Steel’s role in protectionism misunderstood, Worldsteel chairman says

The wave of safeguard measures unleashed against the international steel trade is unlikely to crest soon, the top World Steel Association (Worldsteel) official said.

“I am not very optimistic that we will turn around the tide that is taking place at the moment,” Edwin Basson, Worldsteel’s director general said in an exclusive interview with Fastmarkets. “We can try. And we should try. But we should realize that it will take time.”

The United States hammered imports from around the world with Section 232 tariffs and quotas in March. The European Union, Canada and Mexico have since reacted with safeguard measures of their own to protect their domestic steel markets.

Steel demand historically has grown when trade has been free, whereas protectionism stymies competition, compartmentalizes markets and allows inefficient production to flourish, Basson said. He declined to predict when safeguards or Section 232 might be eased or ended.

“The sooner this stops and gets reversed, the better for all of us,” he said.

WTO not dead yet
The gold standard for rules-based international trade remains the World Trade Organization. “It is a better system than anything else we have previously had, and we should go back to it,” Basson said.

But the WTO has also been a victim of current global trade tensions: There are only three judges on the WTO’s Appellate Body – one each from China, India and the US – instead of the usual seven, according to the organization’s website.

The terms of two of those judges – including Thomas R. Graham, the former head of the international trade practice at law firm King & Spalding – are scheduled to expire on December 10, 2019.

The US is not necessarily obstructing the WTO “but let’s just say there is a significant delay in getting WTO judges confirmed,” Basson said. “It is not necessarily separate to this issue… of market protection.”

The matter of a judge shortage on the WTO Appellate Body – which adjudicates international trade disputes, including steel trade cases – could become critical should it obstruct the functioning of the WTO. “We should try to prevent this from happening,” Basson said.

One silver lining might be US Trade Representative Robert Lighthizer’s recent efforts to enter separate trade negotiations with the European Union, Japan and the United Kingdom. But those efforts are unlikely to bear fruit in the short term, Basson said.

With the UK facing uncertainty surrounding Brexit, “for the moment, nothing will happen there,” Basson said, adding that progress will likely be slow in the EU. He believes Japan might prove an exception.

“Japan is much more concerted in the way they go through these procedures. So it might be that there is some different arrangement reached in Japan,” Basson said.

He said he would rather the talks not result in quotas because quota mechanisms are typically the “last resort” under WTO rules.

In the meantime, the global trading order exists in a hybrid state, with some countries rolling out safeguards while others continue to operate more or less according to WTO rules. “There is a good chance that eventually we will begin to meander toward something that approaches the WTO again – and then it’s just a matter of how long does this interim situation survive,” Basson said.

View of steel’s importance dated
Protectionism in steel needs to be addressed because the sector is at the base of industrial economies. That means any disruptions in the steel sector are felt across manufacturing supply chains, Basson said.

But it is also important not to overstate the importance of steel to manufacturing and national defense. Following World War II, a consensus emerged that control of coal and steel production allowed countries to control heavy industries. “And if those are controlled, then you can control the war machinery,” Basson said.

Many economic theories continue to hinge on this perhaps dated understanding of steel’s central role in manufacturing, employment and national security. “It is an open question whether the modern industrial base depends on the steel industry to the same extent that we saw just after the second World War,” he said.

The persistence of such views of steel’s importance has led to “misguided” policies that attempt to protect industry by protecting steel. But modern industry depends less on steel than on well-trained and educated workers, innovation and technology, Basson said.

“That’s really where the competitive development is nowadays and not just maintaining a steel industry per se,” he said. “Certainly, industrial policy today does not by definition require a steel industry and mining industry.”