A win for EU and WTO

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Claims by Bush administration officials such as Commerce Secretary Don Evans that the steel tariffs were lifted because the American industry has recovered are belied by statements from the industry itself predicting the loss of another 30,000 jobs. Thirty-one steel companies representing a third of U.S. production capacity are still trying to climb out of bankruptcy.

The real reason the safeguards were withdrawn was the threat of European Union retaliation authorized by the World Trade Organization. Washington was under the gun to remove the tariffs by Dec. 10, the date when the WTO would formally approve the decision of its dispute panels that the U.S. safeguards were illegal. This series of events justify concerns expressed about the loss of American sovereignty when President Bill Clinton signed the WTO agreement.

Unlike the previous General Agreement on Tariff and Trade (GATT) regime, which was based on mediation and negotiation to settle disputes, the WTO is based on a claim of supranational authority by which panels of foreign judges, appointed by foreign governments, would rule whether U.S. laws and actions were "legal."

This danger was hotly debated when the WTO came to a vote in Congress in 1994. To reassure nervous lawmakers that as the world's greatest power and largest economy, the U.S. could still act freely to make its own policies, the following language was put in the WTO implementation legislation: "Sec. 102 (a) Relationship of Agreements to United States Law -- (1) United States Law to Prevail in Conflict -- No provision of any of the Uruguay Round Agreements, nor the application of any such provision to any person or circumstance, that is inconsistent with any law of the United States shall have effect. (2) Construction.-- Nothing in this Act shall be construed -- (A) to amend or modify any law of the United States. ... (B) to limit any authority conferred under any law of the United States."

This was, of course, perfectly true. But there are plenty of officials in Washington who now act as if the WTO is a higher authority whose bidding must be done.

The steel tariffs were crafted to be in accord with the WTO Safeguards Agreement and Articles X and XIX of the 1994 GATT agreement. Even so, the tariffs were declared illegal. This was not surprising. The WTO operates on the basis of judge-made law on a scale that would make the most liberal proponent of judicial activist look like a strict constructionist by comparison. No foreign judge has any interest in allowing the United States to protect any industry, whatever the reasoning.

The EU brought the suit even though it was not the original target of the U.S. safeguards. The surge of steel exports had come from the troubled economies of Asia, Brazil and Russia. However, once the U.S. acted, the flood was diverted toward Europe, which then invoked its own safeguard tariffs (and much more quickly than had the U.S.).

The EU action on steel must be put in context with its other WTO assaults on the U.S. foreign sales corporation tax and anti-dumping laws, its hard bargaining at the Doha Round trade talks, and the stance its leading members France and Germany took at the United Nations against U.S. policy in Iraq. The EU knows it cannot compete with the United States in military power, but under its French socialist Trade Minister Pascal Lamy, it has waged a guerrilla war against the American economy, the foundation of U.S. pre-eminence.

When President Bush imposed the tariffs, it gave an added impetus to negotiations at the Organization for Economic Cooperation and Development (OECD) to reduce global steel overcapacity and foreign subsidies. But then the talks stalled as the other parties waited to see what happened at the WTO. If Washington backed down, there would be no need to negotiate, as they would have already won. Unilateral concessions do not work in trade talks any better than they do in the Middle East.

The idea U.S. resistance to the WTO would trigger a trade war overlooks the fact the trade war has been on for years. The imposition of the steel tariffs was a defensive response to foreign economic aggression. With overseas markets crippled after 1997 by financial turmoil, exporters dumped steel into the American market priced to force U.S. firms out of business, so overcapacity would be adjusted at U.S. rather than foreign expense. International competition is a struggle for survival, not a classroom exercise in economic theory.

President Bush could and should have called the EU bluff on sanctions. The WTO only authorizes sanctions, it cannot impose them. That decision remains with foreign governments who can be held accountable for their actions. The EU ran a $46.5 billion trade surplus in goods with the United States last year. It has much more to lose from an escalating trade war than does America, especially since trade plays a larger role in the stagnant EU economies than in the U.S. economy.

Had Washington threatened to retaliate against any country that imposed sanctions on U.S. trade, serious negotiations would have immediately resumed, with the United States bargaining from a position of strength. But the EU felt confident that it if took an aggressive stance, Mr. Bush would blink. And he did.

William R. Hawkins is senior fellow at the U.S. Business and Industry Council.