IN response to the World Trade Organisation (WTO) Appellate Body ruling on Monday, November 10, 2003, which upheld the European Union's (EU's) claim that United States (US) steel tariffs were illegal, US officials expressed their disagreement with the ruling. In a statement by Richard Mills, US Trade Representative (USTR) spokesman, the US maintained that: "While we are pleased to see that the Appellate Body upheld the panel's rejection of some of the arguments raised by the complainants, we disagree with the overall Appellate Body findings. We will be reviewing the WTO report carefully."

The ruling requires the US to bring its safeguard measures into conformity with its obligations under the WTO rules which 146 countries across the world have agreed to uphold. The difference between the UN and the WTO is that the WTO has teeth and can bite! Unlike the UN, the WTO has the capacity to enforce its rulings through the Dispute Settlement Body (DSB).

The DSB has the administrative authority to settle trade disputes due to violations of obligations, the nullification or impairment of benefits or the impediments to the attainment of any objective of the WTO agreements. A three-tier approach is used:

BUSH... cannot afford to upset US steel lobby

(i) Consultations between members on matters affecting the operation of an agreement;

(ii) If no satisfactory solution, a quasi-judicial Panel Body (PB) will examine the facts to determine whether there is violation of the WTO rules. The PB decision must be accepted by the DSB unless it decides by consensus not to adopt the decision; and

(iii) Finally, the parties may challenge the PB decision at the Appellate Body (AB), which may uphold, modify or reverse the panel decision.

In the US steel case, the US challenged the PB decision and the AB reversed two of the PB decisions and upheld three critical decisions, finding that the US failed to provide a reasoned and adequate explanation:

1 demonstrating that "unforeseen developments" had resulted in increased imports causing serious injury to the relevant domestic producers;

2 supporting its claim that imports had increased; and that

3 the US has excluded imports from Canada, Mexico, Israel and Jordan from the measures in a manner inconsistent with the WTO rules.

Further, the AB found, inter alia, that the US failed to demonstrate the existence of a "causal link" between increased imports from all sources and serious injury to the domestic industry. Among other things, the US argued that the financial crises in East Asia and Russia in the late 1990s combined with a strong US dollar contributed to an unexpected import surge that caused serious injury to the US steel industry. On March 5, 2002, the US imposed safeguard measures on 10 steel product groupings in the form of additional tariffs up to 30 per cent.

Following procedure, the AB recommended that the DSB request the US to bring its safeguard measures into conformity with its obligations under the Agreement on Safeguards and the 1994 GATT Agreement. Both the DSB and the parties must unconditionally accept the ruling of the AB unless the DSB decides by consensus not to adopt the AB report. It is expected that the DSB will adopt the report within 30 days. Once adopted, the DSB is authorised to permit retaliatory action in the form of compensation, suspension of concessions or other obligations.

Since the inception of the WTO in 1995, authorisation to take retaliatory action has been given in seven cases. Of these, the biggest sanction ever authorised was the US$4-billion on the US for its system of tax breaks for companies known as 'Foreign Sales Corporations'. These tax breaks, challenged by the EU, were ruled as illegal subsidies that violated the WTO Subsidies and Countervailing Measures Agreement.

Since the AB decision on US steel, the EU has warned the US to lift tariffs of up to 30 per cent on some foreign steel imports or there will be retaliation of about US$2.2 billion worth of sanctions a year starting next month. It is reported that the EU is threatening to impose tariffs on Harley Davidson motorcycles, Carolinian textiles, orange juice and other citrus products from Florida, whose governor is President Bush's brother, Jeb. The Economist reports that the list of targeted products prompted Mr Bush to ask Romano Prodi, president of the European Commission: "Why are you attacking my family?"

In the face of these sanctions, what action will the US take? Removal of tariffs on steel is not an easy political option for the Bush Administration. Going into the election, President Bush, who came to power promising to help the steel industry, cannot afford to upset that lobby, one of the strongest and most effective lobby groups in Washington. At the same time, Bush will be pressured to remove the tariffs by 'free-traders', the big steel consumers, like car manufacturers, who are hurting from higher prices, and business interests who are likely to be hurt from EU retaliation.

It is difficult to conceive of the US embroiled in a trade war with the EU. In the aftermath of the WTO Ministerial Meeting in Cancun, a strong EU-US alliance seems necessary to advance the interests of both the US and the EU in the WTO trade negotiations. Barely coping with the military battle in Iraq, a trade battle with the EU may be the straw that 'breaks the political back of Bush' in his bid for presidential re-election. What leadership will President Bush provide in balancing the conflicting forces at play in the pursuit of free trade?

Dr Rosalea Hamilton is a trade policy consultant and CEO of the Institute of Law & Economics

www.ilejamaica.org

E-mail: rosaleahamilton@hotmail.com

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