Steel Tariffs Are Judged Illegal

Times Staff Writer

The World Trade Organization ruled Monday that President Bush's steel tariffs violated global trading rules, increasing pressure on the White House to rescind the levies or face retaliation by Europe, Japan and other countries.

The European Union said it would impose sanctions no later than Dec. 15 on a $2.2-billion hit list of U.S. goods -- from Harley-Davidson motorcycles to California farm produce -- unless Bush removed the tariffs.

"I think we're headed for a trade war," said senior fellow Gary Hufbauer at the Institute for International Economics in Washington.

If the EU does as threatened, its action would be the biggest trade retaliation since World War II. The Europeans have targeted some of their promised sanctions to inflict symbolic and political pain for the president and GOP lawmakers, including citrus grown in Florida and garments made in the Carolinas.

"They tried as best they could to match the products with Republican districts," Hufbauer said. "They're going to cause a lot of grief."

The WTO decision, while expected, adds a sense of urgency to the president's midpoint review of the three-year tariff program he put in place last year to help U.S. producers fend off foreign competition by propping up the price of steel.

The tariffs had the intended effect of helping ailing U.S. steel makers restructure their industry and scored points with steelworkers in political swing states such as Pennsylvania, Ohio and West Virginia.

But they produced an unexpectedly strong backlash in steel-consuming industries, which claimed the tariffs contributed to business failures, worker layoffs and the flight of U.S. jobs to China and other countries.

The tariffs also angered other countries and left the Bush administration open to charges that it had abandoned its commitment to open trade in an effort to win votes.

Steel users have been pressuring the White House to stop the tariffs ahead of schedule, and some suggested that the threat of a global trade battle might be enough to convince the president that the cost of keeping them in place was too high.

"The other shoe is about to drop," said Rep. Joe Knollenberg (R-Mich.), whose Detroit-area district includes many hard-hit metal-bending firms. "Retaliation from other countries will only deepen the pain to the U.S. economy."

Bush administration officials expressed displeasure with the WTO decision, a rejection of a U.S. appeal of an earlier ruling against the tariffs. But the U.S. officials did not indicate whether Bush would act to avert a showdown with U.S. trading partners.

"We disagree with the overall WTO report," White House spokesman Scott McClellan told reporters aboard Air Force One as Bush headed for a fund-raiser in Little Rock, Ark. "We are going to study it, look at its implications and go from there."

Steel companies and workers said it would be a mistake to remove the tariffs at a time when the industry's restructuring efforts are only half done.

United Steelworkers of America President Leo Gerard, calling the ruling "the latest in a long line of WTO decisions undercutting America," urged Bush not to "knuckle under to the threat of economic blackmail" by the Europeans.

Bush imposed temporary tariffs of up to 30% on imported steel in March 2002, under a provision designed to protect U.S. industries hurt by a sudden surge of low-cost imports. The three-year program called for the president to conduct a midpoint review, which is underway.

The European Union immediately challenged the U.S. tariffs in a complaint filed with the WTO, which enforces global trading rules. Complaints were also lodged by Japan, China, South Korea, Norway, Switzerland, Brazil and New Zealand.

The WTO ruled in July that the United States had failed to prove that U.S. steel makers had been harmed by rising imports. The body also faulted the administration for exempting Mexico and Canada, U.S. partners in the North American Free Trade Agreement, from the tariffs.

Monday's WTO decision reaffirmed the original ruling, with minor exceptions. It will be formally adopted in December, triggering the "balancing measures" approved by EU members.

"If the U.S. has not removed all the tariffs within the time frame stipulated, then sanctions will kick in," said EU spokesman Anthony Gooch. "There's no wiggle room there."

The retaliatory tariffs would affect a grab bag of U.S. goods accounting for $2.2 billion of America's $150 billion in annual merchandise exports to Europe, roughly the same as the initial impact of the U.S. tariffs on European steel makers. Some other nations that challenged the U.S. tariffs have said they too would consider imposing tariffs after the WTO's final ruling.

The European tariffs would range from 8% to 30%. Products would include 12 types of U.S.-made steel, 33 categories of apparel and footwear, cigarettes, yachts, kitchen stoves, farm implements, printing presses, sunglasses, wristwatches, drum sets, billiard tables and bowling alley equipment. Also on the EU list are motorcycles by Harley-Davidson Inc. of Wisconsin; last year, Harley sold 21,900 big bikes in Western Europe, out of total production of 263,700.

In California, the tariffs would apply to many agricultural products, including rice, fruit, nuts and vegetables. Europe accounts for $1 billion of the state's total farm exports of $6.5 billion, the California Farm Bureau said, although it appeared the two biggest Europe-bound exports -- almonds and wine -- would not be affected.

White House officials have indicated that Bush would decide soon what to do about steel tariffs. The WTO ruling and the EU's automatic sanctions could speed the decision making.

Besides the complicated economic calculations facing the president, the tariff decision presents a difficult political dilemma. Both steel makers and steel users have threatened to inflict their own form of retaliation at the polls if Bush decides against them, and they tend to be concentrated in pivotal swing states that could determine the outcome of the 2004 election.

Some analysts have predicted that the president would try to find a middle ground by keeping the tariffs while creating new or bigger loopholes, or by scrapping the tariffs and using other types of trade remedies to provide equivalent relief. But EU officials have indicated that neither approach would head off the threatened retaliation.


Times staff writer Edwin Chen aboard Air Force One contributed to this report.

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