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Tue, Mar 19, 2002 - Page 21 News List

US tariffs on steel may boost trade disputes with EU

BLOOMBERG , WASHINGTON

President George W. Bush's decision to levy steel-import tariffs has left US and European companies concerned that trade disputes will escalate, interfering with US$600 billion of trans-Atlantic commerce.

The EU on Friday threatened to retaliate to the tax, which begins Wednesday, by raising tariffs on US$2 billion in US goods, from food to Boeing Co aircraft. That's on top of US$4 billion the EU is seeking to punish the US for providing a tax break to exporters, such as Microsoft Corp and Caterpillar Inc, that the WTO has ruled illegal.

The US and EU disagree over issues ranging from farm-price supports and EU subsidies to Airbus SAS to new disputes over genetically modified crops. The tensions could spill over into WTO-sponsored talks that began in November to open global markets for agriculture, manufacturing and financial services.

"Tempers are frayed on both sides, and I suspect they're going to get worse," said Frank Vargo, a lobbyist for the US' National Association of Manufacturers, which represents General Motors Corp, Xerox Corp and 14,000 other US companies.

European leaders added a new source of conflict over the weekend by agreeing to develop a 3.4 billion euro (US$3 billion) satellite navigation system that the US has said could represent an unfair subsidy to European contractors.

European manufacturers that stand to benefit include European Aeronautic Space & Defense Co, BAE Systems Plc, Thales SA and Alcatel SA. The US State Department said last week it "sees no compelling need" for the project, which will compete with the US military-run global positioning system.

The EU isn't the only US trading partner to lash back at the steel tariffs. China also opposed the tariffs, filing its first WTO complaint on Friday. Japan, South Korea and Australia may follow. The EU and Japan say they will shut their own steel markets if they face an import surge from nations blocked out of the US Trade officials say there's bound to be tension in a relationship where trade has ballooned 50 percent since 1994 and investment has soared to more than US$2 trillion. Two-way trade covers US$400 billion in manufactured goods and US$200 billion in services.

"Because it is a very large relationship, there tend to be problems," said Petros Sourmelis, trade counselor at the European delegation in Washington.

And with trade rules codified by the formation of the WTO in 1995, countries have more of an incentive to bring cases to the global arbiter because enforcement is more objective.

Still, the US$2 billion in compensation the EU is seeking over the steel tariffs -- 20 times higher than the sanctions the WTO in 1998 allowed the U.S. to impose on the EU over a beef dispute -- has ratcheted up the stakes.

"I wouldn't say we're slowly going in the direction of a trade war," said Alexander Batschari, a spokesman for Germany's VDMA machine makers association, whose members include Siemens AG, the country's biggest corporate employer. "I'd say we're marching there at speed."

Exports to the US from VDMA's 3,000 member companies were about US$9.7 billion last year. The EU as a whole sent more than US$200 billion -- a quarter of its manufactured exports -- to the US in 2000.

On March 5, Bush levied tariffs of 8 percent to 30 percent on most steel imports to protect US companies. Nineteen US steelmakers, including LTV Corp and Bethlehem Steel Corp, have gone bankrupt since 1998.

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