Two-stage retaliation could be EU's answer to Trump tariffs

7 March 2018 3:50pm
EU US Flags

6 March 2018. By Joanna Sopinska.

The European Commission is considering a two-stage retaliatory action after the US decided to impose tariffs on imports of steel and aluminum, MLex has learned.

Under this plan, the EU would immediately place punitive tariffs on certain US products. It would then follow up several years later with a second package of tariffs.

On March 1, US President Donald Trump said he would impose a tariff of 25 percent on steel imports and 10 percent on aluminum imports, to protect domestic producers. He is expected to sign the measure into law this week.

In response, the EU drew up two draft lists of more than 100 US products that could be targeted, with a combined export value of about 3.9 billion euros ($4.8 billion) a year, to offset trade losses resulting from the tariffs.

But not all these products will be hit at the same time, MLex has learned. The commission will impose an initial package of tariffs immediately, assuming the US measures become law. For the second package, it will wait either until the World Trade Organization proves the US action illegal — a process that can take up to two years, possibly more if there are appeals — or until three years after the US tariffs come into force.

Two lists

The split between the two packages won’t necessarily align with the split between the two EU lists, which were drawn up to reflect anticipated damages by the US steel and aluminum tariffs, respectively. Neither list has been made public.

The first EU list, worth 2.8 billion euros, is intended to offset losses from the US steel tariffs. The commission says it includes 1 billion euros of manufactured goods, such as textiles, cosmetics and motorcycles; 951 million euros of agricultural products such as tobacco, orange juice, sweetcorn and bourbon whiskey; and 854 million euros of steel and other industrial goods.

A second draft list covers different US products worth a further 1.1 billion euros a year — an amount equal to estimated losses in EU exports of aluminum.

Two-stage retaliation

The exact split in the retaliatory measures will depend on the final US decision, which is expected to clarify the scope of damage to the EU’s exports, MLex understands. The commission has told EU governments that any retaliatory action will be in line with the WTO rules, and that a two-stage approach would meet this condition.

The EU governments backed this strategy, according to a diplomat present at the meeting. He noted that the EU can still drop the plan if the final US decision doesn’t deal a significant blow to EU steel and aluminum exports.

Under WTO rules, governments must wait for three years before triggering rebalancing measures, or get a WTO ruling that the initial tariffs broke global trade rules.