Sides may be ready to declare cease-fire in trade conflict

Tuesday, June 18, 2002

WASHINGTON -- To its own surprise, the Bush administration brought the world this year to the brink of a trade war with this lineup: America versus everyone else.

Caught in the cross fire of a bitter fight over steel imports were producers of Florida citrus, Washington state apples and a range of other products.

While there are signs that all sides are pulling back, the damage to the world trading system may already have been done.

"We have compromised U.S. leadership with the naked hypocrisy we are exhibiting in preaching free trade and then doing something else," said Brink Lindsey, an economist at the Cato Institute, a libertarian research outfit that champions unrestrained trade.

What caused the near-conflagration were decisions by President Bush to impose hefty tariffs of up to 30 percent on types of imported steel and to endorse a farm bill that will direct billions of dollars in trade-distorting subsidies to American farmers.

America's trading partners saw both actions as a blatantly political -- efforts by Bush to reward swing-states crucial to Republican chances in the fall congressional elections and in Bush's 2004 re-election bid.

Retaliation lists

Trying to get the administration to withdraw the steel tariffs, the 15-nation European Union drew up retaliation lists aimed at inflicting maximum political pain on Bush and the Republicans.

The European sanctions would have imposed punitive tariffs on citrus products from Florida, apples and pears from Washington and Oregon, textiles from North and South Carolina, rice grown in California, Arkansas, Texas, Louisiana, Mississippi and Missouri and steel from Pennsylvania, Ohio and West Virginia.

The Europeans threatened higher tariffs on a long list products including the likes of billiard tables, bowling alley equipment, fountain pens. For its part, Japan threatened hefty tariffs against on U.S.-exported steel.

Taken aback by the ferocity of the reaction, the administration moved in recent weeks to lessen tensions.

On June 7, it announced the first 61 exemptions to be granted to the steel tariffs and promised more exemptions in the next month.

As a result, the EU and Japan have backed away from their threats of immediate retaliation, promising to watch to see how many more exemptions are granted.

Earful of complaints

Treasury Secretary Paul O'Neill got an earful of complaints at a meeting Saturday of the Group of Seven rich nations. Bush is likely to hear similar complaints at a summit next week in Canada.

The administration may be forced into even more dealmaking, given what is seen as a formidable task of reconciling the Senate version of Trade Promotion Authority with a measure that cleared the House by one vote in December.

The betting in the business community is that Congress eventually will give Bush what he wants.

"There will be a lot of back-room horse-trading, but the overriding imperative of maintaining leadership for the president in these difficult times will carry the day," predicted Jerry Jasinowski, head of the National Association of Manufacturers.

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