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February 4, 2003

Lewis E. Leibowitz
Lynn G. Kamarck
Hogan & Hartson L.L.P.
Counsel to CITAC Steel Task Force

Background on the Steel 201 Remedy

2001-Initiation of Steel 201 Investigation
In June 2001, President Bush announced a program to assist the steel industry. There were three elements to the program. One of the three elements of this Steel Action Program was the initiation of a "safeguards" investigation, which ultimately resulted in the Steel 201 remedies now in effect. These measures, which involve the imposition of additional tariffs up to 30 percent on imports of covered steel products, was intended to restrict imports and thereby give U.S. steel producers "breathing space" to restructure and adjust to import competition. An unintended consequence was to damage the competitiveness of American steel using manufacturers.

The President's Steel Action Plan
Three objectives of the Steel Action Program:

• To reduce global excess steel-making capacity;
• To eliminate subsidies and market-distorting practices globally; and
• To initiate an investigation by the International Trade Commission (ITC) under Section 201 of the Trade Act of 1974 into whether serious injury to domestic steel producers was caused by increased imports.

The Steel 201 Investigation
Injury Phase
On June 22, 2001, U.S. Trade Representative Zoellick wrote a letter to the ITC requesting an investigation into whether increased imports were causing or threatening serious injury to U.S. steel producers pursuant to Section 201 of the Trade Act of the 1974. Section 201 is a "safeguard" mechanism that allows the United States to impose import restraints when imports of a product surge to such an extent and under such conditions as to injure or threaten to injure the competing U.S. industry.

After holding hearings on this matter, on October 22, 2002, the ITC found that, for many steel products, imports were the source of injury to the domestic steel industry. Under the law, this "affirmative determination" by the ITC was the first step needed in order to move forward with a recommendation to the President as to the remedy he should impose.

Remedy Phase
On November 5, 2001, the ITC began hearings in order to gather information to base its recommendation on what actions the President should take. The ITC's remedy recommendation was announced on December 7, 2001, comprised of four years of restrictions ranging from quotas to 40-percent tariffs, varying by product, for each of the 16 product categories for which the ITC made an affirmative determination of injury.

In the meantime, an interagency group requested information on domestic producers' plans to adjust to import competition and entertained requests for the exclusion of particular products from the coverage of the Steel 201 remedy.

On December 19, 2001, the ITC transmitted a report to the President containing its remedy recommendation and explanation of its injury finding. This triggered a 75-day period of consideration by the President, during which the President had to decide on appropriate action. Under the law, President Bush's options were to adopt the ITC recommendation, modify the ITC recommendation, replace it with some other form of relief, or take no action at all.

Presidential Proclamation
On March 5, 2002, President Bush issued Proclamation 7529, establishing a Steel 201 remedy "to facilitate positive adjustment to competition from imports of certain steel products." The Steel 201 remedy took the form of increases in duties ranging from eight to thirty percent on imports of certain steel products and a tariff rate quota on imports of semifinished steel slabs. The Steel 201 remedy was established for three years and one day, with the 201 tariffs for each category declining each year of the remedy.

The Proclamation provided for the exemption of U.S. NAFTA partners Canada and Mexico, as well as Free Trade Agreement partners Jordan and Israel from the relief measures. In addition, in compliance with World Trade Organization (WTO) rules, developing countries that are members of the WTO that exported only small amounts of steel to the United States were exempt from the Steel 201 remedy. Other provisions included the imposition of an import licensing system for covered steel products and provision for product exclusions from the remedy.

Mid-Point Monitoring & Review

WTO rules and domestic law require that the President conduct a "mid-point review" (MPR) for safeguards remedies imposed for over three years. The U.S. statute is Section 204 of the Trade Act of 1974, as amended (19 U.S.C. § 2254). The Steel 201 safeguards run for three years and one day.

ITC Monitoring and Mid-Point Review Proceeding
The MPR starts with a monitoring report prepared by the ITC and due to the president in mid-September 2003. The ITC will commence the review in March 2003 by issuing a Federal Register notice. The ITC will send questionnaires to U.S. and foreign producers, U.S. purchasers and importers of covered steel products. The ITC is required to hold a hearing (probably June or July 2003). As part of its report, the ITC will assess developments with respect to the adjustment of the domestic industry and their workers.

The ITC's MPR report will include an analysis of the economic market for the product and adjustment efforts by the domestic industry and their results. The President may also request information from the ITC on the probable economic effect on the industry of reduction or termination of the 201 Remedy. While the Act does not direct the ITC to analyze the impact of the Steel 201 remedy on U.S. consuming industries, in the last several MPRs, the ITC has included consideration of the impact of the Steel 201 remedy on the principal users or consumers of the product or products at issue.

In the judgment of steel consumers, the Steel 201 Remedy has seriously injured downstream consumers of steel due to sharply increased prices and lack of availability that have made U.S. steel users uncompetitive with foreign steel users. Termination of the 201 tariffs would level the playing field for U.S. steel consumers and would thereby benefit steel producers, who otherwise could lose much of their customer base. For this reason, CITAC STF urges the President to request information from the ITC on the impact of the 201 Remedy on U.S. consumers of steel.

Presidential Consideration and Action on the ITC Report
Upon receipt of the ITC Monitoring Report, the President may decide to continue the remedy or to reduce, modify, or terminate the Steel 201 remedy. Past cases indicate that there may be a delay of several months between the ITC report and any decision by the President.

In addition, the President is authorized to terminate or modify the 201 remedy if he finds that "the effectiveness of the action . . . has been impaired by changed economic circumstances." The President is to consider advice from the ITC, the Secretary of Commerce and the Secretary of Labor on this issue, and therefore the ITC should provide such advice.