EU considering trade quotas to settle US tariff threat

[BRUSSELS] The European Union (EU) is mulling the option of tolerating quotas on metal imports to the US in an effort to avert a trans-Atlantic trade war should US President Donald Trump impose restrictions on steel and aluminium shipments, according to EU officials.

A condition for such a deal would be that any US limits on steel and aluminium from the 28-nation bloc be set at levels no lower than its 2017 shipments to the American market, the officials in Brussels said on condition of anonymity. EU exports to the US last year of both types of metal were worth a combined 6.4 billion euros (S$10.2 billion).

The EU would still reserve its right to seek arbitration and possible retaliation within the rules of the World Trade Organization (WTO), but a moderate response could buy the bloc time until November, when the US has mid-term elections that could change the political calculus in Washington, according to one of the officials. European Trade Commissioner Cecilia Malmstrom held seven calls with US Commerce Secretary Wilbur Ross recently and she's still not clear on the White House's motives, the official said.

Without taking any decisions, EU national representatives meeting in the Belgian capital on Friday didn't rule out the possibility of a quota-based accord in the run-up to the June 1 expiry of the bloc's exemption from the US duties, according to two of the officials, who asked not to be named because the talks were confidential. Mr Trump, who introduced the levies in March on national-security grounds, excluded the EU initially until May 1 and this week prolonged the waiver for a "final" 30 days.

The EU's potential willingness to tolerate quotas on its steel and aluminium exports to the US highlights the political pressures within the bloc to put short-term economic interests above policy principles. Quantitative restrictions on commerce are generally disallowed under WTO rules, which, however, can be enforced only after a complaint by a member country.

To date, the EU has loudly rejected the U.S. tariffs of 25 percent on steel and 10 percent on aluminum as illegal under global rules, and demanded a "permanent, unconditional" exemption. In the absence of a waiver, the bloc has threatened to complain to the WTO and to impose tit-for-tat duties on 2.8 billion euros of imports of US goods including Harley-Davidson Inc motorcycles, Levi Strauss & Co jeans and bourbon whiskey.

Trans-Atlantic Truce

At their meetings last week in Brussels, the EU national representatives stressed their preference for a full, unconditional waiver from the levies, according to the officials. Some member-country experts also expressed reservations about going down the path of quotas, which the White House has said it's focused on in order to "restrain imports, prevent trans-shipment and protect the national security".

French junior foreign affairs minister Jean-Baptiste Lemoyne said in an interview with Les Echos that France wants a full, permanent and unconditional exemption from tariffs and rejects a negotiation with the US. Enrico Brivio, a spokesman for the European Commission, which runs the bloc's trade policy, didn't reply to a request for comment.

EU leaders plan to discuss trade and the US during a dinner session at an informal summit in Sofia, Bulgaria, later this month, according to a separate diplomat.

EU backtracking would be no guarantee of a trans-Atlantic truce. Before the initial waiver expired, the Trump administration offered the EU a quota equal to 90 per cent of last year's shipments to the US and the bloc refused the proposal, according to the officials. Last week, Malmstrom told EU national diplomats that no limits below the bloc's 2017 export levels to the American market would be acceptable, the officials said.

Last year, the EU exported 5.3 billion euros of steel and 1.1 billion euros of aluminium to the US. In terms of volume, the steel exports amounted to 3.4 million tonnes of finished products and 1.5 million tonnes of semi-finished goods and other types including wires and tubes.

BLOOMBERG