The Italian proposal was put to the European Commission, the EU's executive, several months ago, prompting the Commission to ask other EU member states for their input.
As a result, the Commission has now compiled a list of 92 products from which tariffs could be cut, sparking a row between member states who support the move and those who say doing so would damage their own manufacturing industries.
The Commission's list, seen by Reuters, covers products in the steel, cosmetics, shoemaking, textile, furniture and car-manufacturing industries, among others.
Italy, which has a large manufacturing base that imports raw materials from the likes of China, Brazil and Russia, using them to produce higher-value goods, estimates savings for EU firms of two billion euros a year if the tariffs are cut.
But diplomats say France, Germany and Spain – three of the EU's largest economies – oppose the proposal, which could have a severe impact on their own manufacturers, who produce many of the same goods that Italy and others are importing.
Italy is supported by the Czech Republic and also has backing from free-trade advocates such as Britain, the Netherlands and Sweden. The proposal would eliminate or at least sharply reduce tariffs for two to three years.
"This will allow European companies to buy materials at the same prices as their competitors," said Giancarlo Salemi, a spokesman for Italy's deputy minister for economic development, Adolfo Urso.
"In this financial crisis, it will be a help to companies who need to buy things, and to consumers as well."
Trade battle
The proposal echoes moves by the US Congress, which this month voted on a bill proposing tariff cuts on industrial inputs. Brazil and Canada are considering similar moves.
Specifically, the Commission list covers chemicals and mineral ingredients used in food processing, pharmaceuticals, cosmetics, microchips and packaging; elements used in steel and car production; sheep, cow, pig, horse and other hides to be made into leather; dozens of exotic woods, pig iron, aluminium and 26 types of yarns and fabrics.
Reducing or eliminating tariffs on such products – which remains only a possibility at this point – could raise alarm bells in developing countries about so-called tariff escalation, where raw materials enter a country or region at low rates but higher-value processed goods are subjected to higher tariffs.
It could also lead to retaliatory measures by developing world exporters as they seek to maintain competitive advantage.
The Commission, which can either reject Italy's proposal or put forward a proposal of its own, has told EU governments that a comprehensive deal may not be possible unless member states can agree compromises themselves, diplomats say.
If a majority of the 27 member states support a tariff-reduction plan, the Commission could make a proposal this autumn, which national governments would then vote on.
Italy and other advocates of the cuts are expected to use the summer to apply what pressure they can on France and Germany to support the proposals, but it remains far from clear that a compromise will be reached, meaning a stand-off is likely.
(EurActiv with Reuters.)
