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Those Steel Tariffs Look Anything but Ironclad

Forget all the frantic politicking, lobbying, and bellyaching that led up to President Bush's decision to slap tariffs of up to 30% on selected steel imports. The real political fight will be over who gets exemptions.

Domestic steel buyers eager to circumvent the three-year tariffs will have lobbyists and sympathetic lawmakers vociferously making their case to the Administration. Combine that with threats from Europe to retaliate against American steel and other goods--from Florida oranges to Harley-Davidson motorcycles--and the result could be loopholes big enough to drive a flatbed of cold-rolled sheet metal through.

Here's why: The same law that authorizes Bush to grant a respite to U.S. steel producers also lets the President carve out exemptions that allow U.S. purchasers to go right on buying specific foreign products without the added duty.

Exemptions are supposed to be granted if the imported product isn't made in the U.S. or is in short supply. Even before Bush announced his final decision on Mar. 5, some 1,000 requests had been filed with the Commerce Dept. by U.S. steel users, and 200 more have been submitted since.

Already, there are signs that the Administration intends to hand out waivers liberally. Treasury Secretary Paul H. O'Neill, who opposed the tariffs during internal White House debates, promised on Apr. 12 in London that "a significant portion" of the requests would be granted.

That has steel industry allies in Congress steaming. "If you go helter-skelter with 1,200 requests, people overseas are going to realize that this is nothing but a wink and a nod," Representative Peter J. Visclosky (D-Ind.) told BusinessWeek. Visclosky turned down steel users in his district who sought his support for waivers. And the Congressional Steel Caucus is asking lawmakers not to back exemption appeals.

On their face, the exemption criteria sound straightforward enough. They're not. Take the waiver request from Gillette, parent of battery maker Duracell, which buys steel abroad for the exteriors of its batteries. Gillette attorneys insist that nothing but "battery-quality hot-band steel" from overseas will do for its alkalines. Metallurgists for U.S. steel companies disagree. "There isn't a steel plant in America that can't make that," insists one lobbyist. A counterclaim is in the works.

U.S. purchasers have already made strong arguments to an Administration inclined toward free trade. They say some American products are unavailable at any cost as domestic makers switch to those types of steel covered by the highest tariffs. "U.S. steel companies won't put this in writing because they don't want it quoted in exemption applications," says Michael J. Lynch, a spokesman for Illinois Tool Works, which buys a half-million tons yearly from domestic and foreign sources.

For small U.S. purchasers, there's another problem: They don't have the flexibility to move production offshore to escape duties. They also have little money to hire lobbyists.

U.S. makers, says one steel lobbyist, aren't opposed to legitimate applications for waivers but worry that "the barn door may be opened too far" for bogus claims. They see European retaliation threats as an attempt to bully Bush into granting liberal exemptions. Major producers in Australia, Brazil, and Korea have already been exempted.

The White House is promising to decide on all waivers by early July. But choosing winners smacks of the sort of industrial policy that Republicans traditionally abhor. So right about now, the Administration may be wondering how it ever got into this thicket. It won't be easy for President Bush to replace Karen P. Hughes, who on Apr. 23 announced her intention to leave the White House. Her varied roles--confidante, communications strategist, and speechwriter--made her George W.'s most trusted adviser.

So who is going to fill these voids when Bush's highest-ranking female staffer returns to Austin this summer? While nobody is likely to take her title of Counselor to the President, top aides who will expand their spheres of influence include Senior Advisor

Karl Rove and Vice-President Dick Cheney's counselor, Mary Matalin.

The biggest winner, though, may be White House Communications Director Dan Bartlett. Bartlett, 30, a Rove disciple who has specialized in rapid response to crises ranging from the war on terror to the Enron scandal, is Bush's longest-serving aide. He joined the then-gubernatorial hopeful in October, 1993, shortly after graduating from the University of Texas.

Rove, the only member of the 2000 campaign's "Iron Triangle" to remain in the White House, will also become even more influential without Hughes around. Why? The more cautious Hughes would sometimes oppose Rove's politically risky strategies.

Matalin, a close Hughes ally, becomes the top female political operative. A former adviser to the first President Bush, she has quickly expanded her influence. And while Bush insists Hughes will remain in his "inner circle," Matalin will likely assume Hughes's old role in policy debates.

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