U.S. faces new pressure on trade After steel victory, a united Europe pushes its advantage

LONDON A day after President George W. Bush ended U.S. tariffs on steel to avert a trade war with Europe, Pascal Lamy, the European Trade Commissioner, said Friday that he would press ahead with punitive tariffs worth some $4 billion if Washington did not end tax breaks for offshore U.S. corporations.

. His remarks reflected assessments by some European trade experts that, after the American retreat on steel, European negotiators sensed a shift in the power balance of global trade in their favor.

. Patricia Hewitt, the British trade minister, said, "We in Europe, by standing together, by using the World Trade Organization and saying, 'We're going to uphold the rules of world trade,' we've played our hand very, very effectively indeed."

. In an telephone interview from Brussels, Lamy said the outcome of the steel dispute should demonstrate that Europe "punches its weight."

. "It's a message sent within Europe," he said. "It's a basic lesson: union equals might and strength. It's why we are building Europe."

. A deadline of March 1, 2004, is looming for the United States to comply with another WTO ruling in a separate fight with the European Union over tax breaks for American offshore corporations.

. As in the steel dispute, the WTO - which functions both as a negotiating forum and as an adjudicator of high-profile trade disputes - has ruled against the United States and in favor of the European Union argument that the tax breaks benefit U.S. exporters unfairly.

. In the steel dispute, President Bush's decision to lift the tariffs headed off the threat of reprisals worth some $2.2 billion, which had been directed specifically at states that will be important in the U.S. presidential election next year. In the newest dispute, the European Union has said it will begin to impose progressive tariffs, starting on March 1, 2004, on up to $4 billion worth of American exports, beginning with a 5 percent tariff to be increased by 1 percentage point a month to a total 17 percent.

. The reprisals will target the same range of goods as those in the steel dispute, aimed specifically at states such as Florida and Michigan that are critical to the President's hopes for re-election, European officials said.

. In the telephone interview, Lamy said the European Union planned to go ahead with the reprisals if the United States authorities "have not complied, which we hope they will do" by the time the March 1 deadline expires.

. Europe, he said, would "proceed with the sort of clear, constant and predictable behavior" to persuade Washington to comply.

. In the aftermath of the steel dispute, the WTO itself made no formal statement, seeking to maintain its public position as a neutral arbiter of global trade. But, trade experts in Geneva said, the American retreat on steel was likely to be interpreted as a huge boost for the organization's credibility - and its ability to promote the liberalization of world trade - at a time when the collapse of the WTO ministerial talks in Cancún last September had left it in the doldrums.

. Not only that, by forcing a retreat by a major player, the WTO had countered the arguments of its critics that it functioned as a club of rich countries subjugating the poor, these experts said.

. Lamy said that, if unresolved, the steel dispute could have set a "bad precedent: if the big guys in the system use it this way, it's a very bad precedent for the others."

PARIS : Trade officials around the world praised US President George W. Bush for scrapping steel tariffs and said everyone would gain from the strengthened role of the World Trade Organisation in averting a trade war.

The decision announced Thursday was seen as reasserting a US commitment to free trade, but there was widespread suspicion that a US intention to monitor steel imports to prevent dumping might still be used for protection.

The European Union, Japan and China in particular expressed concern about how the monitoring would work, but there was general satisfaction that the WTO disputes procedure had been shown to have teeth.

In the United States, the decision was welcomed by steel users and consumers.

But US steel-making interests, which had pressed for the protection, castigated Bush for reversing policy and giving in to foreign "blackmail" before they had had time to complete restructuring.

Bush, facing a presidential election next November, had imposed the tariffs in March 2002 in response to demands for help by the industry which employs 150,000 people.

But foreign interests objected that the US steel industry was inefficient and should restructure as industries elsewhere, notably in Europe, had done and in line with US free-trade principles.

The European Union, which had led opposition to the tariffs with a plan for retaliatory penalties, said that Bush's decision vindicated its strategy of forcing the United States to comply with WTO trade rules.

EU Trade Commissioner Pascal Lamy, who had prepared counter-tariffs worth 2.2 billion dollars (1.83 billion euros), said: "These sanctions, as I've always said, were there as a tool for compliance. They've complied, and the sanctions will disappear."

Lamy said that the rules-based system of the WTO had been vindicated. "The WTO gives us a system that is not perfect, but has the immense virtue of being there to provide us with rules and mechanisms that are respected by even the biggest player, the US."

The EU would also drop measures to protect the EU steel industry against any steel from other countries which might have been diverted to Europe because of the US tariffs.

The EU would be wary of the US monitoring to prevent "dumping" of steel. "We will be monitoring their monitoring," he warned.

The tariffs had cut the EU's annual steel exports to the US, worth two billion euros per year, by 15 percent and the decision "is obviously good news: good news for European steel makers... good news for Europe", Lamy said.

Britain's Trade and Industry Secretary said the decision meant that "we won't have a trade war between the US and Europe".

And the French junior Trade Minister Francois Loos said: "The United States respects the arbitration of the WTO... that proves the utility of the organisation."

In Japan, Chief Cabinet Secretary Yasuo Fukuda said that Tokyo "greatly welcomed" the decision, noting that last week Japan had dropped a threat to impose retaliatory sanctions. "We highly appreciate the fact that President Bush believes in free trade," he said.

In China, which also has a trade problem with the US over textiles, ministry of commerce spokesman Chong Quan said: "The Chinese side welcomes the US decision... If the US goes through with this promise on cancelling the protective tariffs, China will not adopt retaliatory measures." But China was "concerned" by the US monitoring plan.

In New Zealand, Trade Negotiations Minister Jim Sutton said the decision was "a victory for New Zealand and the rules-based system which the WTO represents".

And in Seoul, the South Korean trade ministry said "it is an appropriate decision to facilitate international free trade and minimise unfair damage to exporters".

The Brazial steel industry, one of the biggest in the world, through its national steel confederation, declared: "This is a victory for Brazil. A victory for free trade."

In the United States powerful lobbies representing steel users, such as the auto industry, said that the duties had damaged steel users and consumers.

But US steel interests, and politicians representing steel areas, attacked Bush for giving way to foreign, and particularly European pressure.

The United Steelworkers of America condemned the reversal by Bush as "clear evidence of capitulating to European blackmail and a sorry betrayal of American steelworkers and steel communities".

But the president of the Consuming Industries Trade Action Coalition, William Gaskin, said the ending of tariffs was "the right decision for the 13 million workers in steel-consuming industries, for the manufacturing sector... and the overall US economy.

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