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Free Trade According to U.S.
The Bush administration may be right when it says it gave Brazil a break in its recent decision to impose restrictions on steel imports-but that’s not the whole story.
by Matthew Flynn | March 11, 2002
U.S. Trade Representative Robert Zoellick is not likely to receive the
typical warm Brazilian welcome when he arrives here today to pick up negotiations
regarding the proposed Free Trade Area of the Americas (FTAA).
When the White House announced safeguards to protect the flagging U.S.
steel industry last week, officials suggested that the United States was
doing South America’s largest economy a favor by reserving for Brazil
52% of the new 5.4 million ton import quota on unfinished steel.
Many Brazilian officials and industry representatives, however, appear
unmoved by the gesture.
"The protectionist measures practiced by developed countries are
an anachronism that shows itself to be incompatible with the values of
international economic cooperation," Brazil’s President Fernando
Henrique Cardoso said after the U.S. measures were announced.
Indeed, while many in Brazil following hemispheric trade issues understand
that the U.S. steel decision offered their country differentiated treatment,
resentment of what they deem U.S. protectionism is running high here.
Beyond the steel restrictions, Brazil has complained about U.S. subsidies
to domestic agricultural producers, which they say put Brazilian exports
at an unfair disadvantage, and high tariffs on other Brazilian products.
Prior to the White House decision, Brazilian diplomats and steel sector
representatives lobbied the Bush administration to cap imports of unfinished
slab steel at 7 to 9 million tons. Instead, the United States put the
quota at 5.4 million tons and slapped a tariff of 30% on imports exceeding
that amount. At the same time, Brazilian exports of finished steel–roughly
40% of all Brazilian steel sales to the United States-now face duties
of 30%, which effectively bar them from the market.
According to Zoellick, the new restrictions were drafted with the intention
of maintaining the United States as the market for 85% to 90% of Brazil’s
steel exports–preferential treatment aimed at keeping bilateral trade
relations on track.
What Zoellick did not mention is that Brazilian steel makers have been
steadily working to expand the capacity of their operations in order to
increase exports. Indeed, after years of multi-million dollar investments–made
with sales to the United States in mind–Brazil is one of the most competitive
steel producers in the world.
Brazil’s steel companies have also been spending money acquiring operations
within the United States. Brazilian producers argue that with Brazil exporting
cheap slabs to U.S. subsidiaries for finishing–a more value-added segment
in the production chain–the entire U.S. steel industry would see benefits.
In recent years over 30 U.S. steel companies have filed for bankruptcy.
Under the new protocols, however, Brazilian producers will not only lose
up to $500 million in annual sales to the United States–they will also
have fewer incentives to continue investing money in the ailing U.S. steel
industry.
Bush administration officials have made a point of highlighting the fact
that the new U.S. quotas will be raised by 500,000 tons a year over the
next three years–250,000 tons of which is reserved for Brazilian steel.
But while Brazil did get a break over the medium term, over the short
term the U.S. measures are liable to spark layoffs in the Brazilian steel
sector, fanning the fires of anti-U.S. rhetoric and making FTAA talks
more difficult.
"There is already a prejudice in Congress about the FTAA, and a
lack of confidence in relation to free trade," says Brazilian Sen.
Paulo Hartung. "The exacerbation of protectionism in the United States
transforms these uncertainties into certainties and will oblige the Brazilian
government to treat the FTAA in a different way."
Washington, however, appears confident that FTAA talks will be untroubled.
"I don’t think there will be difficulties in FTAA for two reasons,"
Peter Allgeier of the U.S. Trade Representatives office recently opined.
"First, despite bilateral questions, we, Brazil and other countries
in the hemisphere know of the long-lasting benefits of creating the FTAA.
And the second point is, frankly, I think that the Western Hemisphere
was treated extremely well [in the steel restrictions decision.]"
Many read the U.S. offer to reserve 52% of the import quota on steel
slabs for Brazil as a nudge to Brazil to keep FTAA discussions moving
forward.
"As it appears to me, the proposals do not affect the countries
that make up NAFTA–that is they could serve as a message to show what
could be gained by adhering to the FTAA quickly," says Horácio
Lafer Piva, president of the São Paulo state industrial federation
(FIESP). Washington’s partners in NAFTA, Canada and Mexico, were exempt
from the import restrictions.
Despite assertions to the contrary, Washington’s decision to impose a
tariff-quota system will certainly further complicate FTAA talks.
It is unlikely that Brazil will respond as aggressively to U.S. steel
protections as the European Union (EU) has. The EU has already lodged
a formal complaint with the World Trade Organization (WTO) and is trying
to forge an alliance with other steel exporting countries, including Brazil,
to bring a WTO suit against the United States. South Korea has also announced
that it plans to appeal the U.S. decision before the WTO; Japan, too,
is considering taking the issue up with the WTO. So far, Brazil’s Foreign
Ministry has merely requested binational consultations on the matter,
despite calls for more aggressive action by executives from affected steel
companies.
For now, Brazil will be more inclined to use the steel issue as yet another
bargaining chip in FTAA negotiations. Besides trying to gain an advantage
in sensitive areas, such as agriculture, Brazilian diplomats could invoke
WTO rules and ask for compensatory duties on other Brazilian exports to
the United States. Meanwhile, the decision whether to attend WTO deliberations
over U.S. policies on steel imports as a third-party observer or whether
to sign on to complaints is a powerful trump card tucked up Brazil’s sleeve.
Washington also seems to have forgotten the fact that Brazilians will
be heading to the polls this October to elect a new president. Luis Inacio
Lula da Silva, the well-known leader of Brazil’s Workers’ Party (PT),
is leading in the polls, and a PT government would be even less inclined
to toe the U.S. line in trade talks.
The Bush administration’s recent "trade-but-only-on-our-terms"
decision has reinforced perceptions here that there is a double standard
at work in Washington’s push for increased hemispheric trade. No matter
what concrete action Brazil decides to take, Mr. Zoellick is likely to
find his audience here to be less than enthusiastic.
Matthew Flynn is a freelance journalist based in Brazil. A graduate
of Georgetown University and the London School of Economics, he has previously
written for the IRC on Brazilian trade politics and Mexico’s Plan Puebla
Panama. He can be reached at matthew.flynn@journalist.com .
Published by the Americas
Program at the Interhemispheric Resource Center (IRC). ©2002. All
rights reserved.
Recommended citation:
Matthew Flynn, "Free Trade According to U.S.," Americas Program
Commentary (Silver City, NM: Interhemispheric Resource Center, March 11,
2002).
Web location:
http://www.americaspolicy.org/commentary/2002/0203steel.html
