News Analysis: EU Stands Firm in Steel Trade Dispute With U.S.

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Last updated at: (Beijing Time) Monday, March 18, 2002

News Analysis: EU Stands Firm in Steel Trade Dispute With U.S.

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The U.S. government's March 5 decision to levy tariffs of up to 30 percent on most of steel imports in the coming three years put the European Union (EU), its biggest trading partner, at a great disadvantage, analysts say.

But the EU quickly recovered from its initial shock to prepare for a potential tit-for-tat trade war between the transatlantic allies. Unlike in the previous bilateral trade disputes, this time the EU seems to have something in store to fight back.

Since the U.S. decision, which will come into force on March 20 and stay in place for three years, the EU has stood firm in the face of the U.S. measures and rallied behind it the popular support from EU businesses, trade unions and ordinary people.

From the very beginning, the EU has regarded the U.S. measures as "legally unfounded and unfair." Shortly after the U.S. decision was announced, EU Trade Commissioner Pascal Lamy said in a statement: "This decision is in direct contradiction with the World Trade Organization (WTO) Safeguards Agreement."

Under WTO agreements, safeguard measures cannot be put in place unless there has been a surge in imports which has already put or threatens to put the domestic industry in danger, Lamy said.

He pointed out that the U.S. imports of steel have dropped 33 percent since 1988, leaving no reasonable legal grounds for enacting such measures. Striking a chord with other victims of the measures, the EU demanded the U.S. government either repeal the decision or make compensations for those who suffer from it.

Moreover, the EU cannot afford to sustain the potential blow to its recovering economy in general and steel industry in particular. As the two biggest trading partners in the world, gross bilateral trade between the EU and the U.S. in the year 2000 reached 373 billion U.S. dollars.

And as the world's biggest steel producer and exporter, the EU accounts for more than 25 percent of U.S. steel imports and therefore is likely to be the hardest hit once the U.S. measures come into force.

Preliminary estimates put EU direct losses at 2.5 billion dollars, not to mention the damage it may inflict on the EU economy if the current dispute spills over to other sectors and thus spark a full-flown EU-U.S. trade war.

Worse still, as the EU and the U.S. are also the world's two biggest steel importers, the U.S. measures might trigger a wave of steel imports diverted from the U.S. to EU markets, affecting as many as 270,000 EU steel employees and the EU's internationally competitive steel industry which went through the restructuring process in the 1970s and 1980s.

There are also political implications of the EU's firm stance. The EU is economically strong and its enlargement plans are being carried out. It is now letting out a loud cry for less U.S. influence and more independence, both politically and militarily.

The EU's Rapid Reaction Forces plan and its sending of peacekeeping police forces into the Balkans is a clear and sure signal of the trend towards more independence.

Optimists believe that the 15-member bloc is likely to take in some 10 new members at the end of this year, further expanding its sphere of influence. Most of its members are no longer happy with life under U.S. wings and prefer a more independent and coordinated policy. The public support for the EU to fight back over the steel issue is a case in point.

Last but not least, the EU has set a target of creating a dynamic and competitive economy by the year 2010 at its Lisbon summit in 2000 and the recently-concluded Barcelona Summit reaffirmed its political will for this aim. The U.S. measures, deemed as part of its unilateralism, go against this EU goal and may seriously hinder the economic and social restructuring process the EU is striving for and even take a heavy toll on global trade growth.

To safeguard its interests, the EU has lodged a complaint with the WTO against the U.S. move, and representatives from both sides are discussing the matter face to face. Whatever the outcome of the negotiations may be, one thing is sure, the EU would continue to stick to its demands and firm stance, as this is where their great interests lie, analysts believe.

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