be dealt with in a brief span of time.

Thus, if an ongoing product exclusion process is not a part of import relief, the only rational alternative is not to impose import restrictions under Section 201.

4. An ongoing product exclusion process must have certain attributes of fairness, promptness and practicality.

Based on standards, not veto power. Product exclusions should be based on objective standards of fairness. If an exclusion is denied, the requesting party may be forced to shut down its operations, or lose business to offshore competition. Thus, the correct answer is essential to the fairness of the process. A fundamental aspect of exclusions, therefore, must be that no party has an absolute veto power over whether an exclusion is granted. Mere assertions by U.S. manufacturers that a product could be produced in the United States must not be an adequate ground for denying an exclusion request, any more than mere assertion of unavailability should, without more, be adequate grounds for a grant. It is inevitable that some cases will be disputed. The government must commit to a fair and prompt process for resolving these disputes.

Standards for Initiating. An essential part of maintaining a practical system is to minimize the number of cases that are disputed. We suggest that this can be done by requiring certain minimum standards for initiating an exclusion request. For example, a request might be accompanied by clear evidence of a request for quotations, or a purchase order for the product at issue, together with a response from a domestic steel producer or a lack of response after a reasonable period. Similarly, if a domestic steel producer objects to an exclusion request, such an objection might be accepted if accompanied by a purchase order acknowledgement or an offer to supply which, if accepted, would be contractually binding. Such criteria are workable, but would require a clear commitment on the part of buyer and seller to accept a domestic alternative, if truly available.

Temporary in Nature. Another important part of a fair process is that exclusions should be temporary, unless permanent exclusion is clearly warranted. The current process, which aims to exclude products entirely from the remedy, will leave behind steel users that have temporary supply difficulties. At the same time, permanent exclusions could preclude domestic steel producers from sales that they would otherwise be in a position to make.

Pricing is Relevant. A fair and balanced product exclusion regime must take price into account as a relevant criterion for determining whether an exclusion is warranted. If a domestic producer offers a price to its customer that is substantially higher than prices available to foreign producers of a competing steel-containing product, denial of an exclusion to the U.S. customer simply guarantees that a foreign producer of steel-containing products will secure the business. This helps neither the customer nor the U.S. supplier. /

Burden of proof. If an applicant for a product exclusion shows that it has been unable to purchase the product in issue from U.S. producers, the burden of proof should be on objecting domestic producers to prove that they are ready, willing and able to supply that product on a timely basis. Applicants for relief cannot be expected to prove a negative.

Discretion is needed. The necessary discretion to make fair and balanced decisions may cause discomfort to government officials who must determine in contentious cases who is right and who is wrong. However, in some cases this will be necessary. The alternative would be an unjust and economically damaging system of import restrictions. An agency that accepts the responsibility for making tough decisions should implement the system.

Other requirements. There are several other specific requirements for a fair system. For example, the process must be prompt. In many cases, even a brief delay will mean the requesting party will lose the opportunity to obtain business for itself. Additionally, the process should be as open as possible, keeping in view the need for protection of confidential business information, particularly from third parties. Government procedures already in place in trade remedy cases can be adapted to this requirement. Finally, as long as fairness and promptness can be assured, judicial review of these decisions should be tightly restricted. Such review should be permitted if the process is fundamentally flawed, such as by misrepresentation or bias.