Disputes Over Steel, Lumber Escalate

WASHINGTON —  Two high-stakes trade disputes escalated Friday as Europe prepared a hit list of American products to retaliate for U.S. tariffs on steel, and the United States slapped punitive duties on Canadian softwood lumber.

The European Commission confirmed that it was circulating a list of tariff targets said to include products specifically chosen to inflict pain in areas considered important to President Bush and congressional Republicans in the 2002 elections.

Although the contents were not made public, commission sources said they included orange juice from Florida, steel from Pennsylvania and West Virginia, textiles from the Carolinas and even motorcycles made by Wisconsin-based Harley-Davidson Inc.

Trade officials said the actions fall short of an all-out trade war. Even so, they are certain to strain relations between the United States and its biggest trading partners until the World Trade Organization can rule. Last year, the European Union and Canada each accounted for about one-fifth of U.S. exports and imports.

“Any time you have two elephants wrestling in the living room, furniture gets broken,” said one trade official, who requested anonymity. He was referring to the U.S.-Europe steel dispute, but the observation could be applied to the U.S.-Canada lumber flap as well.

U.S. officials, though eager to explain the rationale behind the hefty tariffs on Canadian wood, declined to discuss Europe’s retaliatory moves.

“It’s kind of hard for us to comment on a list that we haven’t even seen,” one said.

Trade officials and experts on both sides of the Atlantic insisted that the moves would not trigger a potentially devastating global trade war. But they acknowledged that efforts to reach negotiated settlements had proved unsuccessful--and that more skirmishing was likely.

“The Europeans have much more to lose in a trade war than we do,” said Peter Morici, a University of Maryland business professor and former International Trade Commission chief economist. “What I expect to happen is for them to rattle the sabers but to go the WTO dispute-settlement route, and that is not a trade war.”

The U.S. steel protections, which include tariffs of up to 30%, have been challenged by Europe, Japan, South Korea, Switzerland, Norway, Australia, New Zealand and Brazil. The WTO is unlikely to rule on the issue until sometime later this year.

European Commission spokesman Anthony Gooch told reporters that the proposed target list had been distributed to member nations for consideration and might be modified before it is forwarded to the WTO on or before May 20.

In addition to orange juice, steel, textiles and motorcycles, an unidentified EU official told Reuters, the list included U.S. rice, paper products, prefabricated buildings and thermometers.

EU Trade Commissioner Pascal Lamy, in an interview published Friday by the Wall Street Journal, said he had deliberately targeted products and regions he considered politically important to Bush. He expressed hope that the threatened “countermeasures” would help persuade the United States to lower its steel trade barriers.

European officials noted that the United States has used similar tactics in past trade disputes. In one case, it threatened to sanction cashmere sweaters made in Scotland in retaliation for European restrictions on bananas.

“It’s not only retaliation, it’s emulation,” said Gary Clyde Hufbauer, senior fellow at the Institute for International Economics and a former U.S. trade official. “They’re doing what we would do in their position, so in that sense, it’s definitely playing fair.”

The U.S. tariffs on Canadian lumber are the latest move in a long-running dispute over cross-border trade in softwood products used primarily as framing material in the construction of new homes.

The Commerce Department said it would impose tariffs averaging 29% to offset the effect of subsidies provided by Canadian provincial governments and sales of Canadian wood in U.S. markets at prices below the cost of production, a practice known as dumping.

The tariffs would take effect after an expected May ruling by the International Trade Commission that the U.S. lumber industry has been hurt by underpriced Canadian wood.

Friday’s action was praised by U.S. wood producers, who accused Canada of propping up a “Soviet-style” lumber industry. But it drew criticism from wood consumers, who said it could boost the cost of a typical new home by as much as $1,500. Wood producers disputed the estimate, saying the increase would amount to no more than $200 or so.