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EU may target US exports in tariff retaliation

Mar 19, 2018 | 09:24 AM | London | Fastmarkets AMM staff

Tags  EU safeguarding duties, US aluminium exports, US steel exports, European Commission, Section 232

The European Commission has warned that it is prepared to impose temporary safeguard duties on imports into the European Union of US-made steel and aluminium in response to new US import tariffs on aluminium and steel imports.

The EC has released a draft list of products which may in future attract retaliatory duties, including a wide range of aluminium and steel products, such as bars, rods, angles, plate and wire.

Other items on the list are some important products that are made with significant amounts of steel and aluminium, such as lorries and trucks weighing under 5 tonnes with engine capacity above and below 2,500 cc (diesel and semi-diesel), as well as motorcycles and steel cans.

The list, released for consultation until March 26, includes a wide range of products that do not consist of metal. For instance, sweetcorn, maize, kidney beans, rice (milled, semi-milled and broken), peanut butter, cranberries (and cranberry juice) and orange juice are listed, as are bourbon and Tennessee whiskey.

The consultation is being held to assess whether the new tariffs would do harm to EU businesses, as well as restrict US exports. After receiving comments, the EC will almost certainly slim down this list before offering to hold 30-day talks with the United States about its new steel and aluminium duties. If these talks do not lead to an agreement - say, with the US reducing duties on other imported products to compensate the EU for the 25% steel duties and 10% aluminium duties (from which the US has temporarily exempted Canada and Mexico) - then the EU would increase duties charged on US exports, with items chosen from this list. Steel and aluminium products would almost certainly be included.

Initially, this would involve scrapping special low- or zero-duty access that the US enjoys in EU markets, and this could happen within 90 days of the talks failing.

If this action does not achieve the desired effect of forcing the Trump administration to remove the metal duties or exempt the EU from them, this could be followed by new EU tariffs (maybe on different goods). The overall goal would be to raise the same amount of revenue as that raised by the US from its new steel and aluminium duties.

An agreement between Brussels and Washington will not come easily, however, because the EU thinks the US duties are based on a bogus legal authorization. The US says it has acted on national security grounds, arguing that the tariffs will boost the country’s metal industry and create a reliable domestic metal production base to build up its military. World Trade Organization (WTO) rules allow countries to protect their economies under national security grounds.

EU trade commissioner Cecelia Malmström, however, has said this justification for action does not hold water legally because the EU would not stop exporting metal to the US to starve its defense manufacturers of materials. “We cannot see how the EU, friends and allies in [the North Atlantic Treaty Organization], can be a threat to international security in the US,” Malmström said.

The EC has concluded that the metal duties are an “economic safeguard measure in disguise, not a national security measure,” which means the EU believes it can “use the WTO safeguard agreement to rebalance benefits that we have given to the US in the past,” she said.

Usually, safeguard duties are imposed on all imports of a product, no matter the exporting country, but one trade policy expert explained that, if the EU maintains that the US duties are a disguised safeguard measure, then it can claim the right to impose compensatory duties on different products (not just metal). Also, it can impose them on the US alone, under Article 8 of the WTO safeguard agreement.

Keith Nuthall - INS, London


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