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Beyond Brussels: Chain reaction to Section 232 duties picks up speed

US duties on steel and aluminium are not only taking a toll on countries across the globe, but they’re triggering a “wave of direct and indirect actions and reactions” that is likely to expand in the coming weeks and months.

“Obviously one country’s action becomes the second country’s reason to react, and the second country’s reaction will be seen by the third country as an action, which may trigger a reaction,” said Morten Petersen, senior account manager at EPPA and a specialist on EU trade issues. “It is therefore completely predictable that after a violent action like the 232 duties, there will be a series of reactions from countries round the world.”

After the Trump administration slapped tariffs on foreign steel and aluminium to protect US national security, nine World Trade Organization members responded by lodging complaints at the WTO. On Monday, seven of those members will ask the WTO’s Dispute Settlement Body to appoint a panel of judges to investigate their complaints – a move the US is certain to block. Washington could not, of course, block a second request.

The so-called Section 232 tariffs have also spurred WTO members to respond with measures of their own – for instance, the EU’s ‘rebalancing’ measures and steel safeguards to mitigate trade-diversion distortions.

And now, we’re getting a growing number of reactions to the reactions.

Safeguard probes are ‘spillover’ from US tariffs

Canada recently notified the WTO that it had initiated a safeguard investigation on seven sorts of steel, including heavy plate, hot-rolled sheet and stainless-steel wire. The probe is based on a finding that “the products covered are being imported in increased quantities and under such conditions as to cause or threaten to cause serious injury to domestic producers,” Canada’s notification says. Not only did imports climb 5% between 2015 and 2017, but “there have also been recent, significant and sharp increases in imports of these products”, it adds.

Two days before Canada began its probe, Indonesia initiated a safeguard investigation into aluminium foil. The Indonesian Trade Safeguard Committee KPPI found “a surge in the volume of imports of aluminium foil goods. In addition, there are early indications of serious losses or threats of serious harm suffered by domestic industry as a result of the surge in import volume”. Most Indonesian imports of the foil come from China, South Korea and Japan, KPPI says.

And before that, four of the five members of the Eurasian Economic Union – Kyrgyzstan, Russia, Kazakhstan and Armenia – informed the WTO in early September that the EEU had launched a safeguard inquiry into certain flat-rolled steel products. That followed Turkey’s 27 April probe of flat-rolled iron and steel, which was a reaction to the “import taxes imposed by the United States, safeguard investigation initiated by the European Union and increasing tendency worldwide towards protectionist measures against steel products”, Turkey told the WTO’s Committee on Safeguards.

“The Canadian and Indonesian cases clearly seem spillover from the Section 232 measures, and the safeguard investigations going on in the EU, the Eurasian Economic Union and Turkey,” Edwin Vermulst, a partner at Brussels-based law firm VVGB, told Borderlex.

The US itself, of course, has also reacted to the reactions to its Section 232 levies, filing five complaints at the WTO targeting the EU, China, Canada, Mexico and Turkey for their “illegal” tariffs on American goods to counter the metals duties. On Monday, the US will ask the DSB to set up a panel to evaluate its complaints against all of those trade partners except Turkey – a request the four WTO members will no doubt block.

Mirroring the bad behaviour of the ‘big boys’

So where and when does it end? It’s hard to predict such a thing, of course, but when Vermulst was asked whether more safeguards or disputes are likely as reactions to the reactions to the steel and aluminium duties, he replied: “Yes, surely.”

Still, Petersen warns against exaggerating the gravity of the situation. “The risk of a simple domino effect is not there (all reactions equal to the initial action) nor are we talking about an avalanche or snowball effect (little action cause accelerating reactions),” he told Borderlex. “I would rather look upon it as the waves spreading in the water when agitated (decreasing reactions in time and space).”

Looking at the bigger picture, however, he does see a more damaging after-effect of the US metals tariffs.

“Beyond the fact that the US has sparked a wave of direct and indirect actions and reactions, the 232 case has also ‘legitimised’ certain behaviour from countries that may not have dared taking that kind of action earlier. This latter is in my view the most dangerous negative effect of the 232 case,” Petersen said. “Basically, when the big boys misbehave they leave the floor open for the less courageous to do the same at their level.”

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