TWN Info Service on WTO and Trade Issues (May18/03)
4 May 2018
Third World Network
VERs on steel and aluminum or extra tariffs, says the US to allies
Published in SUNS #8674 dated 3 May 2018

Geneva, 2 May (D. Ravi Kanth) - The United States has threatened the European Union, Japan, Canada, Mexico, Australia, and Brazil that they either fall in line with appropriate voluntary export restraints (VERs) or quotas on steel, aluminum and other products by 1 June or face the consequences of permanent higher duties.

The US intends to make permanent the additional duties of 25% on steel and 10% on aluminum under national security provisions of Section 232 of its trade law even though they breach its scheduled World Trade Organization binding commitments if the talks with its allies fail to deliver results by 1 June.

[The VERs demanded by the US from its trade partners are illegal under the WTO treaty. And instead of using provisions of Article XXVIII of GATT 1994 to modify and raise its bound duties on steel and aluminum, the US is claiming "security exception" to raise its steel and aluminum tariffs. See Chakravarthi Raghavan, SUNS #8670 dated 26 April 2018 - SUNS]

As President Donald Trump's seven top negotiators descend on Beijing on Fri day ostensibly to avert a trade war, the US administration is wielding a sword of Damocles on its closest allies - European Union, Japan, Canada, Mexico, Australia and Brazil - to demand they agree to VERs.

President Trump has granted his allies another reprieve for 30 days until 1 June from the temporary exemption of controversial steel and aluminum tariffs under national security provisions.

Without mentioning the VERs explicitly, the White House said unambiguously that the additional 30-day reprieve is "final", implying that if Canada, Mexico, the EU, and Japan among others fail to fall in line as per Washington's demands, the additional duties of 25% on steel and 10% on aluminum would be made permanent.

The additional duties were announced on 8 March.

The US wants Canada and Mexico to agree to a revised NAFTA (North-American Free Trade Agreement) on its "America First" conditions. The US also wants Canada and Mexico to fall in line with quotas-driven imports for both steel and aluminum.

The US wants the EU to agree to "quotas that will restrain imports, prevent transshipment, and protect national security," according to the statement issued by the White House on 30 March.

The statement also suggested that Argentina, Brazil, and Australia, who are the principal exporters of agricultural products and members of the Cairns Group, have reached an agreement with the US to secure the reprieve until 1 June.

But it is not clear what these three major farm-exporting countries are required to do in the next days as the US did not release the details of the agreement it reached with Argentina, Brazil, and Australia.

Korea already secured a permanent exclusion from steel and aluminum tariffs by agreeing to sharply reduced quotas for exporting these two items to the American market as well as agree to more imports from the US.

President Trump's latest announcement has come days before the US and China commence a crucial round of consultations in Beijing on how to avert a possible trade war following Washington's unilateral threat to impose new duties on $50 billion of Chinese imports in retaliation for the alleged theft of intellectual property under Section 301 of the 1974 US Trade Act.

On Tuesday, the US Trade Representative Ambassador Robert Lighthizer broadly indicated what it is expecting China to do ahead of the negotiations starting on Friday.

Ambassador Lighthizer made it unambiguously clear during his address to the US Chamber of Commerce that "it is not my objective to change the Chinese system".

"But I have to be in a position whether the United States can deal with it, where the United States isn't the victim of it," said Ambassador Lighthizer.

"China's "Made in China 2025" initiative amounts to an industrial policy that seeks to create national champions that will dominate global high technology industries," the USTR suggested, according to Washington Trade Daily of 2 M ay.

Ambassador Lighthizer's central message, according to Financial Times of 2 May, is China's "economic model of state capitalism is a direct challenge to the US economy."

The report also suggested that the main battle between the US and China is going to be over "technology" that compels foreign companies to enter into joint ventures with local Chinese companies and transfer technology knowhow for securing market access in China.

Effectively, the US is unable to stomach China's tit-for-tat response to the American steel and aluminum duties as well as the proposed measures on Chin ese products for addressing the IPR concerns under Section 301.

In a tit-for-tat response, China announced that it would target 128 US products such as fresh fruit, pork, and recycled aluminum on 23 March.

China's trade diplomats have pointedly criticized the US by name at the World Trade Organization describing Washington's crowbar "unilateral trade measures" as posing the biggest challenge to the multilateral trading system. (See SU NS #8673 dated 2 May 2018.)

Paradoxically, as the Trump administration finds it difficult to counter China which is standing up to Washington's allegedly illegal "America First" trade policies, including rebalancing of mounting trade deficits, it is not facing a matching threat in the EU, Japan, Canada (the three former Quad members) or the G20 "champion" of developing countries like Brazil, according to trade envoys who asked not to be quoted.

But the EU, which is the world's largest trading entity and which hitherto remained as a countervailing power at the WTO, is yet to offer a cohesive and coherent policy response to the US.

The EU and Japan did not even protest against the Section 232 actions on steel and aluminum last week at the WTO's safeguards committee meeting.

In a response to the reprieve granted by President Trump until 1 June, the EU merely said the decision to exempt for 30 days "prolongs market uncertainty, which is already affecting business decisions," according to a news report in Financial Times on 1 May.

Leaders of Germany and France, the EU's leading members, pleaded with President Trump not to make the additional duties on steel and aluminum permanent last week.

"As a longstanding partner and friend of the US, we will not negotiate under threat," the EU commission said in a statement, according to the FT.

Brussels said it is ready to pursue negotiations with the US on "balanced and mutually beneficial" framework.

Germany, which had denied a humane/humanitarian package to its weakest member Greece for recovering from the bleeding economic crisis it is facing now, seems however to be ready to negotiate with the US for a permanent exemption from the steel and aluminum tariffs.

"Neither the European Union nor the United States can have an interest in escalating trade relations," said Martina Fietz, a spokeswoman for Chancell or Angela Merkel, according to the news report in FT.

"Rather, both the US and the EU would profit from a further deepening of trade relations. In this regard, a positive trade agenda should be developed in the interests of both sides," the spokesperson of the German Chancellor said.

It is clear that the Trump administration seems to be gaining an upper hand with the German leader, who not long ago said Europe must stand on its own legs and shape its own future.

Ahead of the temporary reprieve granted on 30 April, the EU said that it has a package of trade retaliatory measures ready against the United States in case Washington decides to make the additional tariffs of 25% on steel and 10% on aluminum permanent and terminate the exclusions granted to EU exporters under the Section 232 national security provisions, according to a person familiar with the development.

The EU has prepared a list of American goods of more than US$3 billion that would be subjected to additional duties as per Article 8 of the safeguards agreement if the Trump administration decides to make its additional duties permanent and terminate the temporary exemption accorded to EU exporters, the person said, asking not to be quoted.

"The EU has loaded its guns ready with retaliatory measures against America n goods but will not fire them unless it is compelled to do so," the person said.

The EU will strictly adhere to the process laid out in Article 8 of the safeguards agreement for taking retaliatory measures, the person said.

The EU has exported to the United States steel products of the types covered by the measures of a total value of EUR 5.30 billion or USD 5.99 billion, and aluminium products of the types covered by the measures of a total value of EUR 1.11 billion or USD 1.25 billion, making the EU the first and fifth exporter to the United States of steel and aluminium, respectively.

Brussels repeatedly argued that "should the exclusion not continue to be in place, then the EU's exports would be impaired significantly by the United States' measures."

Consequently, the EU sought to join as a third party in the trade dispute launched by China against the US trade measures under Section 232.

The US has already rejected a request from the EU to enter into safeguard consultations on steel and aluminum, saying President Trump has determined that the additional tariffs on imports of steel and aluminum are "necessary to adjust imports of steel and aluminum articles that threaten to impair the national security of the United States."

"These actions are not safeguard measures, and therefore, there is no basis to conduct consultations under the Agreement on Safeguards with respect to these measures," the US informed the EU.

Despite these pronouncements, the EU is slowly yielding ground to President Trump by joining consultations outside the WTO, according to a trade envoy who asked not to be quoted.

In conclusion, the US steel and aluminum extra tariffs could open a new chapter in the global trade where the Trans-Atlantic powers will join hands to fight China on several fronts, the envoy suggested.

It remains to be seen whether China can build a broad developing country coalition at the WTO and outside to challenge the US so as to ensure that there is a developmental face to the global trade.