Why Export Taxes, Quotas, Other Restrictions Must Go

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To use a phrase recently turned into a headline by the Economist, the “sorry state of American trade” may get worse before it gets better. It seems US manufacturing, including the steel industry, is fighting an uphill battle on many international trade issues these days. Conflicting reports of US exports don’t help, either.

For example, the Washington Times recently posed the argument that “exports have been a rare strength and engine of growth in the U.S. economic recovery, aided by a big push from the Obama White House,” but despite the positive signs, the sector has not proven to be the plentiful source of new jobs that many supporters had hoped. As Michael Stumo points out on the CPA Trade Reform site, the fallacy is that growing exports on their own signify economic health one must look at net exports. If we’re importing more than we’re exporting, in other words, well, there goes the neighborhood. (At least as far as the trade deficit is concerned.)

Speaking of the trade deficit, an alarming new report by Robert E. Scott, put out by the Economic Policy Institute, puts the loss of US jobs at 2.8 million between 2001 and 2010 due to the US-China trade deficit. A sizable chunk of those jobs — 1.9 million, or nearly 70 percent — were lost from manufacturing. Of those, 51.5 percent came from the durable goods sector, into which primary metals and fabricated metal goods fall. Not really all that surprising of a find, considering the games China plays with currency manipulation, cheap labor, lackadaisical environmental (and other) oversight, state-owned enterprise advantages — the list goes on and on.

Part of the Solution?

So that’s why one thing that can be leveled and should, according to trade representatives for US steel companies like Nucor, is the bevy of export restrictions placed on raw materials by Asian economies such as China.

The US brought a case to the WTO against China’s use of export quotas on raw materials essential to the domestic metal industry, such as coke, silicon, bauxite and others a total of nine in all (not to mention rare earths, or REEs). China promised to abolish export taxes when it joined the WTO in 2001, but that clearly hasn’t happened — the trade body ruled against China recently, saying it violated the export tax issue. This ruling has been appealed, but the WTO likely will and should rule in the US’ favor.

Export restrictions such as quotas and taxes are an issue across the US’ Asian trading partners, and serve as a hefty bargaining chip in trade negotiations such as the Trans-Pacific Partnership (TPP), says Timothy Brightbill, partner at Wiley Rein LLP in Washington, DC. (Previous MetalMiner coverage on recent TPP negotiations here and here.) Brightbill works on trade cases on behalf of steel producers and organizations such as the American Scrap Coalition, and in an interview with MetalMiner, stressed the US’ need to have export taxes abolished in future trade deals.

“The US has consistently said, ‘if you sign an FTA with us, you must get rid of your export taxes,'” Brightbill said. For example, Vietnam has a 25 percent tax on scrap exports and 40 percent on iron ore. They have agreed to get it down to 17 percent by 2012, according to Brightbill. (Malaysia, by contrast, has a 10 percent tax on scrap exports.) This decreases prices for the countries imposing the tax.

The ultimate point Brightbill makes is that the US has always made clear the export tax must get to zero. Mills like Nucor support this. “I think it’s obtainable to get the complete ban,” Brightbill said.

That hurdle will be only one point in the multi-prong plan necessary to overcome the US trade deficit. Even magazines such as the Nation realize this, urging President Obama to “take unilateral action to institute new rules to cap the rising trade deficit, then gradually reduce it with an emergency tariff if trading partners do not cooperate.” As we’ve seen, however, there’s only so much the US government can do without the help of the WTO. But as the Economist article mentions, “openness shouldn’t be a dirty word; that’s why trade negotiations (and keen enforcements) must continue and why metal producers and exporters need to keep getting seats at the table.”

–Taras Berezowsky

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