Europe's steelmakers press for punishment in other markets
MSNBC | Wall Street Journal | January 11, 2002 | By Geoff Winestock
BRUSSELS - European steelmakers are pressing the European Union to threaten to use as much as $4 billion in trade sanctions - from a nonsteel trade dispute - to convince the U.S. to abandon plans to protect its steel industry.
"WE HOPE THAT the EU will be able to use the case to get some more leverage in the steel negotiations," said Jean-Pierre Schires, international trade-relations manager at French steelmaker Usinor SA.
The EU and various steel-producing countries have complained bitterly for the past year about U.S. plans to impose high tariffs on most steel imports. But they haven't had much success fighting the U.S. steel lobby and Congress.
On Monday, however, the World Trade Organization is expected to find in favor of the EU on a trade case involving tax breaks for U.S. exporters. That would open the way for the EU to impose as much as $4 billion in trade sanctions.
That timing gives the EU leverage at an important point in the steel controversy. President Bush is to decide by late February whether to implement the U.S. International Trade Commission's recommendation for tariffs as high as 40 percent on steel imports. That would bar about nine million tons of steel from the U.S., flooding world markets and depressing prices. Mexico and Canada have said they would follow the U.S., exacerbating the glut.
The EU is unlikely to impose the full $4 billion of trade sanctions, but an EU steel lobbyist who meets regularly with the European Commission, the EU's executive body, says it could impose targeted sanctions to make its point. "The commission wouldn't need to impose the full $4 billion of sanctions," says the lobbyist, adding that, based on recent discussions with officials, the commission is "smart enough" to know how to exploit the WTO case in the steel dispute.
Under WTO rules, the commission could slap sanctions on any U.S. exports - including those that have nothing to do with steel - and could tell Washington they won't be lifted until the U.S. changes its policy on steel.
The commission wouldn't comment on the suggestion. But European Trade Commissioner Pascal Lamy last month described the U.S. plan for steel tariffs as "blatant protectionism" and promised to retaliate in some form. He is to meet U.S. Trade Representative Robert Zoellick this month to discuss the issue.
Steel lobbyists in Washington scoffed at the idea of the EU using the WTO's decision as leverage to influence President Bush's decision. "This is a threat without teeth," said attorney Roger Schagrin. "Bottom line: The EU is acting foolishly by threatening everything to no end."
The steel dispute escalated in December, when the ITC proposed duties on most steel imports, citing a surge of imports since 1998 that it said had unfairly damaged the U.S. steel industry. The EU said it would challenge the ITC ruling in the WTO, the Geneva-based agency that adjudicates such disputes. But such a case would take years, and the outcome is uncertain.
That left the EU searching for other ways to influence the U.S. decision. European policy makers would find it hard to retaliate against the U.S. steel industry itself, because its exports are minimal outside of those it sends to Canada and Mexico. But Monday's WTO decision could give the EU the leverage it seeks.
That longrunning case concerns a law that allows U.S. companies to establish offshore subsidiaries, called Foreign Sales Corporations, to reduce their U.S. income tax. In a series of cases dating to 2000, the WTO has consistently ruled that the tax breaks, which save U.S. companies $4 billion a year, breach world trade rules forbidding export subsidies.
Warning that sanctions of that size would be the trade equivalent of a "nuclear bomb," Trade Representative Zoellick has until now persuaded the EU to avoid a showdown over the tax breaks. The EU agreed to give the U.S. time to pass a new version of the law and then, after the WTO ruled that the U.S. was still in breach of world trade rules, the EU granted the U.S. time for an additional appeal.
But if Monday's decision, as expected, goes against the U.S., the EU has said it will seek formal approval for the retaliatory sanctions. The WTO would hold a final hearing, probably in April, to fix the amount of damages in the case.
Robert Guy Matthews and Matthew Newman contributed to this article.
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