An all-out trade war over steel crept
a bit closer on June 11 after EU governments cleared the way for the European
Commission to apply retaliatory tariffs later this year if talks with
the US fail to yield a compromise solution.
The EU is threatening to slap punitive 100 percent duties on a list of
US imports, including a range of non-steel goods like Harley-Davidson
motorbikes, Tropicana and other fruit juices, recreational guns and ammunition,
as well as textiles and steel products, worth about $ 335m a year, if
the US fails to offer the EU compensation (about 2.5bn euros a year) or
satisfactory exemptions from the duties.
The proposed sanctions for a maximum of six months are against US President
George W. Bush's unilateral decision, March 5, to impose tariffs up to
30 percent on most imported steel for the next three years, which was
made with an eye on mid-term Congressional elections in November, according
to critics. The EU has estimated that the tariffs could cost its steel
producers up to $ 2bn (an estimated 4 million tonnes and up to 16 million
tonnes of trade diversion by non-EU steel importers to the EU market),
and on June 5 had approved two lists – a short list worth $335 m
and a long list worth $ 545m – of US products that could be hit
by sanctions in the long-running dispute over US steel tariffs.
Compensation looks highly unlikely but the US has begun exempting certain
categories of steel from the duties, a process it will complete by July
3. Earlier this month, the US unveiled a list of 61 steel products that
are to be excluded from the tariffs. US officials said the exemptions
covered around 1 percent by volume of the total imports covered by the
tariffs. Trade watchers in Europe observed that the US is attempting to
buy off some individual EU member states and other steelmakers like Japan
by offering their steel producers targeted exemptions from its own import
duties. Only once the full list of exemptions to European companies is
published will EU governments take the final decision on whether to back
tit-for-tat tariffs at a ministerial meeting on July 22.
A second longer list approved by the EU that would target US exports worth
$ 545m would automatically come into effect if and when the EU wins a
WTO dispute settlement panel set up to judge the legality of the US safeguards
sometimes next year. The Appellate Body, in the Korea line pipe case on
Feb. 15, has already condemned the US approach.
The EU is the world's largest steel producer, with 159 million tonnes
of crude steel (19 percent of world production) in 2001. The European
steel industry accounts for about 1.8 percent of the value added and 1.5
percent of employment in EU manufacturing. There has been a rapid growth
in steel production elsewhere in the world, leading to a sharp decline
in the EU's traditional trade surplus in iron and steel. EU imports have
increased from 15.4 million tonnes in 1997 to 26.6 million tonnes last
year.
EU tariffs for steel products are relatively low. The average consolidated
bound rate was around 2 percent in 2000 and all tariffs will disappear
in 2004, in compliance with WTO rules. However, there are non-tariff barriers
against cheaper developing country producers. The EU defends its decision
on retaliatory measures against the US saying it is in its self-interest
to prevent foreign exporters from flooding the European market with products
that are shut out of the US.
According to EU Trade Commissioner Pascal Lamy, "Unfounded, unnecessary
and unfair US action has forced us to take temporary steps to look after
EU industry, and EU workers. But we have done this without indulging in
protectionism. Unlike the US, we will keep our market open to imports
from the rest of the world. These limited and carefully crafted measures
have one simple goal: to prevent a flood of diverted steel coming into
the EU market."
US steelmakers have warned that the decision on exemptions could reverse
the recent rise in domestic steel prices that has occurred since the duties
were imposed in March. The ailing US steel industry lobbied the US administration
for tariffs saying they were being undercut by cheap imports. With Canada
and Mexico exempted as members of NAFTA (North America Free Trade Agreement),
the EU has been the hardest hit among leading steel producers. Developing
countries such as Argentina, Thailand and Turkey are also exempt.
Big steel producers across the world are closely watching the exemptions
process started by the US. The Japanese Trade Minister Takeo Hiranuma
announced on June 13 that his country has dropped plans to impose tit-for-tat
tariffs (worth $ 4.88m) against US steel products after speaking with
his US counterpart Robert Zoellick. "We got the impression that the
US was being constructive and taking into account our interests as well,"
the Japanese minister said. "I have decided it was necessary to postpone
our plans to raise tariffs and continue talks with the US.” Earlier
the German Economics Minister, Werner Myller, was quoted in the Financial
Times (June 6) saying he was confident of receiving “fair treatment”
from the US regarding exemption applications from German producers. Forty
German steel companies had applied for exemptions. The German steelmakers'
association said the US had exempted annual exports amounting to 25,000
tonnes in 19 product categories, out of the 1.1 m tonnes of steel that
the country sells to the US each year. About 780,000 tonnes of steel exports
to the US by Corus, the Anglo-Dutch steel group, mostly produced in the
Netherlands, have been exempted from the duties so far. The group is seeking
exemptions covering 450,000 tonnes of steel.
Meanwhile, the major non-US steel producing countries are pressing ahead
with raising their mounting trade tensions with the US at the World Trade
Organisation. The EU, backed by South Korea, China and Japan who have
requested dispute settlement consultations on the US steel "safeguard"
on the basis of similar claims, argues that the US tariffs are in clear
breach of trade agreements, and though the US steel industry faces real
difficulties, the key problem is not one of imports but the enormous overhang
of the so-called “legacy costs” – health and pension
obligations for laid off and retired workers – for US steel producers.
However, US Trade Representative Zoellick insists the steel tariffs are
a temporary measure designed to protect its domestic industry from predatory
pricing by foreign steelmakers until it has time to restructure. "Safeguard"
measures of this kind are permitted under WTO rules. But the EU says steel
imports to the US have not risen in the recent past, negating one key
part of the safeguard's definition. Unlike European firms, the US did
not complete the restructuring process started in the 1980s, the EU points
out, adding that the tariffs punish non-US steelmakers for the failure
of US steel producers to stay competitive.
The EU's proposed sanctions target regions that could politically hurt
the Bush administration. European officials have openly stated that they
targeted citrus fruits due to the importance of citrus growing in Florida,
crucial in Bush's winning the 2000 presidential election. Targeting Wisconsin-based
Harley-Davidson motorcycles, according to EU plans, will frustrate the
Bush administration's drive to drum up voter support in Wisconsin.
Unilateral US decisions, such as the imposition of tariffs on steel and
the provision of enhanced support to agriculture, that violate WTO rules,
show how much Washington respects the new trade regime. Expecting developing
countries to follow the rules they were hardly involved in formulating
is obviously discriminatory. Hopefully, disputes between developed
countries, as in the case of the steel tariffs, would help stall
the process of irrational liberalisation of global trade.