Let's avert steel wars

The United States Commerce Department ruling that European steel exports to the US benefit from subsidies and that penalty duties of up to 40 percent may be imposed on future US imports of European steel has rekindled a nasty and longstanding trade dispute. Furious efforts are now underway to reach a negotiated solution to prevent serious conflict.

In the past, the US and the European Commission - which represents the individual European member states in trade matters - patched over their differences on steel through out-of-court agreements which imposed trade-restrictive measures such as ''voluntary'' export restraints and the US trigger price mechanism (which effectively set a minimum import price). Such arrangements substituted for the import relief that the US steel industry had sought under the countervailing and antidumping duty statutes.

The failure of the past arrangements to rejuvenate the moribund US steel industry led to changes in US trade law that significantly limited the flexibility of the government to negotiate a compromise with the commission. The US industry now effectively has a veto on any prospective deal, and has used this leverage in the current talks between Commerce Secretary Baldridge and European industry commissioner Davignon to press for comprehensive and restrictive export restraints by European steelmakers.

In essence, the commission is being told it can either accept the quota terms set by the US industry or see several companies, including British Steel, knocked out of the US market by high penalty duties.

Both the US and European negotiators realize, however, that a strictly bilateral agreement will not work. The US steel industry would not really be protected by the imposition of quotas or duties on European steel.

Other producers in Japan and Canada as well as those in the advanced developing countries would take up the slack of the reduced European shipments. Thus the US industry would still face strong competition from unsubsidized imports.

Recognizing this, there is a real danger that the US industry might press instead for a market-sharing arrangement that will work, i.e. one that restricts the trade of other countries as well. The European Commission, for its part, wouldjump at the chance to negotiate a guaranteed, albeit smaller, share of the US steel market, which could then be allocated among the competing European steel companies.

This would avoid the tremendous strains within the European steel cartel that would arise if certain firms were subject to new US duties and others were not. Although there is no authority to implement global restrictions through the countervail and antidumping statutes, there is ample precedent for more informal , though no less effective, arm-twisting to ensure that ''voluntary'' export restraints are put into effect. The Japanese, in particular, have been quite cooperative in the past in this regard - both in steel and autos.

If the Reagan administration really believes in its free trade rhetoric, it must not succumb to pressures to negotiate extensive export-restraint arrangements. Such measures would provide unwarranted protection to the US steel industry and set off a new wave of inflationary pressures. Moreover, quotas would give a new lease on life for the European steel program - which effectively has evolved into a system of permanent protection for European steel companies - and in so doing would plant the seed of future steel disputes.

Therefore, the US should pursue its investigation to the bitter end, as it is obligated to do under the law. While there needs to be a reexamination of the assumptions drawn by Commerce on exactly what constitutes a subsidy, which could lead to a downward adjustment in the size of the penalty duties, those duties should be imposed.

Under this approach, the US industry would be protected from unfair foreign competition. Certain European steelmakers would be hurt and forced to turn to other markets, particularly in other commission member states. Such competition would undoubtedly put pressure on the steel cartel.

However, it could also lead the Europeans to reassess whether to continue the protection and regulation of their steel industries. That development would be a step in the right direction toward a fairer and more competitive global steel trade.

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