Europe plans $300m sanctions on US

Business Day ^ | April 20 2002 | Financial Times

[knighthawk]

The European Commission has proposed slapping more than $300m of trade sanctions on politically-sensitive US products, including fruit, T-shirts, steel, guns and even billiard tables, in retaliation for US-imposed steel tariffs.

The Commission's proposal for retaliation, which would require majority backing from the 15 EU member states, is designed to "hit the US where it hurts" by targeting exports from states crucial to US president George W. Bush's re-election. These include citrus fruits from Florida, apples and pears from Washington and Oregon, and steel from Pennsylvania, Ohio, and West Virginia. The plan would levy tariffs worth E377m ($336m) on US exports of those products.

The plan calls for the sanctions to be imposed on June 18. But the US warned such early retaliation would be a fundamental violation of international trading rules. One US trade official said it would "strike at the heart of the multilateral trade system".

The Commission proposal is aimed at increasing pressure on the US to reconsider its decision last month to impose tariffs of up to 30 per cent on steel imports, including E2.4bn ($2.1bn) of steel from Europe.

"There's a feeling we should, at least, keep this weapon in play for the time being, in the hope it'll persuade the Americans to move, but there's no final decision on whether to pull the trigger," said an EU diplomat.

Some EU states, including Germany and the Nordic countries, have already expressed concern about the implications. Lawyers representing the member states have yet to decide whether short-term retaliation would be legal under World Trade Organisation rules, the diplomat said.

But Pascal Lamy, EU trade commissioner, is convinced the EU has a legal right to retaliate because the US imposed the steel tariffs even though imports of many steel products had actually been declining.

"The Commission set out its ideas and while member states will need time to consider them, the initial reactions were positive and supportive of our strategy," said Mr Lamy's spokesman.

A longer list covers a range of products on which additional tariffs worth up to E626m would be applied if and when the EU won a WTO case against the US on steel. The list, which has been considerably revised over the past few weeks, includes steel, clothing, fruit, electrical equipment and firearms.

US officials accused the EU of double standards by threatening unilateral action while claiming to be operating fully within the rules - the US believes Europe must wait until a WTO panel has ruled in its favour before taking any counter-measures.

"Legal disputes have to be resolved in the dispute settlement process in the WTO," said a US trade official. "That understanding is really the core of the whole WTO system.

"The EU wants to be the judge and jury," he added. "This strikes at the heart of the multilateral process."

The EU will have to lodge its lists with the World Trade Organisation by May 17 to preserve the option of retaliating. A number of countries, including Japan, South Korea and China, have joined the EU in condemning the US tariffs and are likely to seek a WTO dispute settlement panel on the issue next month.

Like the EU, Japan is seeking $160m in compensation from the US. But in Tokyo on Friday, US Commerce Secretary Don Evans ruled out immediate prospects of compensating Japan and hit out at the EU threat of retaliatory action.

He was speaking after discussing the tariffs with Japanese trade minister Takeo Hiranuma who said Tokyo was prepared to retaliate. "I said that this is a big problem for the two countries and we must work to resolve it," Mr Hiranuma said. "I told him compensation will be key."

[Born to Conserve]

Tariffs are dumb. What is Bush thinking?

The real solution is to dump the unions.

[avenir]

"There's a feeling we should, at least, keep this weapon in play for the time being...but there's no final decision on whether to pull the trigger," said an EU diplomat.

Go ahead, pull it. You feeling lucky? Huh, punk?

[Willie Green]

Bush's action's are a step in the right direction, but still inadequate due to inconsistancy.

The optimal solution is a relatively low, across-the-board revenue tariff of 10-20% on ALL imported goods from ALL foreign countries.

"Targeted" tariffs have the disadvantage of providing loopholes and, as others will be quick to point out, the potential to hurt other domestic industries.

A prime example is our failed embargo on the importation of Cuban goods. Cuban sugar has been routinely imported to the U.S. through the back door: Canada. Cuban sugar is shipped to Canada where it is dissolved in molasass. "Canadian" molasass is then legally imported to the U.S. where the sugar is easily refined back out. The leftover molasass is then exported back to Canada where the cycle is repeated. Large sugar-users (such as candy makers) are also closing their domestic factories and moving to Canada where they can legally use Cuban sugar, then import it as candy to the U.S.

An across-the-board revenue tariff of 10-20% would circumvent this type of abuse. Additionally, the revenue could be used to offset a major reduction or elimination of the corporate income tax, providing domestic producers a more "level playing field". (A Proposal to Abolish the Corporate Income Tax)

From a historical perspective, a revenue tariff of 10-20% is NOT excessive:

[knighthawk]

Ping

[sheik yerbouty]

"If youse impotent, you gots to look impotent!"

[sheik yerbouty]

"If youse impotent, you gots to look impotent!"

[KDD]

The Commission's proposal for retaliation, which would require majority backing from the 15 EU member states, is designed to "hit the US where it hurts" by targeting exports from states crucial to US president George W. Bush's re-election. These include citrus fruits from Florida

Now that we've bailed the un-productive steel industry out, I hope all those unionized steel workers drink plenty of OJ so that our Fl. farmers don't end up subsidizing their over-paid union wages.

[Shermy]

Bump. I like these tariff wars, or as they are now called "sanctions." End the globalist mentality.

[elephantlips]

But you gotta' love the political insensitivity of an American pool table.

[CrossCheck]

It looks like LTV Steel in Ohio will be purchased and start producing steel again, saving the jobs of around 10,000 employees. In addition, around 1,000 to 2,000 iron miners in the UP of MI and MINN will go back to work because of this. I'm sure the pure libertarians in the audience that think the steel industry and its employees should just wither away and die will be greatly disappointed at this news.

[Willie Green]

Thanks for the good news!

[Kozak]

Note your "brilliant" suggestion. If you look at the graph notice the peak of US tariffs that correlates EXACTLY with the great depression. WE export around the world. What does around comes around.

[Joaquin]

The Commission's proposal for retaliation, which would require majority backing from the 15 EU member states, is designed to "hit the US where it hurts" by targeting exports from states crucial to US president George W. Bush's re-election.

So the euro pukes want to manipulate U.S. elections directly.

Perhaps this will open GW's eyes, now that it's personal. NAFTA, GAT, WTO, EU, the world court and all the rest of the globalist parts and pieces might not look as good to him now.

[Willie Green]

Imports formed only 6 percent of the GNP. With average tariffs ranging from 40 to 60 percent (sources vary), this represents an effective tax of merely 2.4 to 3.6 percent. Yet the Great Depression resulted in a 31 percent drop in GNP and 25 percent unemployment. The idea that such a small tax could cause so much economic devastation is too far-fetched to be believed.

Even an effective tax of 2.4 to 3.6 percent is overstating the effects of the tariff. The tariff rates were already high to begin with. One source reveals that Smoot-Hawley raised rates from 26 to 50 percent; another source from 44 to 60 percent. In that case, we are talking about an effective tax increase of 1.4 percent at most.

Senator John Heinz III, who died tragically in a plane crash in 1991, had developed a national reputation for his expertise in international commerce. During his years of serving in Congress, Senator Heinz III was appointed to the Chairmanship of the Subcommittee on International Finance and Monetary Policies. He had this to say about the Smoot-Hawley myth in 1985:

“It gravely concerns me that every time someone in this administration or the Congress gives a speech about a more aggressive trade policy, or the need to confront our trading partners with their subsidies, barriers to imports and other unfair practices, others in Congress immediately react with speeches on the return of the Smoot-Hawley Tariff Act of 1930, and the dark days of blatant protectionism and depression...It seems that for many of us that Smoot- Hawley has become a code word for protectionism and, in turn, a code word for the depression. Yet, when one recalls that Smoot-Hawley was not enacted until more than 8 months after the October, 1929 collapse, it is hard to conceive how it could have led to the Great Depression...the changes supposedly wrought by this single bill in 1930 appear fantastic.”

[self_evident]

Imports formed only 6 percent of the GNP.

Imports, quite obviously, are not part of the GNP.

[Principled]

Tariffs are dumb. What is Bush thinking?

The real solution is to dump the unions.

The real solution is to reduce the price of ALL US exports by 25% overnight.

How? By eliminating the income tax code and implementing a national retail sales tax.

It would lower the cost of producing a good in the US by 25% AND it would increase the cost of imports similarly (with mitigating subsidies from EU).

It's a win-win. More US sales overseas, hard pressure on overseas markets to lower their prices.

Check it out.

Click on "SALES TAX" on the left of the black stripe.

[self_evident]

It looks like LTV Steel in Ohio will be purchased and start producing steel again, saving the jobs of around 10,000 employees.

No doubt it will. And the increased price in steel will cause some Americans to forgo buying autos, office buildings, bridges, ships, tanks, airplains, golf clubs... Well I could go on. This will probably cost about 200,000 jobs.

[self_evident]

The optimal solution is a relatively low, across-the-board revenue tariff of 10-20% on ALL imported goods from ALL foreign countries.

This would work. Along with refusing to do business with countries that tax our products in a likewise manner, anyhow. It will never happen though.