Memorandum on Subsidy Practices Relating to Specialty Steel Imports

November 16, 1982

Memorandum for the United States Trade Representative

Subject: Determination Under Section 301 of the Trade Act of 1974

Pursuant to Section 301(a)(2) of the Trade Act of 1974 (19 U.S.C. 2411(a) (2)), I have determined that the action described below is an appropriate and feasible response to subsidy practices of the European Community (EC), Belgium, France, Italy, the United Kingdom, Austria and Sweden, which are inconsistent with Articles 8 and 11 of the Agreement on the Interpretation and Application of Articles VI, XVI and XXIII of the General Agreement on Tariffs and Trade (Subsidies Code). With a view toward eliminating the harmful effects of such practices, I am directing the United States Trade Representative (USTR) to: (1) request the United States International Trade Commission to conduct an expedited investigation under Section 201 of the Trade Act of 1974 (19 U.S.C. 2251) with regard to the five specialty steel products subject to the 301 investigation; (2) initiate multilateral and/or bilateral discussions aimed at the elimination of all trade distortive practices in the specialty steel sector; and (3) monitor imports of specialty steel products subject to the 201 proceeding. If during the pendency of the International Trade Commission section 201 investigation imports cause damage which is difficult to repair, consideration would be given to what action, if any, might appropriately be taken on an emergency, interim basis under Section 301 of the Trade Act of 1974, consistent with U.S. international obligations.

Statement of Reasons

The Office of the USTR initiated investigations under Section 301 on February 26, 1982 (47 F.R. 10107) and on August 9, 1982 (47 F.R. 35387) on the basis of petitions filed by the Tool and Stainless Steel Industry Committee and the United Steelworkers of America. Petitioners principally allege that the EC and the above-mentioned countries have subsidized the production of specialty steel in a manner inconsistent with their obligations under Articles 8 and 11 of the Subsidies Code.

Petitioners' allegations are well founded. The United States believes that subsidies have been provided by the Government of Austria in the form of grants and capitalization, by the Government of Sweden in the form of preferential loans, loan guarantees and grants, and by the European Communities and its member governments in the form of preferential loans, loan guarantees, capital grants, ``recapitalization'' of financial losses, interest rebate programs, exemptions from taxation, and other practices.

The injury to the domestic industry is clear. The specialty steel industry is an efficient, technologically up-to-date and export-oriented branch of the steel industry. Its output is used in a wide range of demanding applications critical to an industrial economy and thus commands a price far higher than ordinary steel. Regarded as an advanced, innovative and competitive industry, specialty steel producers in the United States have tended to be more profitable than the industry as a whole and far more so than most of their major competitors abroad. Nevertheless, the industry is facing an unprecedented challenge to its continued prosperity, and a number of its member firms are fighting for survival.

Part of the problem can be traced to the recession that began in America's basic industries more than two years ago. However, it is clear that since the lifting of import quotas in February 1980, imports have steadily captured a larger share of the U.S. market, further depressing operating rates, employment, prices and revenues. Through the first eight months of 1982, imports were at historically high levels, with import penetration ratios ranging from 11 to more than 50 percent, depending on the product. In every product category, imports now exceed the surge levels established by the Department of Commerce.

The majority of these imports are currently under investigation for unfair trade practices under Section 301, the countervailing duty statute, or the antidumping duty statute. However, they do not cover all important, or potentially important, sources of specialty steel imports. A partial remedy against unfair imports can be rendered meaningless by a substitution of new foreign suppliers for those whose shipments are affected. Thus, the specific subsidy complaints could lead to a remedy that fails to resolve the overall import problem. Moreover, dealing with the specific subsidy problem itself probably would not have a great impact on the world steel trading environment in which our industry must compete. Subsidies are only one of a wide range of trade restrictive and trade distortive practices that many of our trading partners engage in to protect their industries and to stimulate exports. If we are ever to put an end to constant trade disputes in steel, we must stop dealing with discrete import and export issues in isolation and instead begin a coordinated approach to the problem. By combining the Section 201 and Section 301 approaches, the United States hopes to stabilize the immediate import situation and to reverse the global trend toward greater excess capacity, increased subsidization, and closed markets.

This determination shall be published in the Federal Register.

Ronald Reagan

[Filed with the Office of the Federal Register, 11:55 a.m., November 16, 1982]