Q&A: Tariffs prompt strong response

The tariffs will stay in place for three years

LONDON, England (CNN) -- CNN's Diana Muriel is in Brussels, covering the European Union's response to U.S. steel tariffs. She explains the background and implications of the move.

Q: Why have tariffs been imposed now?

A: After a U.S government review of the steel industry, it was decided that tariffs were needed to sustain it. The steel lobby is very powerful in Congress, with the states of Pennsylvania and Virginia particularly important. President Bush is clearly doing this for political gain, with an eye on the next presidential election.

Q: Will this have an immediate effect on the European steel industry?

A: The tariffs do not come into effect until March 20, so there is still some time for negotiations between the U.S. and Europe. About 10 percent of world steel will be affected. The EU will try to prevent cheap steel from being dumped in Europe, which would depress steel prices there. The three biggest European steel companies to be affected will be Anglo-Dutch company Corus, ThyssenKrupp, the German steel group, and Arcelor, the European steel giant formed by the merger of Aceralia of Spain, Arbed of Luxembourg and Usinor of France.

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Q: Is a trade war likely?

A: A trade war could result if dumping happens in Europe. The European Union has used extremely strong language, with Japan, China and South Korea giving similar responses. However, the countries have said they will use formal complaint procedures to lodge their objections. The World Trade Organization appeal procedure could take 2-3 years. However, EU Trade Commissioner Pascal Lamy and U.S. trade representative Robert Zoellick have a close personal relationship so there are likely to be many conversations between them on the issue.

Q: What other actions are available to countries which want to fight this decision?

A: The EU is responding quickly, and individual countries are also taking action. European Commission President Romano Prodi and Britain have both written to the U.S., Australia is expected to do the same with German Chancellor Gerhard Schroeder also making a personal written appeal. However, the EU has made the point of using official routes to complain.

Q: What are the U.S. domestic political implications of this decision?

A: The EU has said the move is politically motivated, with no economic basis for it. President Bush has appeased some parts of the electorate, particularly the steel industry. The steel industry was in decline due to the burden of extremely high benefits won by strong unions, estimated at about $21 billion, prompting speculation that the government would have to step in to help if the industry was to continue. The U.S. government was not willing to allow any more decline. Thirty companies have gone under in recent years.