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Thursday, 2 May, 2002, 21:47 GMT 22:47 UK
EU-US to hold more trade talks
Steel plant
There is worldwide over-capacity in steel production
The European Union and the United States have agreed to hold more talks on a dispute over US steel imports and to abide by World Trade Organisation rules after a four-hour summit in Washington.

They also said they would work to resolve disagreements that have threatened to turn into a damaging trade war.

Jose Maria Aznar and George W Bush
Tough talks lie ahead before a trade war is averted
The two sides also discussed foreign policy issues and both pledged continued co-operation in the fight against global terrorism.

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

BBC European Affairs correspondent William Horsley says the results of the summit were disappointing, with both sides effectively agreeing to differ over trade issues.

The EU was represented by the European Commission President, Romano Prodi, and the Spanish Prime Minister, Jose Maria Aznar, whose country currently holds the presidency of the European Union.

Steel tension

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

Europe has threatened to retaliate with 100% import tariffs on some US goods.

Europe and America are also at odds over America's $4bn tax break for exporters that the World Trade Organisation (WTO) has ruled illegal.

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.

We both intend to play it by the WTO rules and so I think that even in this sphere we shall demonstrate a friendly way of working

Romano Prodi
European and Australian officials attacked the move, which increases subsidies to US farmers, as incompatible with the spirit of trade liberalisation.

While not mentioning steel specifically, Mr Prodi said they had discussed with Mr Bush "the legitimacies of US safeguards which we believe are certainly harming us".

He said discussions would continue, and added: "We both intend to play it by the WTO rules and so I think that even in this sphere we shall demonstrate a friendly way of working."

Bush pledge

Mr Bush said he would seek to comply with the WTO ruling against US corporate tax breaks.

"I will work with our Congress to fully comply with the WTO decision on our tax rules for international corporations," he said.

"This will require both time, and it will require legislation."

The WTO is due to decide next month on the level of tariffs on US exports to Europe.

Pascal Lamy
Pascal Lamy: EU will retaliate on steel
European Trade Commissioner Pascal Lamy and US Trade Representative Robert Zoellick will meet for a full day to try to defuse the trade disagreements.

Another source of tension between America and Europe is the 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.

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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