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
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
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
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
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
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
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
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.