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GTAP Resource #1315

"Tariff Rate Quotas on U.S. Steel Imports: The Implications on Global Trade and Relative Competitiveness of Industries"
by Lee, Hiro and Dominique van der Mensbrugghe

In the last three decades, the U.S. steel industry has been protected by quantitative restrictions, voluntary restraint agreements (VRAs), antidumping and countervailing duties, and other import relief measures. The U.S. imposition of tariff-rate quotas (TRQs) of about 30 percent on most imported steel above set quotas in March 2002 under Section 201 of the 1974 Trade Act was the latest of a series of U.S. protection of its steel industry. This safeguard measure is to be imposed for a period of three years, but it is not imposed on the NAFTA trading partners or the great majority of developing countries. While latest U.S. protection measure could reduce its steel imports from non-exempted countries, the U.S. action is likely to harm its automobile, heavy equipment, construction, and other related industries by raising the cost of intermediate input.

In this paper, we evaluate the effects of U.S. steel protection on the economic welfare, steel trade, and sectoral output and average cost of the United States and its trading partners over the period 2002-2005 using a modified version of the dynamic global CGE model developed by van der Mensbrugghe (2001). The basic equations for implementing TRQs in the model are given below:

WTF{in}(r',r,i) <= WTF{q}(r',r,i);
given t{p}(r',r,i) >= 0

t{p}(r',r,i) <= t{out}(r',r,i) - t{in}(r',r,i);
given WTF{out}(r',r,i) >= 0

WTF{d}(r',r,i) = WTF{in}(r',r,i) + WTF{out}(r',r,i)

The first constraint reflects that in-quota imports, WTF{in} are capped at the overall quota level, WTF{q}, where the triple index reflects the region of origin, r', the importing region, r, and the sector, i. The inequality is linked with the lower bound on the tariff premium, t{p}, which cannot fall below zero. The second constraint caps the upper bound on the import premium. The upper bound is given by the difference in the over-quota tariff rate, t{out}, and the in-quota tariff, t{in}. This inequality is associated with the lower bound cap on the over-quota imports, which is zero. The third constraint is the identity linking total imports, WTF{d}, to the sum of in- and over-quota imports.

The preliminary results indicate that although the U.S. welfare increases slightly in 2002-2003, it declines in 2004-2005 mainly because the price of steel increases in the U.S. market. U.S. steel imports from East Asian countries and the EU decline by 2.5-2.8 percent, whereas those from Canada and Mexico increase by 2.2 percent, thus largely offsetting the fall in the total U.S. steel imports. The protection causes output contraction in the steel-consuming industries in the United States and output expansion in those industries in East Asia and the EU, but these effects are extremely small. These results suggest that the impact of the U.S. imposition of TRQs is minimal.

Resource Details (Export Citation) GTAP Keywords
Category: 2003 Conference Paper
Status: Published
By/In: Presented at the 6th Annual Conference on Global Economic Analysis, The Hague, The Netherlands
Date: 2003
Created: Lee, H. (5/19/2003)
Updated: Bacou, M. (5/19/2003)
Visits: 5,398
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