US-EC steel accord nailed down in the nick of time

By , Staff correspondent of The Christian Science Monitor

In a Perils of Pauline rescue, the United States and the European Community have avoided a trade war over steel.

Within hours of the US deadline of 5 p.m. Oct. 21, the US and the Community agreed on a ''voluntary'' quota on European steel products exported to the US. They are to be reduced from the present 6.4 percent of the US market to 5.75 percent until the end of 1985.

Urgent diplomatic efforts in Brussels and Washington thus resuscitated a provisional US-European agreement after last-minute West German conditions threatened to unravel the agreement - and opened the specter of a trade war that might have rivaled the 1930s.

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The last-minute West German reservations sprang from a failure in staff work in a very new conservative government of Chancellor Helmut Kohl that somehow left Bonn with the impression that it had until Oct. 28 to settle the dispute.

It was only when the British routinely asked Dr. Kohl about the German position on steel at the maiden British-German summit on Oct. 19 that the Germans woke up to the Oct. 21 deadline. They hastily put the item on the agenda of the government's first full Cabinet meeting of Oct. 20.

The upshot of the Cabinet meeting was three conditions that, in effect, invalidated the already negotiated agreement.

If a transatlantic steel war had broken out, the prospect was great for European protectionary retaliation against American chemical imports. This in turn would have embittered relations and prejudiced resolution of the two other major US-European trade disputes: European protectionism against food imports from the US, and Western European financing of the Siberian gas pipeline.

In assessing the grave risks a few hours before the US-European steel agreement was finally nailed down, a senior Western European ambassador here warned: ''If by this time next week we find ourselves in a situation where British, French, Belgian, and Italian steel to all intents and purposes is kept out of the US, there will be a tremendous reaction. It also would be seen as a failure of the EC. And that's bad from any point of view.''

On the most superficial level, West Germany would not have suffered from the American countervailing duties on subsidized steel imports that would have been imposed had there been no European steel quotas.

The US International Trade Commission disallowed two complaints against West German producers - because of the virtual absence of West German government subsidies - while endorsing the 14 complaints against other, subsidized European producers filed by American steel companies.

This distinction arose from West Germany's past efficiency in modernizing its steel industry toward specialty, high value-added products as cheap-labor developing countries began to flood the world with basic steel that sold for much cheaper prices than any advanced industrialized nation could match. Other European countries - and the US - were not so farsighted, and are now paying the price in uncompetitive steel mills and steel unemployment. Bonn can thus now afford to call for more play of free-market forces in steel, and a classical application of comparative advantage, free trade, and cheaper consumer prices.

This distinction was also behind Bonn's last-minute insistence on conditions to the European steel quotas. West Germany does not see why it should pay for others' sins. It would like to maintain its own earned share in the US market, whatever the total European quota.

Specifically, its three conditions were: (1) that Eurofer (the coordinating organization for EC steel) rather than EC governments distribute the US import quotas among European producers; (2) that the EC Council approve the Eurofer distribution; and (3) that - in the trickiest demand - the US acknowledge that any agreement was a temporary one subject to EC revision.

Less superficially - despite its exemption from immediate steel penalties in the US - West Germany would in fact be one of the most severely hit victims of any trade war.

West Germany's championing of free trade reflects the clear national interest of a resources-poor country that exports almost a quarter of its GNP. It depends on open world markets - and on the continued health of the EC - for its economic survival.

Resolution of the US-European dispute over the Siberian gas pipeline will not be directly eased by the avoidance of protectionism in steel.

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