Case Study
Testing The WTO’s Metal
組員： 周琬軒 吳秉頤 曹卉雯
Historical Background
Timeline
March 2002
July 2003
December 2003
November 2003
Background of U.S Tariffs




The typical steel tariff in 2002: between 0% and 1%
The US joined WTO in 1995
The North American Free Trade Agreement (NAFTA)
President George W. Bush’s commitment to free trade
Background of The US Steel Market
More than 30 US steel makers went bankrupt
March 2002
What
US
Government
Imported
steel products
Real Reason
Politics
8-30%
tariffs
Political Reason
Crucial swing states in the 2004 election
March 2002
EU
Japan
China
South
Korea
File suit
against US
steel tariff
WTO
July 2003
Ruling
WTO panel agreed that the
U.S action was unjustified
November 2003
The Decision of WTO
 Statement: US had not been imposed
during a period of import surge and
steel imports dropped during 2001-2002
 Sanction: $2 Billion
November 2003
U.S Reaction after the verdict
Still tried to keep the tariff going
In retaliation
The EU threatened to impose tariff on
U.S products from political swing states
December 2003
Result
US backed down and withdrew the tariff
Theory
What is “Tariff” ?
Purpose:
• A tax on imports
• Imposed by governments
• Raise the price of imports
• Known as a trade barrier
• Restriction and protection
• Protect domestic production and jobs
• Protect certain essential industries or
strong political influence
• Limit or reduce the quantity of the
imported good
Tariff’s reason and influence in Case Study:
 Reason
•
Global steel become overcapacity, making prices fall sharply
•
A large number of steel plants went bankrupt and caused workers to
lose their jobs
•
President Bush’s upcoming elections
 Harm
• Inevitably lead to an increase in domestic steel prices and related products
• Consumers will have to pay more money for the product
• Increase the risk of trade war
Trade Liberalization
• Trade liberalization promotes free trade
• Free trade is the opposite of protectionism
• Buy cheaper and better-quality products
• Provide competition and opportunities for innovation
• Lose some employment opportunities
• Lead to uneven economic growth
• Contain income distribution issue
• Both free trade and protectionism have people support
Protection
• Often raise a country’s national welfare
Case Study
Caused a loss of $30 million and 200,000 job losses
Lead to retaliation ruling by WTO
Welfare: Loss was bigger than Gain
The Optimum Tariff
Gains = Losses
 For Big Country (e.g., U.S.)
• Maximize national welfare
• Additional gains gained from the
improved terms of trade offset
the additional losses caused by
the distortion of production and
consumption because of the
imposition of tariffs.
Free
trade, 0
Both big countries adopt optimal tariffs → Trade Retaliation
Examples & Cases Related
?
Would the government of the world's most powerful
nation really allow an international organization to
tell it to remove a politically important tariff?
2003/12 The U.S Removed The Steel Tariffs
 Key point: Threat by the European Union
 EU →Received WTO clearance to take retaliatory action.
→ Impose tariffs on more than $2 billion in U.S exports.
What will happen when the WTO rules in favor
of smaller economies against major economic
powers like the United States or the EU?
2005/3 WTO Agreed With Brazil’s Claim
 U.S. subsidies to cotton producers were illegal.
 The U.S by 2009 had made only partial moves toward compliance.
 WTO authorized Brazil to retaliate with substantial sanctions
on U.S. exports.
2010 Brazil Withdrew Its Complaint
 It made a side deal to pay Brazil hundreds of
millions of dollars in compensation.
Thank You for Listening