US Finally Abandons Steel Import Tariff Scheme

by Mike Godfrey, Tax-News.com, Washington

05 December 2003

Nearly two years after imposing tariffs on many types of imported steel, President Bush yesterday bowed to international pressure and the verdict of the World Trade Organisation (WTO) by scrapping the tariffs in favour of an import licensing scheme, just days before the EU was due to slap retaliatory duties on many US exports.

Pascal Lamy, EU trade commissioner, welcomed the decision, saying: "I am pleased to see that after nearly two years of litigation, the US has decided to abide by its international obligations. What I take away from this are two things: Europe, when it is united - and it is united on trade policy - can play a role in world affairs that corresponds to its weight, and can make sure that its interests are defended. At a time when people are wondering what Europe is about, that is the answer." But other European Union officials said the licensing requirement amounted to another illegal restriction on trade.

The president said that he was ending the tariffs because they had achieved their purpose of allowing the battered US steel industry to restructure. Ending the tariffs will hurt President Bush's re-election prospects next year in steel-producing states such as Ohio and West Virginia, which he narrowly won in 2000, and Pennsylvania, which he lost, but the White House has calculated that a trade war, with its impact on the economic recovery, could be even more damaging.

Although the removal of the tariffs is a success for the WTO, a much bigger issue remains - the Extra-Territorial Income Exclusion Act, previously known as the Foreign Sales Corporation Act, which gives tax breaks to US exporters and has also been ruled illegal by the WTO. US legislators are attempting to draft new legislation to replace the ETI in the face of EU sanctions totalling US$4bn which are due to come into effect early in 2004.

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