The House International Relations Committee will try to negotiate a deal with the White House to get Bush administration support for a modified version of the panel's Export Administration Act (EAA) (H.R. 2581), but on the condition that the administration give up its backing of the Senate' EAA bill (S. 149). Without an agreement, House leaders will face a difficult time reconciling the views of seven different committees with jurisdiction over some portion of H.R. 2581, as well as a long and contentious Conference Committee which would have to iron out the differences between the House and Senate approaches to EAA, one source suggested.
H.R. 2581 came out of HIRC loaded with provisions opposed by the administration and the business community. Portions of the measure were referred to six other House committees for consideration (see WTTL, Nov. 26, page 1). Those panels were given several deadlines, starting in December, by which they were supposed to report out the measure. Each of those deadlines was extended. With the last deadline of Feb. 28 about to be missed also, House leaders gave the committees an extra two weeks to complete their work.The Agriculture and Energy and Commerce committees are expected to delete provisions they oppose on extending export controls to pesticides and clinical drug research in foreign countries. But the House Armed Services Committee, which held a hearing on EAA Feb. 28, is likely to add tougher restrictions on exports. At the hearing, Chairman Bob Stump (R-Ariz.) voiced concern that the House bill would "open the floodgates and allow some of our most sensitive technologies to flow into labs and arsenals" of nations hostile to the U.S.
To meld together these changes, it
was expected that House Rules Committee Chairman David Dreier (R-Calif.)
and House Republican leaders would try to draft a consolidated bill.
But HIRC hopes to avoid having Dreier and the House leaders dictate the
final bill that would be taken to the House floor. It wants to negotiate
the measure itself with the White House and will seek a meeting with National
Security Advisor Condelezza Rice or her deputies. HIRC's aim is to
get administration support and preclude having to make further compromises
with the Senate. "We don't want to have to negotiate twice," one
congressional source told WTTL.
STEEL RULING WILL TEST HOW BUSH BALANCES TRADE AND POLITICS
A fly on the wall in the White House the week before March 6, when President Bush is sup-pose to rule on the pending Section 201 case on steel, would have learned a lot about steel, economics, the stock market and trade negotiations, but mostly about politics. Bush has had a Cabinet-recommended options paper for the 201 decision on his desk for several weeks. At press time, there was speculation that an announcement could come as early as March 2.
In advance of the announcement, administration officials, including the president, were making a concerted effort to soften the impact of any decision by meeting or talking with industry representative, members of Congress, foreign officials and the press. The message they were sending was that no one will be totally happy with the final decision, but that serious relief will be given to the key integrated steel companies that make flat steel products.Having self-initiated the 201 case and raised the hopes of the industry and steelworkers, Bush can't walk away now. Politically, the failure to provide relief could cause a backlash in such steelmaking states as Pennsylvania, Ohio and West Virginia. The White House wants to rebuild the base of Reagan Democrats who voted Republican in the 1980s. Part of that effort, administration officials say, is showing that trade laws can protect injured industries and workers.
"The fact is that trying to get something done that strikes a balance probably means you get criticized by all sides," one senior administration official said. "But at the end of the day it boils down to, in terms of the politics, are you willing to do something that maintains the credibility of your trade policy." Public trust in trade has been broken, he asserted. "To restore that, you have to be willing at some level to go to bat for American workers," he said.
At the same time, the president is getting pressure from lawmakers representing states and districts that rely on steel imports coming through their ports or that have heavy steel-using industries. He also faces threats from U.S. trading partners, particularly Brazil and the European Union (EU), that restrictions will trigger a breakdown in global talks on reducing steel capacity and hamper negotiations on a Free Trade Area of the Americas and the Doha Development Round. But with the U.S. economy moving out of its economic downturn and advance contracts showing steel prices rising, tariffs or tariff-rate quotas (TRQ) may be seen as having less impact than many feared.
Thus, even foreign steel producers and domestic customers accept the fact that Bush will provide relief for the steel industry. The unanswered questions were: what form and level of the relief would be given and how would the White House address the so-called "legacy costs" of pensions and health care benefits for retired steelworkers (see story, page 3).
The main choice is whether to impose a tariff on those steel categories for which the Inter-national Trade Commission (ITC) found injury or to apply a TRQ. Domestic producers want a 40% tariff, while foreign exporters and steel consumers are urging a TRQ. With either choice, the administration will establish a short-supply petition mechanism to allow steel users or importers to seek a waiver of sanctions (see WTTL, Feb. 11, page 1).
While a TRQ would give U.S. steel firms the benefit of the first dollar of any economic upturn, it wouldn't provide the immediate price increase the industry and United Steelworkers have sought. "When you look at a tariff-rate quota, you are really looking at an anti-surge mechanism," one administration official said. "In terms of upward pressure on prices, you're not going to see an awful lot, depending on where you set the quota level on the TRQ,@ he added.
While the 40% tariff steelmakers want probably is unlikely, a tariff in the 20-30% range on selected categories was seen as possible. Domestic producers say they have heard that some foreign steel exporters have already offered to absorb a 20% tariff rather than pass it on to their U.S. customers and were offering to split tariffs above that level. The steel industry claims this shows the need for a higher tariff to produce the trade relief they are seeking.
The administration must also face the antitrust implications of relief and the merger plans of American steel companies, led by U.S. Steel and Bethlehem Steel. Such a merger, which would aim to reduce competition, cut capacity and raise prices, would require a favorable antitrust ruling from Justice and the Federal Trade Commission. Antitrust rules allow trade-restraining mergers if there is viable international competition. Bush's decision can't be so severe so as to cut off this antitrust escape valve.
Meanwhile, the impact of potential
tariffs may be reduced by WTO rules that require the U.S. to exempt developing
countries that contribute less than 3% to U.S. steel imports from safeguard
actions. In addition most Canadian and some Mexican steel will be
excluded. Any relief announced by Bush won't be imposed for at least
30 days to give the U.S. time to consult with all exporting countries,
another WTO requirement.
BUSH TO OFFER COMPLEX COMBINATION OF HELP FOR STEEL LEGACY COSTS
Steelworkers will need a slide rule -- if an old one can be found in someone's bottom draw -- to figure out what relief they will actually get from a plan President Bush will offer to deal with the pension and health insurance costs of retired workers from steel companies that have gone bankrupt. When the president announces his decision on the pending Section 201 steel case, he is also likely to propose a solution to these so-called legacy costs (see story page 1).
The week before the 201 decision was due, administration officials floated several ideas on how to deal with these costs. In briefings for reporters, administration officials stressed that the legacy issue doesn't affect all retired steelworkers the same. They also noted that there isn't a common view among steel companies about a government bailout of legacy costs.It was clear they have rejected the idea of the government picking up the insurance liability for just one group of retired workers. Lawmakers who have tried to muster help for steelworkers concede that approach won't be suggested. "I'm not optimistic because of the precedent it would set," Sen. George Voinovich (R-Ohio) told WTTL (see WTTL, Feb. 4, page 1).
Instead, the administration may suggest a combination of remedies. It will expect pensions to be addressed by the government's Pension Benefit Guaranty Corp. Health care for workers not eligible for Medicare may be handled by direct grants to cities and regions with large numbers of retired steelworkers, such as Cleveland, and by a health insurance plan the Bush administration included in its 2003 budget request. That proposal, which would require legislation, would provide tax credits for all types of retirees who buy insurance with their own money. For steelworkers, presumably, that would be money from pensions they would still be getting.
The administration also will promise to work with Congress to renew and strengthen the Trade Adjustment Assistance (TAA) program to give more help to dislocated workers. TAA legislation is still pending in the Senate, where Democrats and Republicans are fighting over a Democratic proposal to provide health insurance benefits to dislocated workers. The White House is now likely to step into the negotiations to pressure both sides to reach a compromise.
In advance of the announcement on
the legacy issue, some Republican members of congressional Steel Caucus
were prepared to support Bush's plan for a tax credit. "That would
fit very well," Rep. Phil English (R-Pa.) told WTTL. "My perception
is that outside of a number of constituencies, including mine, the legacy
cost issue is narrow enough and expensive enough that coupling it to something
else is probably sound strategy," he said.
POLITICAL FIGHT OVER TAX RULES WILL PREVENT ACTION ON FSC
How long the EU is willing to put off retaliation against the U.S. for the illegal export subsidies found with the Foreign Sales Corporation (FSC) will depend on how thin a reed EU Trade Commissioner Pascal Lamy is willing to grasp as evidence that Washington is showing "good faith" in trying to fix the WTO-violating tax rules. Congress is making it clear, including at a House Ways and Means Committee hearing Feb. 27, that changes in the tax code won't come this year and maybe not next year either.
The fate of FSC has become caught in a broader debate over corporate taxation policies. Even if that politically charged issue could be surmounted, lawmakers doubt they could fix FSC in such a way as to maintain its benefit for current users of the tax rule.The political maze into which FSC has fallen was underscored at the Ways and Means hearing where Chairman Bill Thomas (D-Calif.) suggested the solution may lie in "reforming America's corporate tax structure." He announced that the panel's select revenue subcommittee would begin to hold hearings to examine options for doing that. "It will be impossible to recreate a system which duplicates the current winners, but we must act in good faith and we must begin this difficult process now," he said.
Thomas' statement drew an immediate reaction from Ranking Democrat Charles Rangel (D-N.Y.), who warned that opening up corporate tax rules along with proposals to substitute a consumption tax are "explosive political issues." He said he was afraid the FSC crisis might become the vehicle to "pull up the tax code by its roots," Rangel called on the administration to propose a solution that would maintain the tax system and meet U.S. international obligations.
USTR General Counsel Peter Davidson
told the committee that Treasury Secretary Paul O'Neill, Commerce Secretary
Don Evans and USTR Robert Zoellick plan to form a Cabinet group to work
with Congress to develop a solution to the FSC problem. Speaking
to reporters afterward, Davidson clarified that this group is not yet a
formal structure. Meanwhile, the U.S. Feb. 26 filed additional comments
with a WTO arbitrator who will decide how much retaliation the EU is entitled
to for FSC (see WTTL, Feb. 18, page 2).
CENTRAL AMERICANS ENTHUSIASTIC ABOUT STARTING TALKS ON FTA
With President Bush expected to give another boost to his proposal for a free trade agreement with Central America during his March 24 visit to El Salvador, trade officials from the five countries of the region met in Washington Feb. 25-26 with Assistant USTR Regina Vargo and presented a two-page outline of the issues they expect to cover in the potential agreement. Meeting with reporters afterwards, representatives from Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua seemed eager to start the talks and complete them in two years.
The Central Americans emphasized that they are willing to discuss all aspects of an FTA, with nothing excluded from negotiations. They see the FTA with the U.S. as a "third-generation FTA" that will build on the experience of previous accords while also complementing work on a Free Trade Area of the Americas.The trade officials even indicated a willingness to talk about labor and environment issues. Their governments "are open to discussing labor and environment and other topics such as investment and services," said Fernando Ocampo, Costa Rica's director general of foreign commerce. "But at this time, we haven't discussed specific wording," he added. Javier Morales, Nicaragua's vice minister of economy, went further. "Labor and environment offer tremendous opportunities for a mutually beneficial relationship between the United States and Central America, opportunities to improve the environment and use Central America as a model case of preservation of the environment and the improvement of labor relations," he said.
Vargo responded positively to the list of negotiating items the Central Americans presented. "This is was a very good starting point," she said. "This was clearly a serious statement of interest and intent by the Central Americans." Although current and pending FTAs will serve as the basis of discussion between the U.S. and Central America, Vargo claimed there was still some flexibility in negotiations. "Our goal is not so much to be wedded to any one set of texts in time but to find a way to move the trade ball forward," she said.
* * * BRIEFS * * *
EXPORT ENFORCEMENT: BXA has reached agreement with Neopoint of San Diego, Calif., under which firm will pay $95,000 civil fine to settle agency's complaint that it shipped 128-bit encryption software to Korea on ten occasions in 1998 and 1999 without approved export license it knew it needed to obtain.
SINGAPORE: USTR will hold public hearing April 1 on proposed U.S.-Singapore FTA.
Copyright 2002 by Gilston Communications Group. Reproduction or retransmission in any form is prohibited. Washington Tariff & Trade Letter is published weekly 50 times a year.
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