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Last Updated: Thursday, 4 December, 2003, 17:37 GMT
Q&A: US-EU Steel Dispute
Steel works
Mr Bush has been trying to keep US steel workers onside
US President George W Bush has announced that his administration is to remove all import tariffs on steel imports from Europe and other suppliers.

BBC News Online looks at the background and political implications surrounding the decision.

What was the dispute about?

In March 2002 the US government imposed 30% tariffs on a range of imported steel products.

Th decision was made after a US trade body found an unexpected surge of imported steel had swamped US markets and damaged US steelmakers. The report alleged that the imported steel was priced below the cost of production.

US steel producers have faced bankruptcy for many years, but have been slow to restructure.

The idea was that higher import tariffs would give them time to rebuild the industry in order to make it more competitive with foreign imports.

The EU and eight other steel producing countries complained to the World Trade Organisation (WTO), the body that regulates world trade.

The WTO's disputes settlement panel, and its appeals committee, ruled decisively that the US steel tariffs were illegal under world trade rules, as there was no "surge" of imports.

Why has Mr Bush dropped the tariffs?

Most commentators believe the decision was politically-motivated in a bid to avoid a trade war with Europe in the run-up to presidential elections next year.

The original decision to impose tariffs was also seen to be a political move to win the favour of steel workers in Ohio, Pennsylvania and West Virginia.

But the steel tariffs are now believed to be doing Mr Bush more harm than good.

The Europeans were hit hard by the protectionist measures and set a mid-December deadline to impose retaliatory trade sanctions that would have cost the Americans more than $2bn.

The flagrant breaking of World Trade Organisation (WTO) rules would also have notched up a black mark for the president.

And there was growing discontent amongst other industries in the US, especially the car industry, which suffered from higher steel prices as a result of the tariffs.

What was the EU threatening?

Under WTO rules, the EU (and other countries whose steel imports have been reduced by the US tariffs) were entitled to impose retaliatory tariffs equal to the amount of damage the illegal US tariffs caused to its industries.

The tariffs could have been applied to any combination of US exports to the EU, and the EU was planning to introduce extra tariffs duties of between 8% and 30% on a range of US goods with a total value of $2.2bn.

The Europeans threatened to impose tariffs on a wide range of US goods, particularly those manufactured in marginal states that will be important to Mr Bush in the elections.

The list was intended to cause maximum political damage, and included such items as Florida citrus fruits, clothing and shoes, tobacco, rice, paper and cardboard, and pleasure boats (all mainly produced in the southern US, in states loyal to President Bush), as well as steel products, watches, spectacles and hand tools (all produced mainly in the Midwest).

What can Mr Bush do now?

Having now dropped the tariffs, Mr Bush could face a backlash in the key steel states during the November election.

His main challenge is to try to soften the blow as best he can for the steelworkers on whose votes he will be counting.

He is promising to be tough on anything that smacks of illegal dumping of steel by the foreign producers, and says he will keep a steel import licensing and monitoring system in place to help trade officials respond to unexpected import surges.

Mr Bush declared he wants to see a world that "trades freely and trades fairly."

Will the EU and the US now put all their trade differences behind them?

Although steel was undoubtedly the most controversial of the trade disputes, there are still more axes to grind.

The EU has been threatening to introduce $4bn worth of sanctions if the US does not pass legislation this year abolishing an illegal tax break which exempts foreign sales by US corporations from corporate taxation.

Now the US steel tariffs have been lifted it remains to be seen how strongly the EU plays this card.

Meanwhile the US has been pressing the EU to allow the import of genetically modified food and crops, despite the fact that EU public opinion is strongly opposed to such products.

The US has launched a trade complaint at the WTO, while the EU has postponed a decision on whether to allow some GM crops to be imported.

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