Trade War Across the Atlantic

Kavaljit Singh

On November 11, 2003, the World Trade Organization (WTO) issued an important verdict confirming that heavy import duties imposed on steel products by the US violate trade rules. The WTO's Appellate Body, its highest trade authority, upheld its earlier decision in July 2003 on this matter. Although the EU was one of the main actors in this episode but there were other countries as well - including Japan, Brazil, China, Korea, Norway and New Zealand. These countries had filed complaint with the WTO over the steel duties which were introduced by the US in March 2002 ostensibly to protect its domestic steel industry from cheap imports. These countries had appealed to the WTO against the high tariff in the US on a number of steel products including carbon flat-rolled steel items, tin mill products, hot-rolled bar, cold-finished bar, welded pipe, stainless steel bar, stainless steel rod, stainless steel wire items, etc.

Soon after the announcement of WTO verdict, the EU announced a number of retaliatory sanctions worth $2 billion against US exports (from oranges to Harley-Davidson motorcycles) if the country does not abide by the verdict. The EU is planning to impose sanctions from December 15, 2003. Other countries including Japan and Korea have also threatened to impose sanctions worth US$1 billion through tariffs on selected American goods. While the ailing US steel industry has urged the Bush administration to disobey the WTO ruling. It appears that this conflict is likely to further widen the growing schism between the US and the EU over lowering barriers to world trade.

How this steel war all started? In early March 2002, the US administration imposed tariffs ranging from 30 per cent to 8 per cent on imports of certain steel products in order to protect domestic industry. These safeguard measures were meant for a period of three years and one day. It is interesting to note that these tariffs were not applicable on steel products from Canada, Mexico, Israel and Jordan because of existing trade agreements with these countries.

Although the WTO rules allow member-countries to impose import restrictions as safeguard measures based on certain conditions. But its appellate body upheld the earlier dispute settlement panel's conclusions that the claims of US to protect its domestic steel producers lack reasoned and adequate explanation.

It remains to be seen how the US administration respond to the WTO ruling. If US comply with the ruling, it would not only avert trade sanctions but also gets support from domestic manufacturing sector, which has been clamoring for lower steel costs. It would also give a strong message to the world that no member-country of WTO (big or small, rich or poor) is above its rules. If Bush administration defies the WTO ruling, no doubt, it would receive political support from domestic steel industry that could be crucial in the presidential elections next year. That is why, not only trade analysts but political analysts are also watching these developments with great interest.

At the same time, the issues raised by this controversy have wider implications and extend beyond steel industry. Undoubtedly, this sordid episode had demonstrated the double standards employed by the US on trade matters. The US preaches free-trade agenda to every other country but resort to protectionism when convenient. It is important to emphasize here that the steel dispute is not an isolated phenomenon. The US has been distorting world trade system through other means including subsidizing agriculture and anti-dumping actions in textiles and other sectors. The US has yet to comply with a 2002 WTO ruling that stated the US was granting illegal tax breaks for its exporters. While criticizing the US, one also cannot forget the fact that the EU is no angel when it comes to agricultural subsidies and other support that too distort world trade system.