Juggling 'Nuclear' Trade Bombs

Last year, U.S. trade Representative Robert Zoellick warned the European Union that if it imposed sanctions in the ongoing EU-U.S. tax dispute, it would be the equivalent of detonating a "nuclear bomb" on their relationship. So, when the World Trade Organization made a landmark ruling last week that long-disputed U.S. corporate tax breaks were an illegal subsidy, it seemingly gave the EU the right to detonate that bomb. If the United States refuses to dismantle its subsidies, EU Trade Commissioner Pascal Lamy can impose $4 billion in retaliatory tariffs against U.S. exports.

Analysts fear that the dispute could worsen the already looming transatlantic trade tensions. President George W. Bush has recently threatened to impose stiff tariffs on U.S. steel imports. That could, in turn, prompt the EU to continue its own illegal ban on genetically modified food, or to once again attack the United States' Helms-Burton Act, which punishes Europe for investing in Cuba. Analysts and columnists the world over agree that such a war of retaliation would be a disaster.

These analysts should take a lesson from the cold war. Like the United States and the Soviet Union, neither America nor Europe is that eager to press the button. Although the EU may eventually launch sanctions on U.S. exports, that is very unlikely to win the required approval of the WTO any time soon. In the meantime, expect a delaying tactic from the United States. Washington could file a counterclaim with the WTO, alleging that Spain and other EU member countries offer tax concessions on exports that violate the same WTO rules.

This "counterattack" would give the United States a bargaining chip against last week's EU victory. In effect, the trade war would be reduced to a stalemate until the United States and Europe can make another effort to resolve their differences in the next round of trade talks. Until then, Zoellick and Lamy won't necessarily be hurling nuclear bombs at each other. They'll be juggling them instead.

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Juggling 'Nuclear' Trade Bombs | News