Bush, Europeans fail to reach breakthrough on trade disputes

WASHINGTON -- President Bush and European leaders sought to avoid touching off trans-Atlantic trade wars on Thursday but failed to produce a breakthrough on steel or other disputes.\n"We agreed that discussions should continue," said European Commission President Romano Prodi.\nBoth Bush and the European leaders stressed that they would intensify their efforts to find solutions for various contentious trade issues, including steel and a $4 billion U.S. tax break that the World Trade Organization has ruled as illegal.\nOn the tax break for exporters, Bush said he had given the EU officials assurances that "I will work with our Congress to fully comply with the WTO decision."\nThe administration is hoping that it can demonstrate enough good-faith efforts that it will be able to avoid the imposition of penalty tariffs on U.S. exports to Europe in what is the largest trade case the United States has lost before the WTO.\nThe WTO is scheduled to rule next month on the level of those tariffs. The EU is seeking to impose 100 percent duties on $4 billion of U.S. exports but the administration has contended that the level should be around $1 billion.\nBush's discussions with the European delegation led by Prodi and Spanish Prime Minister Jose Maria Aznar also covered foreign policy issues, with both sides pledging continued cooperation in the fight against global terrorism.\nThey also explored a common approach to the Middle East, endorsing recent U.S. efforts to restore peace between Israel and the Palestinians.\nOn the most contentious trade issue, a U.S. decision in March to impose 30 percent tariffs on various categories of steel imports, the Europeans said they discussed their unhappiness with this decision but pledged to continue negotiations to avert a full-blown trade war.\nProdi told a joint news conference that the EU officials had discussed with Bush "the legitimacies of U.S. safeguards which we believe are certainly harming us." The EU has threatened to impose tariffs of its own on $335 million of U.S. exports, targeted to inflict maximum damage on states Republicans are hoping to carry in future elections.\nProdi said the two sides agreed on steel that "discussions should continue without any prejudice to our respective rights in the WTO...We both intend to play it by the WTO rules."\nEuropean Trade Commissioner Pascal Lamy and U.S. Trade Representative Robert Zoellick scheduled two extra days of discussions before and after the one-day EU summit to give them more time to search for ways to defuse the various trade disagreements.\nCongress this week added another element to the trade tensions as the House passed a new farm bill that would boost U.S. agriculture spending by 70 percent, greatly expanding subsidies that farmers receive.\nThe European Union, which is under heavy criticism for its own farm subsidies, attacked the U.S. legislation Thursday, threatening to bring a case against the United States before the World Trade Organization.\n"The United States is increasing trade-distorting support for (American) farmers that will harm developing countries. This is what we are fiercely opposed to," EU spokesman Gregor Kreuzhuber said in Brussels.\nMany trade experts fear that the world's two biggest trading powers are on the brink of a tit-for-tat trade war over steel that could seriously harm the world trading system and the global economy's fragile rebound.\nThe $4 billion tax break for thousands of U.S. companies who export was ruled an illegal trade subsidy earlier this year by the WTO. The administration would like for Congress to overhaul U.S. tax law to bring it into compliance with the ruling but is seeking time from the EU to accomplish the task.\nIn the steel dispute, the United States on March 20 began imposing tariffs of up to 30 percent on certain imported steel products, using a section of global trade rules that allows temporary tariffs as a safeguard against import surges.\nIn response, the EU is reviewing a target list of $335 million in American exports to Europe for retaliatory tariffs it may impose as soon as June.\nThe items include citrus from Florida; apples and pears from Washington and Oregon; textiles from North and South Carolina; and steel from Pennsylvania, Ohio and West Virginia. All are either presidential battleground states or states where the GOP is fighting to win congressional races this fall.\nAnalysts note that Treasury Secretary Paul O'Neill, on a recent trip to Europe, said the administration probably would grant a "significant portion" of exemptions being requested so some of the targeted steel imports could avoid the higher tariffs.