WASHINGTON — U.S. apparel manufacturers, already hard-pressed by a glut of cheap imports, were sent a shiver Monday by the threat of a trans-Atlantic trade war.

The European Union and the U.S. moved a step closer to a commerce conflict after a World Trade Organization appellate body in Geneva upheld a previous ruling deeming U.S. duties on imported steel illegal. It comes at the same time that the Bush administration is trying to avert a U.S.-EU trade dispute involving U.S. export tax subsidies also deemed illegal by the WTO.

This story first appeared in the November 11, 2003 issue of WWD. Subscribe Today.

The ruling on Monday sets the stage for a final WTO decision by the middle of next month, which could then trigger EU retaliatory tariffs of up to 30 percent on $2.2 billion worth of U.S. products. These include domestically produced T-shirts, coats, hosiery, suits, jackets, blazers, dresses, skirts and shorts.

The looming trade battle centers around the Bush administration’s actions in March 2002 to impose three-year duties of up to 30 percent on imported steel products. The administration justified the use of punitive tariffs as a way to protect domestic steel producers and allow them to restructure.

In response, the EU and seven other countries, including Japan, Brazil, China and South Korea, filed a complaint with the WTO. The EU also drafted a retaliatory sanctions list targeting U.S.-made products, many of which are made in Southern and Western swing states that would be crucial to Bush’s reelection campaign next year.

The latest WTO ruling turned up the pressure on the Bush administration, which is already facing heavy political pressure from steel-producing states, such as Ohio and Pennsylvania, to keep the tariffs in place.

Some groups representing U.S. automakers, on the other hand, claim the steel tariffs on foreign imports have increased their prices for materials and will cause job losses in the industry.

In a joint statement Monday, the EU and seven other countries welcomed the appellate ruling and said it “leaves the United States with no other choice but to terminate its WTO incompatible safeguard measures without delay.”

The EU said it will automatically begin imposing sanctions, including on several U.S.-made apparel products, five days after a final WTO decision in mid-December, unless the U.S. removes the punitive tariffs on steel. The EU would impose tariffs ranging from 30 to 100 percent on such U.S.-made apparel as T-shirts, suits, jackets, blazers, dresses, skirts, shirts, blouses, overcoats, car coats, anoraks, windbreakers and cloaks.

A spokesman for the Office of the U.S. Trade Representative said the agency disagrees with the overall appellate body findings and will be reviewing the WTO report carefully.

“The temporary steel safeguard measures the president imposed over a year and a half ago were intended to provide the domestic industry with the breathing space needed to restructure and consolidate, thereby becoming stronger and more competitive,” the USTR spokesman said. “WTO rules specifically allow for the imposition of safeguards for just this purpose and we believe that the steel safeguard measures are consistent with those rules.”

Meanwhile, concerning the export tax subsidy issue, the European Commission last week capped at 17 percent the level of extra duties it will levy on such U.S. products as apparel; leather handbags and luggage; cosmetics; footwear, and manmade filaments and cotton, should the U.S. not repeal the export tax subsidy. European Trade Commissioner Pascal Lamy has set an end-of-year deadline for Congress to repeal the subsidy and lawmakers promised to meet the deadline, although the legislation remains bogged down.

(For more on global trade, see page 8.)

As for Monday’s WTO steel decision, industry lined up on both sides of the issue.

Wilbur Ross, a turnaround expert who has substantial investments in steel and who has also turned his attention to textiles, said the WTO ruling appears to allow the U.S. to refer the case back to the International Trade Commission for review, which, under U.S. law, would give the agency about 140 days. But the EU has made it clear it is not willing to wait much longer for a repeal of the steel tariffs.

“If the EU retaliates or tries to retaliate at the time the U.S. is trying to figure out how to bring itself into compliance with the WTO, then they are overriding the U.S. Congress and doing it at their own peril,” said Ross. “That would really start a big trade war.”

Ross claimed 31 small steel companies, representing 10 percent of the industry’s capacity, are currently in bankruptcy. If the steel tariffs are eliminated, those companies would have a more difficult time securing financing and would most likely be forced to liquidate, Ross claimed.

“If the President goes against steel [and lifts the steel tariffs], that makes it less likely he will help textiles, tires, furniture or any other industry,” said Ross. “If a worker loses his job at a steel mill and finds a job at Wal-Mart, he is technically employed, but his standard of living goes down. Is the so-called concept of free trade more important to our elected officials than the American standard of living? That is where the battleground needs to be drawn.”

Ross said late Monday that he closed on his deal to acquire Burlington Industries Inc. out of bankruptcy. Ross has also bid on bankrupt Cone Mills Corp.

Julia Hughes, vice president of international trade at the U.S. Association of Importers of Textiles & Apparel, said the WTO decision comes as no surprise and will clearly increase political pressure on the administration.

“That ought to tip the scales for the administration to find a new way to react to job issues without increasing protection and expanding harm to the economy, which is just starting to rebound,” Hughes said.

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