May 16, 2018 / 1:53 PM / 4 months ago

EU heads discuss bold or fold strategy towards Trump tariffs

SOFIA/BRUSSELS, May 16 (Reuters) - European leaders will seek to agree a common stance on Wednesday towards threatened U.S. import tariffs on steel and aluminium, balancing the views of those most fearful of a trade war and those determined not to be bullied into concessions.

U.S. President Donald Trump has imposed import duties of 25 percent on steel and 10 percent on aluminium on grounds of national security, but granted EU producers a temporary exemption until June 1 pending the outcome of talks.

French President Emmanuel Macron and other EU leaders, who meet for a summit in Bulgaria from Wednesday, have said the bloc will not negotiate with a gun held to its head.

Donald Tusk, who chairs the summits, said on Wednesday EU unity was key.

“Here again, unity is our greatest strength and my objective is simple - we stick to our guns,” Tusk told a news conference before the dinner discussion. “This means a permanent exemption from U.S. tariffs on aluminium and steel if we are to discuss possible trade liberalisation with the US.”

“The EU and US are friends and partners. Therefore US tariffs cannot be justified on the basis of national security. It is absurd to even think that the EU could be a threat to the United States.”

In bitter comments, Tusk said Trump has rid Europe of “all illusions” with the trade dispute and by pulling out of an international agreement on Iran’s nuclear programme.

He said on Twitter: “Looking at latest decisions of @realDonaldTrump someone could even think: with friends like that who needs enemies. But frankly, EU should be grateful. Thanks to him we got rid of all illusions. We realise that if you need a helping hand, you will find one at the end of your arm.”

EU diplomats say the need to find a unified stance goes beyond just tariffs. The United States has withdrawn from the Iran nuclear deal, posing a threat to European companies doing business there, and has blocked appointments to the World Trade Organization, undermining its ability to settle trade disputes.

The debate will continue among trade ministers on Tuesday.

However, in the run-up to the June 1 deadline, Germany, mindful that its cars could be hit if the trade conflict deepens, has urged its EU partners to show more flexibility.

German Economy Minister Peter Altmaier, a former head of Chancellor Angela Merkel’s cabinet, has acknowledged that finding a common stance with France and formulating an offer to the United States were “equally difficult”.

The European Commission, which oversees trade policy for the 28 EU members, has insisted that the European Union be granted a permanent exemption without conditions.

It has also said it would respond to tariffs with its own duties on U.S. products, including motor bikes and whisky. It is expected to notify the WTO of its potential plans this week.

DON’T CALL IT TTIP

A steel industry source said there were signs in written correspondence it had seen that the mood had changed and that the Commission was more inclined to find a compromise.

The Commission has mooted the idea of negotiating an agreement with the United States to lower import duties, but only once the permanent exemption is granted.

The idea would be to dust off bits of the planned Transatlantic Trade and Investment Partnership (TTIP), on which negotiations were frozen after Trump came into office.

Such an agreement would be far simpler, limited largely to tariff reduction, and would not be known as “TTIP”, a red rag to anti-globalisation protesters.

The EU view is that the first step would be an assessment of what both parties wish to negotiate, and then it would need EU members to approve a mandate. Negotiations proper could be years away.

Altmaier said the Europeans should discuss this regardless of any exemption.

One EU diplomat said Germany, and Altmaier in particular, risked undermining the Commission and that division would delight Washington.

“He’s rubbing a lot of people the wrong way,” the diplomat said. “What we think is important is that the ranks are closed... We’re not going to pay with a free trade treaty with something that is illegal in the first place.”

A further issue is that the United States has agreed permanent exemptions with countries such as Brazil and South Korea, but only by imposing import quotas instead of tariffs.

U.S. Commerce Secretary Wilbur Ross, who talked with EU Trade Commissioner Cecilia Malmstrom again on Tuesday, has been on the phone to EU capitals telling them to accept export restraints, according to EU diplomats.

However, a number of trade specialists in Brussels say that quotas on industrial goods are not allowed under WTO rules and that, in any case, the EU demand is that no measures be imposed. ($1 = 0.8444 euros) (Additional reporting by Maytaal Angel in London, Writing by Philip Blenkinsop, Editing by Hugh Lawson)

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