Bush Vows to Fix Trade Spat
WASHINGTON -- President Bush promised European leaders Thursday that he would prod Congress to resolve a $4-billion tax dispute, and both sides agreed to work together to settle differences over U.S. steel tariffs.
Yet even as Bush tried to defuse those trade flaps, America’s relations with its allies were further roiled by a final decision to slap punitive tariffs on Canadian lumber and by House approval of huge farm subsidies.
Following a two-hour summit with European leaders, Bush said both sides had agreed to address trade issues with the same cooperative spirit they have brought to the war on terrorism, and he cited his pledge to resolve the tax dispute as an initial step.
“I hope and expect that we can all act in the same spirit of understanding as we work through other problems,” he said.
But trade analysts said the combined effect of U.S. actions to protect politically powerful steel, lumber and agricultural interests was likely to have the opposite effect.
“Bush claims to be a free trader, but he takes actions that are protectionist,” said Sidney Weintraub, director of the Americas Program at the Center for Strategic and International Studies, a Washington public policy center. “It’s gone too far now. And it’s not just the administration. The Democrats are complicit in agriculture. The Democrats are complicit in steel.”
Bush did not discuss lumber or agriculture at his news conference with Spanish Prime Minister Jose Maria Aznar and European Commission President Romano Prodi. But he promised that the U.S. would take whatever steps are necessary to resolve the tax dispute.
The European Union has asked the World Trade Organization for permission to impose trade sanctions on up to $4 billion in U.S. exports because the U.S. has not rescinded a tax subsidy for corporations with overseas operations.
The WTO has ruled repeatedly that the corporate tax break violates global trading rules, and it is expected to decide soon on the amount of compensation Europe is entitled to receive.
The provision lets multinational corporations such as Boeing Co. and Motorola Inc. reduce their tax bill by excluding profits from exports. Any reform will require an act of Congress, but lawmakers have been reluctant to take back the tax break.
Bush said he informed Aznar and Prodi that he would work with Congress to ensure compliance with the WTO decision.
“This will require both time and legislation,” Bush said.
The president referred to the steel spat only obliquely, but Prodi indicated that Europeans would refrain from imposing retaliatory tariffs until the WTO decides whether the U.S. tariffs are justified.
Bush imposed temporary tariffs of 8% to 30% on imported steel under a WTO rule that allows countries to protect domestic industries that are injured by a surge of imports. The steel tariffs have been challenged by several countries, and the WTO is expected to issue a ruling on those challenges next year. But pressure has been building in some European capitals to impose retaliatory tariffs this year, and a preliminary target list took aim at more than $300 million in annual U.S. exports.
The United States maintains that a preemptive retaliation would be a violation of WTO rules, and Prodi indicated that the Europeans might be willing to hold off.
“We both intend to play it by the WTO rules,” he said. “Even in this sphere, we shall demonstrate a friendly way of working.”
On lumber, the U.S. International Trade Commission gave final approval to a Commerce Department proposal to levy 27% tariffs on Canadian 2-by-4s and other softwood products to compensate for alleged illegal “dumping” and government subsidies.
Opponents, including the Canadian government and U.S. homebuilders, say the move could add as much as $1,500 to the cost of a typical new home. Supporters insist that the price hike would be much smaller and say the tariffs would help keep struggling U.S. sawmills in business.
Similarly, House approval of the farm bill, which would boost subsidies by more than $30 billion over six years, was denounced by foreign governments and others. Opponents argue that the subsidies would lead to massive overproduction, causing world commodity prices to fall and unsubsidized producers to go under.
Bush, however, called the bill a “generous and reliable” safety net for farmers and said he was prepared to sign it. The measure now goes to the Senate for a final vote.
Several analysts praised the president for promising to resolve the tax subsidy dispute, which dates to 1997. But they expressed concern that negative fallout from the steel, lumber and farm actions would undermine the administration’s ability to negotiate regional free-trade agreements and advance U.S. interests in global trade talks launched last year in Doha, Qatar.
“It’s sort of one step forward, and two or three steps back,” said Robert E. Litan, director of economic studies at the Brookings Institution, a centrist think tank.
“The trade agenda is in real trouble, that’s the bottom line,” Litan said. “A lot of the momentum that had been building up in the wake of the Doha meeting has been lost.”
But University of Maryland economist Peter Morici, a former U.S. trade official, said he thinks that Bush deserves more credit.
He noted that the lumber tariffs were prompted by an industry lawsuit that was largely out of Bush’s hands, the farm bill is the handiwork of Congress, and the steel spat can probably be settled by granting exemptions to key exporters. Meanwhile, he said, the president’s other trade priorities remain in place.
“He’s a hard-headed realist,” Morici said. “He wants to pursue a free-trade policy, but there are areas where he has to compromise.”
