Steel dumped on Clinton

IT WOULD BE a great mistake to judge the Clinton Administration's trade policy by the confrontation over steel, which is an unfortunate by-product of a system unique to the US. This allows trade cases to move forward on automatic pilot, regardless of who is in office.

Indeed, the US Commerce Department's preliminary 'dumping' determinations against carbon steel producers in 19 countries could not have come at a worse time for the new Administration. Even before President Clinton took office, he was suspected of having protectionist leanings. Some of his initial appointments in the trade area seemed to confirm this.

Now, in the first big trade decision to be taken on his watch, the US is seen by other industrialised nations as heading down a dangerous, confrontational path that could presage a new era of trade wars.

This is not necessarily so. The US anti-dumping case was launched by domestic steel producers during the waning months of the Bush Administration, and it will not be finally resolved until August. This gives the Clinton team enough latitude to resolve the dispute relatively amicably. However, it would be wrong to underestimate the challenge presented to the new Administration by the steel investigation. The way it resolves this case, and three to four other front- burner trade issues over the next six months, will force it to set US policy in a pressure cooker, without benefit of a carefully constructed blueprint of priorities for the next four years.

Additionally, the nature of the complaints will force the Clinton team to decide whether or not to take a sectoral approach to competition policy, doling out protective mantles and hidden subsidies to the most politically powerful industries, all of which appear to be queuing up at the Commerce Department.

These are tough calls. Steel production, and most especially steel employment, are emotional issues not only in the US but in most producing nations. We saw this clearly in the 1980s, when more than dollars 100bn (pounds 65bn) was spent globally on steel subsidies to sustain production and jobs, despite a worldwide capacity glut and numerous outdated facilities. In the US, steel and car industry cutbacks rank with mine closures in Britain as politically explosive issues.

In response to the production glut and to the steel cartels in Japan and Europe that allowed some firms to sell products for higher prices at home than abroad - classic dumping, in other words - the US imposed 'voluntary' import restraints in 1984. These lasted until March 1992, when the agreements were allowed to expire.

US steel companies, which had undergone massive restructurings during the 1980s, were predictably angry. Twelve of the largest producers countered by filing subsidy and dumping cases against imports from 21 countries. These are the cases now before the Clinton Administration.

The US steel industry argued that, having done the right things - retrenching, reinvesting in capacity and redefining products - it still faced unfair competition from western and eastern Europe as well as from Asia.

At the same time, its traditional domestic markets were being taken over by a new generation of non-union 'mini-mills' that paid steel workers far less than did the established companies.

Given the enormous tariffs that could be levied on foreign producers if the steel cases conclude along present lines, the Clinton Administration undoubtedly will be pressed by Europe, Japan and others to cut a deal. This could lead to the resurrection of voluntary restrictive quotas, which will not resolve the key problems of subsidies and overproduction.

At the same time, these voluntary restraints have the negative effect of insulating the US market from fair foreign competition.

The other front-burner cases facing the new administration are proposals to further restrict car imports, most notably Japanese ones, and cars made in the US by Japanese transplant firms.

Bills in Congress would reclassify some vehicles, such as the Range- Rover, as minivans and utility vehicles - and raise the tariffs on them from 2.5 per cent to 25 per cent. Domestic energy producers are also clamouring for an oil-import charge of about dollars 5 a barrel, and there are proposals to negotiate voluntary restraints on electronic and computer-related imports.

All of these add up to a very protectionist agenda facing the new US team. These, on top of the unresolved Uruguay Round of trade talks and the North American Free Trade Agreement, present Mr Clinton with contentious issues not of his making. During the election campaign, he made some promises to labour and industry groups in critical states such as Pennsylvania, Ohio and Michigan that could cause him to lean the way of the special-interest lobbies. But there is nothing in his published statements to suggest that he is a confirmed protectionist. Indeed, he bent over backwards to avoid this label during the campaign and stressed in his inaugural address that the world is now a global market, which requires globally responsible domestic responses.

What worries free-traders in the US and among its main trading partners are Mr Clinton's key trade appointments. Both Ron Brown, the Secretary of Commerce, and Mickey Kantor, the US Trade Representative, are seen as tied to big special-interest lobbies.

In addition, Mr Kantor made comments during his confirmation hearings that indicated to some that he would not rule out special protection for key US industries that are suffering from foreign competition.

The proof, however, is in the pudding. The cases now before the Clinton Administration will test the team's resolve and set the tone of the world trading system for the next four years. Let us not judge until we see whether or not Mr Clinton chooses the high road.