Bush backlash on U.S. tariffs: EU gets even

Bush backlash on U.S. tariffs: EU gets even

As if the U.S. didn't have enough to contend with over its imposed tariffs on steel - now, the EU has given the U.S. more to worry about. A move by the EU to slap retaliatory tariffs on U.S. goods totalling about $2.1 billion has U.S. officials bristling. EU officials explained that the list of products targeted was drafted in order to make a political impact on the domestic arena in the States. Where steel is concerned, it definitely has - where citrus and textiles are concerned, it very well might. These are the first three products targeted by the EU. Though, sources speculate that Harley Davidson motorcycles and other products may be right behind. The reasons given for these three being targeted include the fact that citrus exports come primarily out of Florida where the 2000 presidential vote was very close; steel because of the significance it has to West Virginia, Ohio and Pennsylvania; textiles because of North and South Carolina. Other products targeted by the EU include rice, fruit, firearms, gaming equipment, pens and eyewear. These are all from states key in November's Congressional elections. These six states are major and important areas in midterm elections this year. A commentary in late March by Business Week stated that the Bush trade policy on steel clearly displays a double standard. The problem is they explain, Bush is placating both sides. Both sides includes the tech industry, farmers and workers in export industries. Yet, it also includes union workers (whose support the Republican party wants). What's he saying? He believes in free trade. What's he doing? Trying to please both sides. U.S. reprieve from tariffs for now Media reports indicate the EU has plans to review the hit list of U.S. imports and is not expected to slap tariffs on immediately. Meanwhile, EU spokesman, Anthony Gooch has already announced that EU governments will review the list and the economic impact it will have. He hinted that there may be changes made in the near future. When the list is complete, it will then be sent to the WTO by May 20 for review. Gooch would not comment about which exports would be hit hardest, though he indicated that under WTO rules, retaliation could begin by June 18. On April 16, EU officials reported they were reducing the list of American products they had targeted for import taxes. The response, economists reveal is EU concern that a trans-Atlantic trade war could put a damper on Europe's economic recovery. Sources in Brussels revealed, The European Commission submitted a new list to the EU on April 19, that is reportedly less than $700 million worth of products. According to political analysts, the EU is threatening the sanctions if the U.S. doesn't agree to compensate them for its tariff actions targeting the steel industry. So far, both the EU and the U.S. remain at a stalemate over tariff issues. EU Commission President Romano Prodi met with George Bush on May 2 but the EU refuses to back down on its retaliatory threat against slapping U.S. exports with 100% tariffs. WTO rules state that the EU could actually impose sanctions of up to 100% on imports almost immediately – if the U.S. cannot justify its own actions. Trade experts don't expect that to happen any time soon. They forecast the EU will probably opt for a more thorough but slower mediation system at the WTO. Experts also predict that the U.S. will not be hit with sanctions immediately. Since the entire WTO process is likely to last about 18 months, the U.S. can buy itself some time. EU criticizes U.S. policy, defends its own Pascal Lamy has claimed in widespread media reports that there is only one goal behind EU measures, to prevent a flood of diverted steel from arriving into the EU market. The reasoning behind this, he claims is that the U.S. move, left the EU as the one remaining sizeable steel market. Lamy claims that created a serious risk that its 15 nations would be flooded by steel shut out of the U.S. market. Lamy makes a distinction between EU quotas and U.S. quotas since he claims that the EU quotas would only begin once a product's imports reach more than 10% of the average of the last three years. In addition, EU tariffs are limited to a 200-day period and will only apply when steel imports exceed 2001 levels. At the same time, Lamy has accused the U.S. of “indulging in protectionism” that would cause it to, in effect, shut down its market to imports from the rest of the world. Headded, that the EU goal is to keep the market open to the rest of the world. U.S.- EU ’trade war' causing chain reaction Lamy may have a point, but currently, many countries are up in arms about EU quotas with some in the media, branding the situation, on the brink of a “trade war.” What is happening, steel insiders reveal is that a chain reaction has taken place globally regarding steel quotas. If this continues, many analysts fear that a chain of protectionism would damage the global system of free trade. That chain reaction includes a wide range of countries and the actions they took, following the Bush adminstration's 201 tariff declarations. America's closest neighbor, Canada, put its steel industry to the test when steelmakers called for an investigation and safeguard measures; Malyasia imposed tariffs of 50% on 199 products in March as a protective measure against steel dumping for its industrial sector; Russia outlined its plan for restructuring; China began an antidumping investigation into cold-rolled steel plate imports from South Korea, Taiwan, Russia, Ukraine and Kazakhstan. According to the Prague Business Journal, the EU has warned the Czech government to restructure its steel industry if it wants an opportunity for subsidies. Meanwhile, Japan has yet to make any decision regarding its own safeguards but has come in with major criticism against both U.S. and EU sanctions. Japan met with both the EU on April 10 and the U.S. on April 11 about the steel tariff issues. Other nations are certain to follow. Not to mention, that as a direct result of the U.S. tariff announcements, world prices on steel products have risen steadily. Most steel industry insiders' biggest fear is that a shift in supply of steel products could lead to an increase in market volatility and negatively affect steel manufacturers' performance. That is not the only concern either. If this chain-reaction persists, experts also fear “the spread of protectionism” could lead to a breakdown in international agreements aimed at stabilizing steel markets. A good example is the Organization for Economic Cooperation and Development (OECD) Initiative whose goal is to reduce investment in plants and equipment. The U.S. has repeatedly promised it would probably drop the S201 measures if other nations commit themselves to production cuts through the OECD who recently called for stricter measures to halt global overcapacity. Despite this, another worry is that the measures might also affect global steel markets on a mid to long term basis. Steel insiders confirm worst backlash fears Industry insiders say concerns are well founded based on what has been happening in the market in the U.S. Reports in mid-April were that U.S. steel producers, even those who filed bankruptcy, were forced to hike prices from 15-25% for those in the car and can industries. Experts say many are insisting Bush review his policy. As if that were not enough to worry about, media reports reveal that UK Prime Minister, Tony Blair is trying to win a deal to have 300,000 tons of specialized British steel products exempted from the 30% quotas. There has been comment in the media as well that Blair warned Bush that his move to protect the U.S. steel industry would end up in a backlash – particularly in America. In light of all that's been taking place, it looks like a backlash is in full force. Accompanied by a rise in steel prices along with supposed threats to withhold steel if customers refuse to pay, even on existing orders –may, experts say enable European exporters to continue selling to the U.S. despite the extra tariffs. In addition, each nation wants to try its luck at getting exemptions on particular steel products. The UK is no exception. Patricia Hewitt, UK trade and industry secretary, has also reportedly been pushing U.S. diplomats and officials to exempt British steel products. Industry sources reveal as many as eight British firms, including the Anglo-Dutch steel group, Corus – are requesting exemption from the quotas. Their defense is that steel products they produce cannot be supplied by U.S. producers. Industry insiders maintain that British firms with the backing of ministers, do have the right to request exemptions under Section 201 (S201) of the U.S. trade act used by Bush to impose tariffs. Criticism of Lamy and “twin-track” approach Meanwhile, Pascal Lamy, the EU's trade commissioner maintains his stance that Britain should support the common EU strategy against U.S. tariffs. Insiders claim that behind closed doors, Lamy has been taken to task for failing to predict the U.S. moves and to plan an adequate defense. Industry insiders maintain that British firms with the backing of ministers, do have the right to request exemptions under Section 201 (S201) of the U.S. trade act used by Bush to impose tariffs. As many global market watchers have deemed Bush's trade policy “two-faced” – many in the British media are indicating there is a “twin-track” approach to the EU policy. On one hand, they report the UK supports Lamy in his decision to impose safeguard measures to protect EU producers from an influx of steel refused entry to the U.S. While on the other hand, there is support to prepare retaliatory or compensatory measures for the American moves.