House Report 107-437 - DISAPPROVAL OF ACTION OF THE PRESIDENT UNDER SECTION 203 OF THE TRADE ACT OF 1974

[House Report 107-437]
[From the U.S. Government Publishing Office]

107th Congress Report
HOUSE OF REPRESENTATIVES
2d Session 107-437

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DISAPPROVAL OF ACTION OF THE PRESIDENT UNDER SECTION 203 OF THE TRADE
ACT OF 1974

_______

May 7, 2002.--Committed to the Committee of the Whole House on the
State of the Union and ordered to be printed

_______

Mr. Thomas, from the Committee on Ways and Means, submitted the
following

ADVERSE REPORT

together with

DISSENTING VIEWS

[To accompany H.J. Res. 84]

[Including cost estimate of the Congressional Budget Office]

The Committee on Ways and Means, to whom was referred the
joint resolution (H.J. Res. 84) disapproving the action taken
by the President under section 203 of the Trade Act of 1974
transmitted to the Congress on March 5, 2002, having considered
the same, report unfavorably thereon without amendment and
recommend that the joint resolution do not pass.

I. INTRODUCTION

A. Purpose and Summary

House Joint Resolution 84 disapproves the action taken by
the President under section 203 of the Trade Act of 1974
regarding steel imports, which was transmitted to Congress on
March 5, 2002. The effect of the resolution is to enact instead
the remedy recommendations of the U.S. International Trade
Commission (ITC) transmitted to the President on December 19,
2001.

B. Background

On June 22, 2001, USTR Robert Zoellick requested the ITC to
initiate a section 201 investigation of the effect of steel
imports on the U.S. steel industry. The request covered four
broad categories of steel products: certain carbon and alloy
flat products, certain carbon and alloy long products, certain
carbon and alloy pipe and tube, and certain stainless steel and
alloy tool steel products.
For purposes of its investigation, the ITC divided steel
imports into 33 product categories. On October 22, 2001, the
ITC made an affirmative determination of injury for 12 of these
product categories, finding that the products were being
imported into the United States in such increased quantities
that they are a substantial cause of serious injury or threat
of serious injury to the U.S. industry. In addition, the ITC
was evenly divided in its determinations for four product
categories and made negative determinations for 17 product
categories. In cases where the ITC was evenly divided, both
determinations were forwarded to the President, who may
consider either determination as the ITC's determination
(section 330(d)(1) of the Tariff Act of 1930). The imported
products covered by the ITC's affirmative and evenly divided
determinations accounted in the year 2000 for 27 million tons
of steel, valued at $10.7 billion (74 percent of the imports
under investigation).
On December 7, 2001, the ITC announced the recommendations
and views on the remedies regarding steel. According to section
202(e)(6) of the Trade Act of 1974, only Commissioners who made
affirmative injury determinations for a product are eligible to
recommend remedies for that product. On December 19, 2001, the
ITC transmitted to the President its remedy recommendations.
Section 203 provides that the President, not the ITC, makes
the final decision whether to provide relief to the U.S.
industry and the type and amount of relief. On March 5, 2002,
President Bush announced trade remedies for all products on
which the ITC affirmatively determined or had an evenly divided
determination that imports had caused substantial injury except
two specialty categories (tool steel and stainless steelflanges
and fittings). The President's remedies were imposed as of March 20,
2002, and are effective for three years and one day.

C. Legislative History

Committee action

House Joint Resolution 84 was introduced on March 7, 2002,
by Mr. Jefferson to disapprove the action taken by the
President under section 203 of the Trade Act of 1974 regarding
steel imports, which was transmitted to Congress on March 5,
2002. The resolution was referred to the Committee on Ways and
Means. On April 24, 2002, the Committee on Ways and Means
ordered House Joint Resolution 84 reported adversely without
amendment to the House of Representatives by a voice vote with
a quorum present.

Legislative hearing

No legislative hearing was held.

II. EXPLANATION OF THE RESOLUTION

Present law

Title II of the Trade Act of 1974 authorizes safeguard
actions to be taken under certain circumstances and sets forth
applicable procedures.
In a section 201 investigation, the U.S. International
Trade Commission (ITC) determines whether an article is being
imported in such increased quantities that it is a substantial
cause of serious injury, or threat thereof, to the U.S.
industry producing an article like or directly competitive with
the imported article (section 202(b)). After the ITC makes an
affirmative or evenly decided injury determination, the ITC
then recommends to the President relief that would prevent or
remedy the injury and facilitate industry adjustment to import
competition. The President, not the ITC, makes the final
decision whether to provide relief to the U.S. industry and the
type and amount of relief (section 203).
Section 203(c) states that if the President's remedy action
differs from the ITC's remedy recommendation, the Congress may
enact a joint resolution within 90 days to disapprove the
President's remedy and instead enact the ITC's remedy.

Explanation of resolution

House Joint Resolution 84 states that Congress disapproves
the action taken by the President under section 203 of the
Trade Act of 1974 regarding steel imports, which was
transmitted to Congress on March 5, 2002. The effect of the
resolution is to enact instead the remedy recommendations of
the ITC transmitted to the President on December 19, 2001.

Reasons for Committee action

The Committee on Ways and Means reports House Joint
Resolution 84 adversely because the Members believe the
President's remedy is better tailored than the recommendations
proposed by the ITC to provide relief to the steel industry
while minimizing the negative impact on the rest of the
economy. The President's remedy acknowledges that the U.S.
industry is not homogenous, and it provides the segments of the
industry that have already restructured with the flexibility
they need to continue to operate.
The President's remedy rewards America's Free Trade
Agreement (FTA) partners (Canada, Israel, Jordan, and Mexico)
for their commitments to free trade by excluding them from the
relief and excludes those developing countries accounting for a
very small share of the U.S. market.
The Committee notes that the President made his
determination after a thorough investigation by the ITC which
followed World Trade Organization (WTO) rules on safeguard
measures. This is in direct contradiction to the actions by the
European Union (EU) when it implemented its own provisional
safeguard protections on steel in March 2002 without conducting
any investigation. Moreover, Committee Members are very
concerned about the EU's contention that it can retaliate
against the United States prior to an adverse ruling by the
WTO.

Effective date

If a joint resolution is enacted, section 203(d)(2) of the
Trade Act of 1974 provides that the President shall proclaim
the remedy recommendations of the ITC within 30 days after
enactment.

III. VOTE OF THE COMMITTEE

In compliance with clause 3(b) of rule XIII of the Rules of
the House of Representatives, the following statement is made
concerning the votes of the Committee in its consideration of
House Joint Resolution 84.

Motion to Report the Resolution

House Joint Resolution 84 was ordered reported adversely
without amendment by a voice vote with a quorum present.

IV. BUDGET EFFECTS OF THE BILL

A. Committee Estimate of Budgetary Effects

In compliance with clause 3(d)(2) of rule XIII of the Rules
of the House of Representatives, the following statement is
made concerning the effects on the budget of House Joint
Resolution 84, as reported: The Committee agrees with the
estimate prepared by the Congressional Budget Office (CBO),
which is included below.

B. Statement Regarding New Budget Authority and Tax Expenditures

In compliance with subdivision 3(c)(2) of rule XIII of the
Rules of the House of Representatives, the Committee states
that House Joint Resolution 84 does not involve any new budget
authority or tax expenditures.

C. Cost Estimate Prepared by the Congressional Budget Office

In compliance with clause 3(c)(3) of rule XIII of the Rules
of the House of Representatives, requiring a cost estimate
prepared by the Congressional Budget Office, the following
report prepared by CBO is provided.

U.S. Congress,
Congressional Budget Office,
Washington, DC, May 6, 2002.
Hon. William ``Bill'' M. Thomas,
Chairman, Committee on Ways and Means,
House of Representatives, Washington, DC.
Dear Mr. Chairman: The Congressional Budget Office has
prepared the enclosed cost estimate for H.J. Res. 84,
disapproving the action taken by the President under section
203 of the Trade Act of 1974 transmitted to the Congress on
March 5, 2002.
If you wish further details on this estimate, we will be
pleased to provide them. The CBO staff contact is Erin Whitaker
(for revenues), and Lauren Marks (for private-sector mandates).
Sincerely,
Barry B. Anderson
(For Dan L. Crippen, Director).
Enclosure.

H.J. Res. 84--Disapproving the action taken by the President under
section 203 of the Trade Act of 1974 transmitted to the
Congress on March 5, 2002

Summary: Under the Trade Act of 1974, the President may
proclaim that additional tariffs, quotas, or other actions be
imposed on certain articles if the International Trade
Commission (ITC) determines that the import of such articles
causes serious injury to a domestic industry. However, the
President may proclaim that different remedies be imposed than
those recommended by the ITC in its report. On March 5, 2002,
President Bush transmitted to the Congress his decision to
raise tariffs on certain steel imports from March 20, 2002,
through March 20, 2005. H.J. Res. 84 would disapprove the
President's action. This resolution would, if enacted, replace
the remedies imposed by the President with the remedies
recommended by the ITC. CBO estimates that altering these
remedies would reduce revenues by $80 million in 2002, and
increase revenues by $93 million over the 2002-2006 period.
Since adopting this resolution would affect receipts, pay-as-
you-go procedures would apply.
The bill contains no intergovernmental mandates as defined
in the Unfunded Mandates Reform Act (UMRA) and would impose no
costs on state, local, or tribal governments. H.J. Res. 84
would impose a private-sector mandate on importers of steel
that would be subject to higher tariffs. Although the amount
paid by importers would be lower compared to current law in the
first three years that the new system of tariffs is in effect,
CBO estimates that the net increased costs to importers would
total about $300 million in fiscal year 2006. That amount
exceeds the threshold for private-sector mandates established
in UMRA ($115 million in 2002, adjusted annually for
inflation).
Estimated cost to the Federal Government: The estimated
budgetary impact of H.J. Res. 84 is shown in the following
table.

Estimated Revenues.............................................. -80 -81 -92 52 294 0
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Basis of estimate: Under the Administration's steel action,
tariffs on most U.S. imports of steel were increased for the
period between March 20, 2002, and March 20, 2005. Tariffs were
phased in for product groupings under several schedules, with
the greatest tariff increase occurring between March 20, 2002,
and March 20, 2003. In certain cases, products would be subject
to tariff-rate quotas, under which products would not be
subject to higher tariffs until a certain quantity of imports
had entered the United States. Under the Administration's
action, imports generally would enter with duty rates as in
current law if such imports were from Mexico, Canada, Israel,
Jordan, countries receiving Carribean Basin Economic Recovery
Act (CBERA) treatment, or from countries who had received
Generalized System of Preferences (GSP) treatment.
Under the ITC recommendation, as submitted on December 19,
2001, tariffs on most U.S. imports of steel would be increased
for four years rather than three, with most product schedules
including lower tariff increases for the first three years than
under the Administration's action. The ITC recommendation also
included more products that would be subject to tariff-rate
quotas. In certain cases, imports from countries not subject to
the Administration tariff increases would be subject to the
tariff increases under ITC recommendations. Based on
information from the ITC, the United States Trade
Representative, and other trade sources, CBO estimates that the
replacement of Administration steel remedies with those
recommended by the ITC would reduce revenues by about $80
million in 2002, and increase revenues by $93 million over the
2002-2006 period, net of income and payroll tax offsets. This
estimate includes the effects of increased (decreased) imports
from trading partners that would result from the reduced
(increased) prices of imported products in the U.S.--reflecting
the lower (higher) tariff rates relative tothe Administration
action--and has been estimated based on the expected substitution
between U.S. steel products and imports from trading partners.
Pay-as-you-go considerations: The Balanced Budget and
Emergency Deficit Control Act sets up pay-as-you-go procedures
for legislation affecting direct spending or receipts. The net
changes in governmental receipts that are subject to pay-as-
you-go procedures are shown in the following table. For the
purposes of enforcing pay-as-you-go procedures, only the
effects through 2006 are counted.

----------------------------------------------------------------------------------------------------------------
By fiscal year, in millions of dollars--
-------------------------------------------------------------------------------
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
----------------------------------------------------------------------------------------------------------------
Changes in outlays.............. Not applicable
Changes in receipts............. -80 -81 -92 52 294 0 0 0 0 0 0
----------------------------------------------------------------------------------------------------------------

Estimated impact on state, local, and tribal governments:
H.J. Res. 84 contains no intergovernmental mandates as defined
in UMRA and would impose no costs on state, local, or tribal
governments.
Estimated impact on the private sector: H.J. Res. 84 would
impose a private-sector mandate on importers of steel and steel
products that would be subject to higher tariffs. Although the
amount paid by importers would be lower compared to current law
in the first three years that the new system of tariffs is in
effect, CBO estimates that the net increased costs to importers
would total about $300 million in fiscal year 2006. That amount
exceeds the threshold for private-sector mandates established
in UMRA ($115 million in 2002, adjusted annually for
inflation).
Estimate prepared by: Federal Costs: Erin Whitaker; Impact
on the Private Sector: Lauren Marks; and Impact on State,
Local, and Tribal Governments: Elyse Goldman.
Estimate approved by: Roberton Williams, Deputy Assistant
Director for Tax Analysis.

V. OTHER MATTERS REQUIRED TO BE DISCUSSED UNDER THE RULES OF THE HOUSE

A. Committee Oversight Findings and Recommendations

With respect to clause 3(c)(1) of rule XIII of the Rules of
the House of Representatives (relating to oversight findings),
the Committee believes, based on a comparison of the remedy
actions proposed by the President and the ITC, that the
President's remedy is preferred and disapproving such action by
enacting House Joint Resolution 84 would be unwise and more
harmful to the economy.

B. Statement of General Performance Goals and Objectives

With respect to clause 3(c)(4) of rule XIII of the Rules of
the House of Representatives, the Committee advises that H.J.
Res. 84 has no general performance goals or objectives.

C. Constitutional Authority Statement

With respect to clause 3(d)(1) of rule XIII of the Rules of
the House of Representatives, relating to Constitutional
Authority, the Committee states that the Committee's action in
reporting the bill is derived from Article I of the
Constitution, Section 8 (``The Congress shall have power to lay
and collect taxes, duties, imposts and excises, to pay the
debts and to provide for * * * the general Welfare of the
United States * * *'').

VI. DISSENTING VIEW OF HON. WILLIAM J. JEFFERSON

Conditions in the US steel industry are difficult. There is
a need to do something. The critical issue is whether a 30% or
even a 20% tariff is the right decision. The answer must be a
resounding no. The President's decision is an economically
indefensible, politically driven, WTO-inconsistent decision
that has, in the short span of 6 weeks, damaged relations with
our key trading partners; increased taxes on consumers; and
threatened hundreds of thousands of jobs across the country.
Steel imports have declined steadily over the past four years
and the problems with the domestic steel industry are primarily
internal.
The President's action simply does not meet the strict
standard for applying safeguards. Better remedies would include
global negotiations to reduce steel overcapacity. (At the very
least, setting quotas at historic levels would protect the
domestic steel industry against import surges).
On several fronts, the President's action on the section
201 steel investigation is unsupportable.
The Decision is Economically Indefensible and Politically Driven
The President's decision is not supported by any mainstream
economist. Even senior Bush Administration economic advisers
such as the Treasury Secretary and the Chairman of the National
Economic Council did not support the imposition of tariffs
against steel imports. Ambassador Zoellick, you may recall,
initially expressed skepticism about the tariffs but later
adjusted his views.
The bottom line is that the President's action is
economically indefensible. It was unadulterated election year
politicking. The Washington Post's David Broder had it exactly
right when he described the President's decision as follows:
``Bush managed to rise above principle to please industry
and workers in two * * * states, Ohio and Pennsylvania. His
deviation from his avowed free-trade beliefs was described in a
Wall Street Journal news story--not an editorial--as `the most
dramatically protectionist step of any president in decades.'
''
Commentator George Will described the tariffs as ``an $8
billion contribution coerced from manufacturers and consumers
of steel products, for the benefit of about six Republican
congressional candidates in steel-producing districts, and for
Bush's re-election campaign.''

The President's Decision Constitutes an Enormous Tax on American
Consumers

President Bush has been a forceful advocate of tax breaks.
``Tax relief for American workers and businesses'' has been a
key component of this Administration's agenda. Ironically, his
decision constitutes one of the biggest tax increases that our
nation has seen in years. In a Washington Post op/ed, George
Will describes the steel tariffs as ``new taxes on American
consumers--approaching
$1 billion annually just on the purchasers of cars and
trucks.''
Beyond the pain of imposing a billion dollars in new taxes
on American consumers, these tariffs have already resulted in
higher prices for products manufactured by a broad range of
steel-consuming industries. Invariably, these higher costs will
be passed on to average American consumers of products such as
refrigerators, dishwashers and microwave ovens. Here are a few
examples:
Domestic steelmakers have begun to ration steel
and increase prices in response to demand surges. One major
domestic steelmaker has already announced price increases of
$50 per ton for hot-rolled steel and $70 ton for coated steel.
A Chicago-based auto parts manufacturer has
reported a 15% increase in stainless steel prices.
As of April 1, an Ohio-based manufacturer of
cryogenic containers has applied a surcharge of 8% to 18% on
several of its products.
At a time when our nation is recovering from a recession,
the steel tariffs have the potential of plunging us back into
recession.

Steel Tariffs Will Trigger Job Losses Nationwide

Some have argued that the President's steel measures will
eliminate 10 jobs in steel-consuming industries for every
steel-making job that is saved. This is not a tradeoff that our
nation can accept.
The national maritime industry will be harshly affected. In
the Port of New Orleans, for example, employment for stevedores
has already dropped by 35%. Barge traffic in ports throughout
the nation has begun to drop. One shipping executive in New
Orleans expects to clear only 15 barges during the month of
April. His average volume is 40 to 50 barges.

The President's Action Has Created Tension With Our Trading Partners
and Triggered WTO Complaints

The President's decision has significantly exacerbated
transatlantic trade tensions. The EU announced temporary tariff
measures--ranging from 14.9% to 26%--to protectthe European
steel industry from a flood of diverted imports resulting from the
President's decision. The EU estimates that it will incur losses of
$2.4 billion on steel exports to the U.S. This situation is compounded
by the fact that the EU has applied to the WTO for authority to impose
$4 billion in sanctions on our country as compensation for tax breaks
that are provided to U.S. exporters.
The European Commission has just proposed a set of
new tariffs (some of which are as high as 100%) on a range of
U.S. goods including clothing, citrus fruit, gaming tables,
nuts, footwear and cardboard boxes. The WTO will have to be
notified by May 17. Once this happens, the tariffs will go into
effect on June 18.
The products for which new tariffs were imposed
were selected for maximum domestic political impact in the
United States. Citrus fruit exports are critically important to
the state of Florida; we all know of steel's importance to West
Virginia, Pennsylvania and Ohio. Textile and footwear exports
are important to the Carolinas.
Russia has begun to restrict imports of frozen
chickens from the US.
China, New Zealand, Korea, Venezuela, Japan and
Norway have filed complaints with the World Trade organization.
Later this year, the US and Brazil will assume
joint chairmanship of the FTAA negotiations. Brazil's
presidential elections are scheduled in October. There is
evidence that the President's decision has strengthened the
hand of protectionist candidates running for office. Clearly,
during an election year, the President's decision has the
potential for triggering delays in the FTAA talks.

The U.S. Steel Industry and WTO Safeguards

The WTO has very strict definitions as to how safeguards
should be applied. For example, safeguards can be justified
when there are sudden, recent and significant increases in
imports. However, as the distinguished Chairman of the Trade
Subcommittee noted in a recent interview, ``It (the President's
decision on steel) was unwarranted because the steel imports
have been declining every years since 1998.''
In addition, WTO safeguards should not be applied when an
industry's problems are primarily internal. In the case of the
steel industry, it is abundantly clear that this is the case.
Decades of inefficiency in the domestic U.S. steel industry
have created a situation where steel companies are saddled with
nearly $10 billion in unfunded pensions and health benefits for
600,000 steel workers (so-called legacy costs). The President
is unwilling to pay these costs.
Instead, the President imposes a 30% tariff on steel
imports that have steadily declined over the past four years in
an effort to prop up an industry that is unwilling to make the
hard choices to increase its competitiveness. It is not steel
imports that have hurt the U.S. steel industry. The wounds of
this industry are largely self-inflicted.
I do not believe that it is in our national economic
interest to prop up a highly inefficient industry at the
expense of dozens of other more competitive industries and
hundreds of thousands of jobs in the United States and around
the world. Sacrificing the global economy at the altar of
political expediency by imposing tariffs of 30% or 20% is not
the solution to the woes of the U.S. steel industry. This
Committee--indeed the entire Congress--has an obligation to do
the right thing and to urge the President to change his
decision. The economic well-being of millions of Americans is
at stake.
I respectfully dissent and oppose the Committee's decision
to adversely report H.J. Res. 84.
William J. Jefferson.