Harleys become war victims

Observations on steel tariffs

President Bush and his team pro-bably thought the World Trade Organisation would move at its usual leisurely pace in considering what to do about the tariffs the US imposed on steel imports last March. On past form, the administration could have expected that by the time the WTO made its ruling, the US steel industry would be ready to re-engage with the international steel market. In fact, recognising the huge sums of money involved, the WTO has fairly sprinted along on this case.

The result is America's worst-ever defeat at the WTO. Showing its usual disregard for the world's multilateral mediators, the Bush administration had placed tax duties of up to 30 per cent on imported steel. The idea was that over three years, the US industry could restructure itself sufficiently to meet any foreign competition once again.

Now a WTO appeals panel has ruled that the tariffs contravene WTO agreements, and the European Union will be entitled to impose more than $2.2bn of sanctions on US imports to Europe - an unfortunate backdrop to Bush's imminent arrival on British soil for his bed-and-breakfast stay at Buckingham Palace.

The EU has made it clear that it intends to target goods and products in regions such as Florida and California (vegetables, fruit and nuts) and the southern states (clothing and textiles) - all politically sensitive for Bush in a pre-election period. This may seem below the belt, but bear in mind that Bush himself had his eye on the party political when he introduced the US steel policy. He was buying the support of the steel-producing states of Pennsylvania, West Virginia and Ohio. Now, however, the policy seems less of a vote-winner.

Once the EU imposes sanctions, Japan, South Korea, China, New Zealand and Brazil, and all the other steel-producing countries that can claim to have lost business because of the US tariffs, are expected to follow suit. The loss of export income to US manufacturers could be enormous and highly damaging to the Republicans in the run-up to the 2004 elections.

As a result, the administration is now thought to be favouring a graceful withdrawal from the illegal steel tariffs. The producers have already enjoyed some benefits from the taxes, which have anyway been far from popular with the steel-using industries, including car manufacturers, who have complained of lower profits and of having to make job cuts as a result of higher steel prices.

The sanest course would be for Bush to admit defeat and avoid the penalties that the rest of the world is anxious to inflict. But that would risk upsetting the steel producers and, more importantly, the president would appear to friends and foes alike as having appeased foreign institutions. Other trade disputes loom on the horizon. If Bush concedes to the rule of the WTO, he will have also to accept its decision on the continuing dispute over tax breaks to US exporters, which the WTO has found illegal. The punishment to the US economy in this case could top $4bn.

So if you intend to buy your loved one a Harley-Davidson for Christmas, it might be as well to order now. It's on the EU's tariff list.