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To: smolejv@gmx.net who wrote (17451)	3/27/2002 10:35:43 AM
From: TobagoJack	Read Replies (1) \| Respond to of 74559

Despair not ... EU Steals Trade Momentum From Washington 22 March 2002 Summary In response to U.S. President George W. Bush's decision this month to slap protectionist tariffs on steel products, the European Union is threatening to impose targeted retaliatory tariffs of its own. How Washington responds will determine much for the future of the relationship between the United States and the European Union. Analysis U.S. President George W. Bush's decision earlier this month to impose protectionist tariffs on steel imports -- to be levied over a period of three years at levels of up to 30 percent of the value of the products covered -- was a purely political calculation. Recognizing this, the European Union has responded with a deft political maneuver of its own. EU officials estimate that losses to their steel producers could amount to $3.8 billion over the three-year period, Reuters reported. Now EU Trade Commissioner Pascal Lamy is threatening to slap heavy import duties on a list of specific products that directly targets Bush's domestic political vulnerabilities. Rather than launching a full-scale trade war, Brussels is opting for the smart-bomb approach -- seeking to hit Washington where it hurts. The Bush administration will not take kindly to such interference in its domestic political agenda, especially with mid-term elections looming in the fall. Just by threatening the sanctions, Brussels hopes to put enough pressure on the White House -- via the American electorate -- to force a retreat from the steel tariffs. That would be a major coup for the EU, but it would come at the expense of the transatlantic relationship that is so vital to both the United States and Europe. The proposed EU duties would fall on $2.1 billion worth of imports of U.S. products such as Harley Davidson motorcycles, orange juice, steel and textiles. Such products are key to the economies of states such as Pennsylvania, Florida, Wisconsin, West Virginia and the Carolinas. These were "swing states" in the last presidential election and will be major battlegrounds in the fall, when Bush and the Republicans will fight to retain control of the House of Representatives. Bush was hoping that his decision to back big steel would pay political dividends in states such as West Virginia and Pennsylvania, not only in terms of votes in the fall elections but also in congressional support for other priorities, such as passage of Trade Promotion Authority (TPA) in the Senate. However, TPA approval has failed to materialize, and now Bush risks losing the electoral benefits of his tariffs, which do nothing to address big steel's long-term problems and are generally counter-productive by any economic measure, plus support in other key states. This makes the EU decision look like a stroke of genius. Brussels had to respond to the U.S. steel tariffs, which took effect this week and are particularly harmful to European producers. EU nations are concerned not only about a drop in their own exports to the United States but also that the Continent will become a dumping ground for cheap steel from Russia and Asia that was previously sent to the United States. Rather than simply prompting a tit-for-tat trade war, Brussels needed to find enough leverage to force Washington to actually change policy. Europe is not in a position to wage an economic war of attrition against the United States. General retaliatory tariffs would have resulted in a similar response from Washington rather than a change in policy. Europe is more reliant on exports than is the United States, and with its economy still fragile, the pain in Germany, France, Spain and Italy would be greater as well. All the while the steel sanctions would likely remain. So Brussels chose an alternate course that may prove more effective at forcing the Bush administration to reconsider. The president may have calculated that Brussels, knowing the dangers of a trade war, wouldn't respond to the tariffs. Or if Europe did retaliate, that the measures wouldn't take effect until after the mid-term elections, after which Bush could "reassess the effectiveness of the sanctions" and possibly drop them. But now, with the threat of specific product tariffs hanging over the heads of millions of economically sensitive voters, Bush may have to change that calculation. Transatlantic trade disputes are nothing new. However, a brazen attempt by Brussels to manipulate the U.S. electorate in advance of an election could be very damaging to EU-U.S. relations. For Bush, almost every issue is tied to the war on terrorism. He likely sees his ability to retain control of the House of Representatives as a national security issue, as it will affect his ability to prosecute the war. This will force the president in one of three directions, and his decision will determine whether the transatlantic relationship sours much more. First, he could drop the steel protections, but this would be out of character both for Bush and the United States. Second, he could strike back, escalating the trade spat in the hopes that Brussels will back down. This would be unwise; despite all the talk of American unilateralism, the United States needs European support if it hopes to pursue its full foreign policy agenda. Finally, Washington could offer to compensate the EU by lowering barriers or giving preferential access on other, less politically sensitive products, prompting Brussels to drop the threat of targeted tariffs. The administration has so far refused such compensation, fearing it would open up a Pandora's box with every other steel-producing nation demanding similar treatment. But this may be the best course of action, as it could defuse a situation that threatens to undermine Washington's relationship with its most important group of allies.