Bush to Phase Out Quotas in Setback for Steel Firms

President Bush announced a plan Tuesday to phase out U.S. steel quotas over the next 2 1/2 years, handing a victory to free-trade forces and disappointing steel industry officials, who had expected to win four more years of protection.

During the remaining period of import restrictions, U.S. trade negotiators will press other nations to eliminate subsidies offered to their domestic steel producers, U.S. Trade Representative Carla Anderson Hills told reporters. But she left no doubt that Bush plans to end the current steel quota plan in 1992, whether those negotiations succeed or fail.

“The steel industry is now on notice that it has 2 1/2 years to adjust to market forces,” Hills said.

International steel subsidies simply have “gotten out of line,” she said. “The global trading system has suffered long enough from this kind of interference. The self-defeating rivalry in government assistance must end.”

Bush’s decision is a sharp break with the policies of the Ronald Reagan Administration, which supported free trade in theory but in practice adopted a series of protectionist measures--including the so-called Voluntary Restraint Agreements on steel--to shelter U.S. industries.

The decision also came as a major surprise to steel industry lobbyists. Most had expected Bush to extend the quotas for two years, followed by an additional two-year, phase-out period.

But White House aides feared that extending the program that long would entrench the quotas so much that they would become permanent, according to a source familiar with the deliberations. The Reagan Administration adopted the existing quotas in 1984, but the steel industry has been sheltered by some form of import restrictions since 1968.

Within the Administration, Commerce Secretary Robert A. Mosbacher was said to have urged a longer extension. Hills and Michael J. Boskin, the President’s chief economic adviser, lined up on the other side, arguing that the steel industry has been protected long enough and that the quotas undercut the free-trade position that the Administration has taken in international negotiations aimed at opening foreign markets to U.S. products.

Steelmakers argue that they need protection against imports while they continue to modernize their industry. But major U.S. steel users, noting that the steel industry has now become profitable after years of losses, contend that import restraints are no longer needed. The restrictions have raised costs and reduced the competitiveness of U.S. manufactured goods on the international market, quota opponents argue.

Cost 52,000 Jobs

One study of the impact of steel quotas on the U.S. economy estimated that the program over the last five years has saved 17,000 jobs in the steel industry, but cost 52,000 jobs in other parts of the U.S. economy.

That conflict between steelmakers and users has made imports a highly contentious issue in Congress, which will have to review Bush’s plan before the current steel import law expires Sept. 30.

Reaction on Capitol Hill indicated the depth of the division there. Sen. Pete Wilson (R-Calif.), who has taken the side of California manufacturers seeking an end to the quotas, denounced Bush’s decision as a “methadone program for a steel industry addicted to protectionism while what is really needed is ‘cold turkey.’ ”

By contrast, Sen. John Heinz (R-Pa.), whose state has the largest concentration of U.S. steelmakers, said that Bush’s plan “cannot be adequate.” Announcing that steel quotas will end in 1992 regardless of progress in international negotiations “undercuts the leverage of our negotiators,” Heinz said.

Hotly Lobbied Issue

Last November, four days before the presidential election, Bush wrote Heinz pledging to extend the quotas in some form. Ever since, it has been one of Washington’s most hotly lobbied issues.

Under the current quota plan, 29 steel-producing countries have signed agreements limiting their exports of steel to the United States to a total level of 18.4% of the U.S. market. Although in theory the agreements are voluntary, U.S. trade law provides strong incentives for other countries to participate in the program.

Under Bush’s program, the import ceiling would go up 1% in each of the next two years. The additional import allotment would be parceled out to producing countries that agree to lower their subsidies, providing an incentive to negotiate, Administration officials said.

The quota system has also caused divisions within the steel industry. For example, California Steel, a major manufacturer of steel tubing, has faced difficulties because of shortages caused by the quotas. The company, based in City of Industry, has been forced to pay premium prices to import semifinished steel slabs. Under Bush’s plan, restrictions on imports of semifinished steel would be eased--a “major improvement,” according to the company’s Washington lobbyist, former Bush aide Peter Teeley.