George Bush's efforts to prop up America's ailing steel industry by taxingimports will not hurt Europe unduly. But, as Denis Staunton reports from Brussels, EU officials fear a growing US policy of protectionism
Pascal Lamy oozed contempt yesterday as he outlined Europe's response to the US decision to restrict steel imports from the rest of the world. The EU Trade Commissioner said the Union would lodge a complaint to the World Trade Organisation and take steps to safeguard the European market.
"The worldwide steel market is not the wild west where everyone does what he likes," he said.
Washington's decision to prop up the ailing US steel industry by slapping 30 per cent tariffs, or import duties, on foreign steel has outraged European policy makers. They accuse President Bush of hypocrisy in proclaiming his commitment to free trade while resorting to protectionism for domestic political reasons.
Following Mr Bush's decision to tear up the Anti-Ballistic Missile Treaty and to walk away from the Kyoto Protocol on climate change, his flouting of WTO rules appears to confirm European fears that Mr Bush takes international agreements with a pinch of salt.
Mr Lamy insisted that Europe was not about to engage in tit-for-tat retaliation against the US and played down the prospect of a full-scale transatlantic trade war. However he held open the prospect of a demand for compensation from the US if the WTO upholds Europe's complaint.
EU steel exports to the US amount to less than 4 million tonnes each year and Mr Bush's move will have a limited impact on the European economy. But Washington's lurch towards protectionism has set alarm bells ringing in Brussels and threatens to complicate an already fractious transatlantic relationship.
Mr Bush ignored last-minute pleas to change his mind from the Commission President Mr Romano Prodi, and Chancellor Gerhard Schröder of Germany. Mr Lamy acknowledged yesterday that the dispute provided fresh evidence that Europe's influence in Washington was severely limited. "We did engage in political discussion. We did our level best. We did not succeed."
Nobody disputes the fact that the US steel industry is ailing and that, without outside help, dozens of plants would close with the loss of tens of thousands of jobs. Thirty-one US steel firms went bankrupt during the past four years, leaving just 140,000 people employed in the industry.
The surviving firms are burdened with the huge commitment of paying for healthcare and other benefits for 600,000 retired workers. The steel companies, many of which are based in states which could be marginal in this year's mid-term congressional elections, say they need to stop cheap imports in order to survive.
Mr Lamy dismissed Mr Bush's move as a politically-inspired act, adding that Washington could not escape the conclusion that the US steel industry was uncompetitive. Europe's industry, in contrast, has experienced radical rationalisation in recent years as companies have merged and hundreds of thousands of jobs have been lost.
The EU's first response to the US action will be to impose tariff barriers of its own to ensure that the European market is not flooded by cheap steel imports from other exporters excluded from the US market. But Mr Lamy made clear that the EU believed a political strategy was needed to ensure that Washington abided by its international agreements.
"It is important to be calm, to keep things on an even keel and to consider what our strategic interests are. We consider that our interest lies in the multilateral system," he said.
Mr Lamy was referring to the WTO rules governing trade throughout the world which determine when trade barriers are legitimate. The WTO has backed the EU in most recent trade disputes with Washington and the Geneva-based body recently gave Brussels permission to take action against the US over tax breaks for US exports.
The EU complained about a measure which allows some US companies, particularly high-tech manufacturers, to avoid tax by registering their export arms offshore. From next month Brussels will be allowed to impose sanctions on US companies which benefit from the measure.
Mr Lamy insisted that the EU Commission did not want to link separate trade disputes. But if Brussels does not use next month's opportunity to put pressure on Washington, its room for manoeuvre is limited.
Even if the WTO opposes Europe's complaint against the steel tariffs, it will be at least a year before the EU can take any action. In the meantime, the trade dispute will sour the start of a new round of trade negotiations launched in November when the WTO met in Qatar.
MR Lamy pointed out that Europe and the US have been involved in trade disputes before, most famously over bananas. In that case, the EU tried to protect banana producers in its former colonies by restricting imports from some Caribbean countries. Washington retaliated by imposing steep tariffs on a huge range of European goods.
What makes the present dispute more sensitive is that it comes amid worsening relations on a number of fronts across the Atlantic. Mr Bush's identification of an "axis of evil" comprising Iran, Iraq and North Korea persuaded some European leaders that the US is preparing to go it alone in a reckless foreign policy. And many Europeans are expressing frustration at a division of international labour which sees the EU cleaning up and footing the bill after US-led military exploits.
Mr Lamy admitted that Europeans might feel tempted to lash out at the US in the present trade dispute and to hit the US economy where it hurts.
But he argued that if Europe wants a reliable fruitful partnership of equals with Washington, it must strengthen the international mechanisms for resolving disputes.
Denis Staunton is Europe Correspondent of The Irish Times