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Bigger schism in US-EU trade spat possible

By SHIHOKO GOTO, UPI Senior Business Correspondent   |   April 29, 2002 at 4:21 PM   |   Comments

WASHINGTON, April 29 (UPI) -- Concerns mount that a trade war could flare up across the two sides of the Atlantic as President Bush prepares to meet with European Council President Jose Maria Aznar and European Commission President Romano Prodi on Thursday.

One issue of mutual concern at the annual U.S.-EU summit meeting will be how the two sides can cooperate more closely in the war against terrorism across the globe. But while both were firmly united in their efforts to oust the Taliban in Afghanistan, tension has been rising in recent months particularly over the United State's pro-Israeli stance in dealing with the problems facing the Middle East, and the Europeans have voiced their growing unease about a possible U.S. attack against Iraq.

Yet one of the most sensitive issues likely to be discussed at the summit meeting is trade protectionism, namely the Bush administration's decision to impose steel tariffs. Last month, the administration decided to slap on a 30 percent tariff on steel imports, including products from the European Union, arguing that many countries already heavily subsidize their steel manufacturers or indeed impose considerable steel import levies in their own markets.

The Europeans as well as other countries have protested against the U.S. decision, and the E.U. has stated that it will impose 100 percent tariffs on a range of American products including steel, rice, citrus fruits, and clothing starting in June, unless U.S. tariffs are lifted.

But the European Union's decision to retaliate against the steel duties may backfire, as there is growing speculation that the Bush administration could actually take counter-sanctions should the Europeans go ahead with its retaliatory actions in June.

Far from retracting its steel tariffs, some media reports have stated that the United States would actually strike back against the possible EU tariff barriers on approximately $340 million worth of U.S. goods by imposing sanctions unilaterally.

"My immediate reaction is that there would be absolutely no legal basis for that," said Roderick Abbott, deputy head of the European Commission's trade directorate general, at a news briefing in Brussels Monday.

A senior U.S. Commerce Department official declined to comment on whether that would indeed be the case. He did, however, point out that the United States continues to push for a ruling on the steel tariffs at the World Trade Organization to judge whether its decision to levy import taxes is justifiable or not.

The problem is, however, that a final WTO ruling would unlikely be available before next summer.

And some countries are not prepared to wait that long to strike back on what they regard as protectionist measures that actually harm global trade.

For whether or not the United States decides to escalate the global trade dispute by imposing counter-sanctions, it is clear that outrage over the initial U.S. steel levies has not been limited to European nations.

Japan, for instance, has said that it will be slapping on tariffs on U.S. goods in retaliation should the Bush administration continue to press on import duties on steel, according to the Japanese Trade Ministry's International Affairs Vice Minister Hidehiro Konno last week.

Meanwhile, developing nations that are heavily dependent on exporting steel to secure foreign currency have already been hard hit by the U.S. levies. Brazil, for example, is expected to file an official complaint with the WTO against the United States, even though the country decided last week not to hike their own steel tariffs in spite of a flood of cheaper steel products expected onto their shores soon. With the U.S. tariffs in place, many manufacturers have shifted away from the U.S. market and instead started exporting to other countries where they can remain profitable.

Multinational development institutions including the International Monetary Fund have repeatedly pointed out the damaging effect of protectionist measures not only among industrialized nations, but also for the global economy at large.

South African Finance Minister Trevor Manuel expressed his disappointment last week with the Bush administration's decision to impose tariffs in the first place.

"This is detrimental to all parties involved. But it will be particularly harmful to the developing countries," Manuel said, and warned that a further escalation in the global trade dispute would only aggravate matters.

© 2002 United Press International, Inc. All Rights Reserved. Any reproduction, republication, redistribution and/or modification of any UPI content is expressly prohibited without UPI's prior written consent.
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