United States President George Bush's decision to lift the safeguard duties on steel imports shows that unilateral protectionism is difficult to sustain under the rules-based regime of the World Trade Organisation.

Twenty months ago, President Bush imposed safeguard duties of up to 30 per cent on steel imports to protect the ailing steel industry in the US and to arrest the trend of over 10,000 job losses every month.

The safeguard measure mainly targeted steel producers in the European Union, Brazil, Korea and Japan. The EU took temporary retaliation measures against the imports from US and, along with six other affected countries, challenged the safeguard measures at the dispute settlement body of the WTO.

Gradually, the US cut the safeguard duties from the peak rate of 30 per cent but still lost its case at the WTO. A WTO panel found fault with the US safeguard investigation process as well as the findings that the US steel industry had suffered material injury due to increased imports and the WTO appellate body upheld the panel findings.

In the meantime, steel users in the US, especially in the automobile sector, had started complaining that the high steel prices made them uncompetitive. Even in October, the manufacturing sector reported 24,000 job losses.

Apprehensive that the EU would retaliate by raising duties on $2.2 billion worth orange juice and various textiles imported from the US, President Bush decided to do away with the safeguard duties, sixteen months earlier than scheduled.

Certain developments made the decision easier. When the safeguard duties were imposed, each US dollar could buy 1.15 Euro but now each dollar buys only 0.83 Euro.

The weak dollar had made imports expensive and exports cheaper. The global demand for steel is picking up and next year might actually see a shortage.

Segments of the US steel industry have restructured in an attempt to become more competitive. More important, there is optimism in the air.

The US economy reported 35,000 new jobs in August, 1,25,000 in September and 1,26,000 in October.

Bush has said although the safeguard duties are being removed, the system of licensing and monitoring the steel imports would continue.

He has also promised action against dumping. The EU said it would 'monitor the monitoring' and lift the temporary retaliatory measures.

Notably, Japan said the US measures made no difference, as Asia was the most important market at the moment.

The WTO now stands strengthened. It is far from perfect but, as the EU Trade Commissioner put it, "it provides us with rules respected even by the elephants in the system."

India, meanwhile, continues with high levels of import duties along with over a hundred anti-dumping measures. It is quite convenient for some large industries to get protection for 5 years through anti-dumping measures – measures that do not mandate credible action to become competitive.

The user industries have no choice but to accept the high prices or close down. If the users get priced out of the market due to high prices of inputs, the companies that asked for anti-dumping duties wouldn't have enough customers.

Protectionism is a double-edged sword that may help in the short run but later might turn counter productive.