EU Doesn't Buy U.S. Claim That Steel Imports Undermine Security

(Bloomberg) -- It doesn’t make sense for the U.S. to impose steel and aluminum tariffs on other NATO members in the name of national security, according to a senior European Union official who questioned a key argument by the Trump administration in favor of the levies.

Steel and aluminum restrictions being considered by the Trump administration could comply with World Trade Organization rules “if you can demonstrate a clear national security interest. I’m not entirely sure that’s self-evident,” EU Ambassador to the U.S. David O’Sullivan said on Monday. The envoy said it would be hard for the U.S. to justify imposing such barriers on friendly nations.

“I don’t see how steel imports from NATO allies can be deemed to be a national security threat to the United States,” he added. Under Article 5 of the NATO treaty, members of the alliance pledge to defend any ally that comes under attack.

O’Sullivan, in a wide-ranging interview at Bloomberg’s Washington bureau, also said the EU probably wouldn’t sign trade deals with nations that reject the Paris Agreement to combat climate change, which Trump has vowed to pull out of. The administration has since suggested it could stay in the pact if the U.S. is treated more fairly.

“I’m not sure that politically we would find much support for concluding comprehensive trade deals with countries that are not part of the Paris climate change agreement,” O’Sullivan said. While environment protections aren’t enshrined objectives for EU members, they are an “integral” aspect of the bloc’s trading relationships, he said.

Steel Overcapacity

The U.S. Commerce Department declared in a report this year that steel and aluminum imports threaten national security, and presented President Donald Trump with a range of options that could lead to broad global tariffs and quotas or restrictions that target specific nations such as China. While Trump has until mid-April to make a decision, he’s leaning toward the sweeping recommended duties of about 24 percent for steel and 10 percent for aluminum, according to three people familiar with the issue.

The European Union shares U.S. concerns over China’s excess capacity of steel production and is trying to increase pressure through discussions in a global forum, though progress has been slow, said O’Sullivan. The EU would find it “very strange” to punish European steel producers with tariffs for an overcapacity problem that China is largely to blame for, he said.

O’Sullivan questioned whether it’s in the U.S. interests to invoke a national security rationale for new tariffs, given that other nations would potentially challenge those measures at the WTO.

Military Requirements

U.S. Defense Secretary James Mattis is urging for targeted rather than global tariffs on steel and aluminum. The Defense Department “believes that the systematic use of unfair trade practices to intentionally erode our innovation and manufacturing industrial bases poses a risk to our national security,” Mattis said in a memo to Commerce released last week.

The threat of tariffs has prompted concerns about raising consumer prices for everything from beer cans to cars and potentially sparking a trade war if nations retaliate. While China only accounts for less than 1 percent of U.S. steel imports, the U.S. says the Asian nation is dumping the metals on the global market at unfairly low prices. The U.S. imported $6.2 billion worth of steel from the European Union last year, up more than 20 percent from 2016.

Europe is waiting for deeper conversations on stronger trade ties with the U.S., which seems focused on other issues such as Chinese steel and re-negotiating the North American Free Trade Agreement and a pact with South Korea, said O’Sullivan.

Cecilia Malmstrom, the EU trade chief, on several occasions has met U.S. Trade Representative Robert Lighthizer, though not yet for extensive discussions, O’Sullivan said.

U.S. and EU negotiations for the proposed Transatlantic Trade and Investment Partnership have been shelved since the transition to the Trump administration, said O’Sullivan. Negotiators will need to review whether Europe and the U.S. still share the same vision for the pact to reduce tariffs and streamline regulations, and if there’s enough common ground on thorny issues like government procurement. The “worst thing” would be to restart talks for them to fail a few months later and become a “negative story,” he said.

--With assistance from Andrew Mayeda

To contact the reporter on this story: Sarah McGregor in Washington at smcgregor5@bloomberg.net.

To contact the editors responsible for this story: Brendan Murray at brmurray@bloomberg.net, Randall Woods

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