In a warning about the seriousness of the EU announcement, U.S. trade representative Robert Zoellick said that sanctions of that size would be the trade equivalent of a "nuclear bomb."

The conflict stems from how U.S. steelmakers are responding to a worldwide "overcapacity" of steel, which industry sources estimate at between 10 percent to 20 percent. In capitalist terms, overcapacity means too much steel is being produced for the steel barons to sell it at a profit, not that there is no need for steel in the world.

Long-term overcapacity means the price the steel trusts can demand on the world market has plummeted. For example, prices charged by U.S. companies, which produce 850 million tons a year, or about 12 percent of global steel production, have been hovering at a 20-year low. Steel prices are currently about $100 a ton lower than they were during the second quarter of 2000.

The big U.S. steel companies have been pressing the government to protect the market. In early December the International Trade Commission (ITC), a U.S. agency, recommended that President George Bush impose tariffs of between 20 percent and 40 percent on steel imported into the United States. EU Trade Commissioner Pascal Lamy pointed out the tariff would virtually close the U.S. steel market to the rest of the world. Bush is to decide by late February whether to implement this recommendation.

The EU has said that it would challenge the ITC ruling in the Geneva-based World Trade Organization (WTO), a process that could take years. However, European steelmaking companies are seeking a more immediate way to retaliate. On January 14 the WTO's appellate body ruled that the U.S. corporate tax system was a hidden and illegal export subsidy, worth about $4 billion annually to U.S. companies such as Boeing, Microsoft, Caterpillar, and Kodak.

"Under WTO rules," noted a Wall Street Journal article, "the [EU] commission could slap sanctions on any U.S. exports--including those that have nothing to do with steel--and could tell Washington they won't be lifted until the U.S. changes its policy on steel." EU officials say that they will wait until early March before undertaking this move to see whether Bush decides to implement the U.S. tariffs on imported steel.

The case brought by the EU against Washington involves a law that allows U.S. companies to establish offshore subsidiaries, called Foreign Sales Corporations, to reduce their U.S. income tax. In a series of cases dating back to 2000, the WTO has consistently ruled that the tax breaks, which save U.S. companies $4 billion a year, violated world trade rules that forbid export subsidies.

In another planned retaliatory move, the government of Japan is also seeking authorization from the WTO "to be allowed to introduce measures which are similar to the U.S. Anti-Dumping Act of 1916, solely against the United States," reports the Financial Times. The act, which U.S. rulers have previously used against its competitors, "allows domestic steelmakers to pocket three times the level of damages caused by imports that undercut domestic prices," the paper stated.

Eleven WTO member governments, which includes those in the EU, as well as Japan and Canada, have also filed a complaint in a separate case charging Washington with distributing import duties collected from foreign rivals, worth $200 million, to U.S. steel companies, and some other corporations.

Meanwhile, some of the leading U.S. steel companies--U.S. Steel, Bethlehem, Nucor, and AK Steel Holding Corp.--have been able to raise domestic prices on key products used in automobiles, appliances, heavy machinery, construction, and other items. The January 10 Wall Street Journal speculates that the tariff threat has decreased imports, allowing the U.S. steel trusts to push up prices for hot-rolled steel by 15 percent in the past 60 days. Prices are also being boosted on cold-rolled, galvanized, and wire-rod steel.

In addition, the decision by LTV Corp.--the fourth-largest steelmaker, which has been operating for the past year under Chapter 11 bankruptcy protection--to halt all steel production opened up new demand for products from its competitors. LTV had supplied about 8 percent of the domestic market for flat-rolled steel.

"While the price increases are positive news for steelmakers," stated a Journal article, "this is an industry that has seen 28 companies--or more than half--file for protection under Chapter 11 of the U.S. Bankruptcy Code in the past four years." Throughout last year the average production rate never broke 83 percent of capacity and for long stretches hovered around 65 percent.  
 
 
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