It’s no tragedy, and it cannot be. That’s what Russian government officials said in mid-1999 when, over the strenuous objections of a majority of its steelmakers, Russia agreed to a U.S. ultimatum and signed an agreement to limit Russian steel exports to the United States.
That year started with an attempt by U.S. trade negotiators to put a limit on hot-rolled steel imports. Moscow agreed to the Washington terms, which included fixing a quota on the volume of the steel that could be imported in a year, as well as setting a high reserve price below which nothing could be sold at all.
Imagine the surprise in the Ministry of Trade and the Kremlin when the Americans suddenly said their own deal wasn’t enough. They then added what was called a “comprehensive steel trade agreement,” listing new limits on more than a dozen categories of iron and steel, in addition to the hot-rolled products. It’s no tragedy, and it cannot be, said the Americans, when the Russians objected that there was no justification for adding import restrictions on Russian imports that were too small to damage the U.S. market and weren’t the target of investigation according to U.S. trade law.
According to the Commerce Department negotiators, the package deal would not only protect Russian steel exports from pending dumping penalties, it would also extend that protection into the future for the other steel products, in case the U.S. industry decided to ask for import limits. Either accept the comprehensive limits, or risk the consequences, they said at the time.
It’s no tragedy, and it cannot be, said the executives of Severstal, the second-largest of Russia’s steelmakers, and the most profitable until recently. For Severstal, any guarantee of access to the U.S. market was better than the risk of losing all access.
Severstal managed to convince the government to sign the deal, despite opposition from most other steel producers.
Imagine the surprise in Russia, therefore, when the weaker elements of the U.S. steel industry applied to have the Bush administration say that Russian steel imports were seriously damaging local plants.
During the presidential election campaign of 2000, the president-to-be became indebted to big steel companies for their support. The narrowest election result in history – and possibly the only illegal one – made repayment of this obligation a certainty.
At the same time, it was obvious last year that falling global demand for steel and declining industrial output in the United States meant that prices for steel products on the U.S. market were so low that Russian steel exports subject to price controls could not be sold. By late in 2001, even Severstal was beginning to join the chorus of Russian voices urging President Vladimir Putin to acknowledge that American trade limits were unfair and should be scrapped. If the Americans didn’t agree, the steelmakers urged, the Kremlin should unilaterally abrogate its 1999 signature and withdraw from the agreement.
It’s no tragedy, and it cannot be, came the reply from U.S. Commerce Department negotiators who kept prolonging the talks with their Russian counterparts, but agreed to nothing. They were waiting for President George Bush to make a decision.
This week, Bush made up his mind. A duty of 30 percent is to be imposed on imports of all flat steel products, as well as steel bar. Bush exempted Canada and Mexico, as well as “developing countries that exported only small amounts of steel and that are WTO members,” leaving Russia and the rest of the steelmaking world exposed to the full brunt of the restrictions.
For Russia, that meant U.S. rejection of every element of the 1999 deal, including its commitments to take limited volumes of flats and bars. Dishonoring the agreements is no tragedy, and it cannot be, the White House said.
Severstal had been hoping for the lion’s share of the 655,000-ton quota the Americans granted for hot-rolled products in 1999, as well as of the 350,000-ton quota for cold-rolled products. The company now claims the American decision will shut out sales of 500,000 tons of steel this year, worth about $120 million.
Novolipetsk might benefit because Bush hasn’t ordered an immediate penalty on steel slab, the semi-fabricated metal U.S. steelmakers import for re-rolling and finishing. Instead, Bush set a quota of slab imports at 5.4 million short tons, roughly equivalent to the volume the United States imported in 2000. If imports of slab exceed that level, Bush ordered a penalty duty of 30 percent. The White House justifies this arrangement by explaining that there are enough U.S. steelmakers who can convert the cheap imported slab profitably, and their interest should be protected. For Novolipetsk, this is no tragedy.
According to the last agreement with the United States, Russia should be able to export this year 85,000 tons of hot-rolled bar and 36,000 tons of cold-finished bar, including 45,000 tons of reinforcement bar (rebar). Bush has decided to impose a 30 percent duty on bar and 15 percent on rebar. The first is prohibitive, and Russian mills say they won’t be able to sell anything. Bush is also imposing a 15 percent penalty on pipe products, for which the 1999 deal provides a quota this year of 40,000 tons. It remains to be seen whether Russia’s pipemakers can sell with this limitation.
If Bush’s decision were limited to the United States, it would be bad enough. But Mexico has already raised its import duties on steel to 25 percent. Canada and other countries are likely to follow.
Bush’s attempt to impose U.S. interests on the global steel industry has been challenged by the European governments, the Australians and others who will go to the World Trade Organization to challenge its legality. Putin, who is planning to meet Bush in Moscow in May, has yet to speak his mind.