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NYTimes.com Article: Is This Europe's Hour to Lead on Free Trade?
by threehegemons
04 April 2002 14:17 UTC
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This article from NYTimes.com 
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Is This Europe's Hour to Lead on Free Trade?

April 1, 2002 


WASHINGTON -- With its heated rhetoric and threats of
retaliation, the trans-Atlantic fight over President Bush's
decision to raise tariffs against imported steel may look
like just another trade dispute. But Pascal Lamy, trade
commissioner for the European Union, is using the steel
spat to make the E.U. the new rule maker for international

His effort marks a role reversal of historic proportions in
world politics. Fifty years ago, there was a country that,
when it came to international trade, put the welfare of the
world economy ahead of its own. That country was the
leading economic power of its day, and its ideas about
economics and finance determined the direction global
policy would take; it was, of course, the United States. 

The United States is still the world's leading economic
power. But what happens when the hegemon's chief loses
sight of the global picture and becomes distracted by
internal matters - like securing the votes of steel states?
Someone else, with different ideas on how the global
economy should be organized, might fill the vacuum. Mr.
Lamy, one of Europe's most strategy-minded politicians, is
hoping to do just that. 

The Europeans are taking great care to play by the rules in
the steel dispute. The E.U. is keen to ensure that even
stiff European retaliation is fully justified under World
Trade Organization rules. It hopes that American action, by
contrast, looks as much as possible like a temper tantrum. 

Not that the Europeans are above street-level politics.
The E.U. has already prepared an attack plan in the form of
a carefully chosen set of countervailing tariffs - covering
316 products, from motorcycles to orange juice, worth more
than $2 billion - designed with the American electoral map
in mind. If, as many people believe, President Bush adopted
the steel tariff in large part to secure steel-state votes
in 2004, the Europeans are ready to try to show that the
steel tariff can also result in lost votes in states where
people are hurt by Europe's targeted retaliation. The E.U.
plan will not go into effect until other tactics have
failed, in particular anti-tariff cases brought before the
W.T.O. by the E.U. and others against the United States.
But Mr. Lamy has his plan ready just in case. 

Clearly Mr. Lamy is hoping that, one way or another, the
administration will find that the steel tariffs are all
pain and no gain. If it does so, he will be ready with an
ingenious, and very European, proposal that would go far
beyond safeguarding metal-working jobs. Mr. Lamy well knows
that trade discussions can rapidly get bogged down in
detailed discussions that, while they may provide arcane
entertainment for industry experts, leave little room for
sweeping strategy. He is interested, however, in leveraging
the steel quarrel into a different kind of opportunity, as
can be glimpsed in a letter he sent to his American
counterpart, Robert Zoellick, in mid-February. 

As Mr. Lamy notes in his letter, the root problem is the
global overcapacity of steel production and resulting stiff
competition. President Bush is raising tariffs to shield
the American industry temporarily from competitive
pressures so that it can restructure. The big steel
companies face heavy "legacy costs" - promises of pension
and health-care payments. 

In his letter to Mr. Zoellick, Mr. Lamy proposes a fund
that "could meet legacy costs associated with the
definitive closure of production facilities, help steel
workers retrain and promote economic development in regions
where steel plants were cutting capacity or closing." 

This fund, Mr. Lamy noted, could be financed by a 2 percent
levy on steel sold in the United States, whether domestic
or imported. Mr. Lamy emphasized that Europe wants to
assist the American steel industry in restructuring to
avoid collapse. But at the same time, Europe wants the
steel tariff removed. American acceptance of this approach
would show that there are other ways for government to
affect industrial policy beyond throwing up occasional

Most experts agree that the American steel tariff probably
violated W.T.O. rules. The Bush administration is already
facing a high-profile loss in the W.T.O.'s decision that
corporate tax breaks for American exporters were against
the rules. (It is now up to Congress to adjust the tax code
to pass muster with the W.T.O. and thereby avoid
sanctions.) Another loss would be embarrassing for a
country that has placed the Doha round of trade
negotiations at the center of its international economic

More important, American actions seem to betray America's
free-trade legacy. In the formative years of the General
Agreement on Tariffs and Trade - precursor to the W.T.O. -
the United States was willing to make significant
sacrifices to strengthen the free-trade system. But the
United States was also the rule maker because the system
was, after all, its creation. The Europeans, on the other
hand, were the source of major violations and tensions in
the system. 

Now the tables are turned. Europe is far from being the
poster boy of international trade, as witnessed by its
attempts to keep out Latin American bananas a few years
ago. But what is different now is that the United States is
willing to be a violator of trade rules - and that Europe
is willing to seize the opportunity to become rule maker

How? Europe, by the way it frames its complaints to the
W.T.O., will get to structure the nature of the case. That,
in turn, will play a huge role in determining the nature of
the implementing rules. In an area like world trade, where
much of the "case law" remains to be determined, this
amounts to substantial power. 

In the weeks to come, it is important to remember that the
bottom line for Mr. Lamy and the E.U. is not steel. It is
nothing less than wresting the leadership of world economic
regulation from the United States. American violations of
W.T.O. rules are the route by which Europeans can assert
their interpretation of those rules. By playing the good
global citizen, Europe aims to become the world's
pacesetter. That is one goal that all the 15 E.U. countries
can agree on. 

Stephan Richter is publisher of The Globalist, a daily
online magazine about the global economy.


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