GENEVA - The World Trade Organization ruled yesterday that steel import tariffs the United States levied a year ago are illegal, dealing a blow to the Bush administration's plan to rescue domestic producers. The United States said it plans to appeal.
The preliminary decision by a three-member panel at the trade arbiter may undercut the ability of U.S. steelmakers such as U.S. Steel Corp. and the International Steel Group Inc. to reduce production and labor costs while raising prices.
The European Union, Japan, Brazil, China, Canada and other nations had complained to the WTO that the levies of as much as 30 percent, meant to protect U.S. producers from surging imports, came as shipments were on the decline.
"It's a victory of right over might," Luiz Felipe de Seixas Correa, Brazil's ambassador to the WTO, said in an interview. The ruling hasn't been published, and details weren't immediately available.
The decision is the latest defeat at the WTO for the Bush administration. The organization ruled last year that a tax break for exporting companies, including Boeing Co. and Microsoft Corp., was an illegal subsidy, leading the EU to threaten $4 billion in sanctions on U.S. exports.
And the EU and Canada have given the U.S. Congress until next year to repeal a law giving companies duties that are collected, after the world trade body also ruled it a violation.
"The WTO continues to strike down everything we put in front of them," said Thomas Danjczek, president of the Steel Manufacturers Association, which represents Nucor Corp. and other U.S. companies that make steel from scrap.
Shares of U.S. Steel, North America's largest producer of raw steel, fell 56 cents, or 5.3 percent, to $10.05 yesterday. Shares of Nucor, the biggest U.S. producer of steel construction beams, fell $1.18, or 2.9 percent, to $39.
The United States believes that the steel tariffs comply with WTO rules and plans to appeal if the ruling becomes final, a U.S. trade official said, speaking on condition of anonymity. A final determination is likely next month.
The United States will be able to forestall any sanctions until the end of this year by appealing and then dragging out negotiations, analysts say.
Retaliation when it comes may take the form of billions of dollars in increased tariffs on U.S. products, said Lewis Leibowitz, a lawyer who represents steel users such as Emerson Electric Co. that want the tariffs dropped.
"If and when the panel says that the U.S. measure is illegal, then we have the possibility to retaliate," said Arancha Gonzalez, an EU commission spokeswoman.
"We have done all the administrative preparation" to prepare the retaliation, Gonzalez said.
Nucor, U.S. Steel and other companies say the tariffs gave them crucial "breathing space" to reconfigure the industry. Companies have been able to shed high labor costs, close out-of-date mills and buy weak rivals.
The price of U.S. hot-rolled coil, an industry standard used in automobiles, appliances and other manufactured goods, has risen more than 50 percent since last year's 20-year lows of $210 a ton, according to a steel producers group.
President Bush, whose administration has pursued free trade agreements, was courting voters from Pennsylvania and other steel states for the mid-term congressional elections when he sought the tariffs. Bush lost Pennsylvania to Democratic presidential candidate Al Gore by 5 percentage points in 2000.
After levying the tariffs, the administration started granting exceptions. A quarter of the 13 million tons of steel imports originally covered by tariffs have already been exempted from the penalties, according to the U.S. Commerce Department. This includes 295 products excluded from the tariffs last week.
In 2001, the last year before the tariffs were imposed, U.S. steel imports were valued at $11.5 billion, compared with $14.9 billion the year before and $16.3 billion in 1998, according to the U.S. Census Bureau. Last year, after the tariffs were increased, steel imports rose to $12.1 billion.