From The Times Friday 18th May. Good analysis of the options open to the EU, which is great material for an essay:
Time is running out at the EU’s trade department. Donald Trump has promised that by June 1 he will make a final decision on whether to grant the EU an exemption from his steel and aluminium tariffs. In public Brussels has been talking tough, refusing to consider concessions in return for a reprieve from Washington. Behind the scenes, however, member states are considering just how much ground to give.
Mr Trump wants the EU to impose voluntary export restraints (VERs) on its steel producers, forcing them to send less steel to the US than at present. Washington has managed to strike this sort of deal with South Korea, which secured an exemption from America’s steel tariffs in return for a promise that it would cut steel exports to roughly 70 per cent of current volumes.
Some in the industry would not mind a carefully managed export restraint but a cynic would say that a VER is just a state-sponsored cartel. In private some European steel executives have suggested that the EU adopt a fallback along these lines: agreeing to restrict tariff-free exports to the volumes of the past few years. The French government is said to be open to the idea.
Brussels beware. Economists hate VERs and for good reason. Not only do they distort the market — Peter Holmes at the University of Sussex said the old web of VERs for textiles was “a form of Stalinist central planning” — but by placing the burden for restricting trade on the exporters’ government they create opportunities for rent seeking. If the European Commission starts doling out export licences to specific companies the potential for pork barrel politics is huge.
Lawyers hate VERs even more. “You can construct legal arguments for them but none is very convincing,” Holger Hestermeyer, of King’s College London, said. “There is a very specific prohibition in WTO law”.
To grant the US its VERs would, therefore, dent the EU’s diplomatic brand as a defender of the rules-based system. It would also send a dangerous message. Mr Trump could come back with new demands.
A better idea, says Germany, would be to subsume the conversation about steel into new scoping talks on a slimmed-down US-EU trade deal covering only some goods. No one believes that a trade deal is just around the corner but the hope is that this might work as a delaying tactic. By the time negotiators got past scoping, say EU officials, there would be a new commission in Brussels and, probably, a new president in the White House. Problem solved.
The Americans have signalled that they will not bite. In that case there are two options left. The EU could just do nothing: let the steel tariffs fall where they may, offer assistance to the worst-hit companies and hope that the industry can bear the pain until Trump disappears. Retaliation is not worth the risk of a trade war, according to this theory. Italy, politically rudderless as it has been of late, is reported to favour this approach, but few others agree. It would be too great a loss of face.
The final approach is the purist’s. The US has probably broken the law. This licenses the EU to retaliate with tariffs of its own while pursuing a challenge at the WTO. When the EU did this in response to George W Bush’s steel tariffs in 2003, Bush caved. This is how the rules-based system is supposed to work and if Europe wants to defend that system, Europe must use it.
The European Commission has been pushing that argument since day one. In truth, though, an issue like this is above the commission’s pay grade. Hosuk Lee-Makiyama, a Brussels trade wonk, said that the decision had been pushed up to the principal member states, even to heads of government. Those politicians are used to disappointing purists. They want a deal.
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