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Thursday, 2 May, 2002, 15:32 GMT 16:32 UK
EU-US summit ends without trade deal
Steel plant
There is worldwide over-capacity in steel production
US President George W Bush and Spanish Prime Minister Jose Aznar hailed their efforts at international co-operation - including the Middle East, Afghanistan, and Russia - after a four-hour EU-US summit at the White House on Thursday.

President Bush also praised "some signs of progress" in the Middle East peace process and said that Palestinian leader Yasser Arafat must now "show leadership" towards peace.

Romano Prodi, the EC Commission president who also took part in the summit, said that "there were sometimes disagreements" but that all "share the same values".

But he admitted that tough negotiations were ahead on trade issues, especially on steel, where the US has slapped high tariffs on EU imports.

As they were speaking, the US House of Representatives passed a new farm subsidy bill that threatened to open a new front in the trade war.

European and Australian officials attacked the move, which increases agricultural subsidies, as incompatible with the spirit of trade liberalisation.

US officials were pleased to focus on the joint fight against global terrorism, but it was clear that tensions over trade still remained.

I cannot overemphasise how disappointed we are at the decision taken to give the American steel industry yet more protection

Romano Prodi, EU Commission President

Steel is the major source of tension, as the US has slapped punitive tariffs of up to 30% on European steel makers, accusing them of "dumping" steel at below-market prices.

New trade talks

The moves came just a few months after both sides agreed on a new round of talks to liberalise world trade.

The EU, in turn, is now threatening to retaliate with steel tariffs of its own, and complains that the US is violating the trade rules laid down by the World Trade Organisation (WTO).

The WTO has repeatedly reprimanded the US Government for subsidising American exporters with tax breaks, while the EU has been called to account for blocking the import of hormone-treated US beef.

"Repeated American failures to respect World Trade Organisation rules only raises questions about US commitment to the WTO," Mr Prodi told reporters ahead of the meeting.

"I cannot overemphasise how disappointed we are at the decision taken to give the American steel industry yet more protection," he added.

Middle East differences

Another source of tension - which was papered over in the press conference - are sharply different views on policy towards the Middle East.

Many US politicians accuse EU governments of having a soft spot for Palestinian leader Yasser Arafat, while most Europeans believe that the White House is giving too much leeway to Israel's Prime Minister Ariel Sharon, who will meet President Bush next week.

Tit-for-tat retaliation

US officials warned Europe against retaliating before the WTO had a chance to rule on the US action.

Pascal Lamy
Pascal Lamy: EU will retaliate on steel
"There are processes within the WTO to determine whether a country has complied with obligations," said one US official.

"No other party has the right unilaterally to make a definitive judgment on whether the other party's complying," he added.

The EU is threatening to impose its sanctions on 18 June, and Japan is considering similar action.

The US trade representative, Robert Zoellick, will meet his EU counterpart, Pascal Lamy, for a full day to try to defuse the confrontation.

Trade authority lacking

Meanwhile, President Bush has faced renewed difficulties with Congress over extending his authority to negotiate a new trade deal.

The bill to grant the president trade promotion authority, which would prevent Congress from blocking future trade deals by amending them, is in trouble in the Senate after narrowly passing the House of Representatives by just one vote.

Trade promotion authority is crucial if the US is to take a full part in the next round of world trade negotiations.

They are set to begin this year in earnest after agreement was reached in the Gulf Arab state of Qatar in November.

The BBC's Jon Leyne
"Steel is the burning issue"
David Phelps, president, AIIS
"Protectionism will fail to save the mis-managed companies"
Prof Michael Young, George Washington University
"The WTO has enough mechanisms to allow us to address this"
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