EU gears up in US steel row

US steel mills have gained temporary protection

European Union governments have taken a further step towards imposing retaliatory sanctions against controversial US steel import duties.

If we shoot now, their motivation to concede something could not only be reduced, it could disappear

European Commission spokesman

EU foreign ministers meeting in Luxembourg on Monday authorised the European Commission to inform the World Trade Organisation (WTO) by 18 June that it intends to impose retaliatory tariffs.

The move clears the way for the EU to apply the tariffs later this year if talks with the US fail to yield a compromise solution.

The EU is threatening to slap punitive 100% duties on a list of US imports, including textiles and fruit juice, worth about $335m a year.

"The President views this as a matter that should be settled through the dispute mechanism of the WTO," White House spokesman Ari Fleischer said.

Political pressure

In order to maximise the political impact of the tit-for-tat tariffs, the EU is targeting goods produced in marginal Republican constituencies in the US.

President George W Bush's decision to impose tariffs of up to 30% on foreign steel has been seen by some analysts as vote-garnering for mid-term Congressional elections in November.

The EU has said that the tariffs could cost its steel producers up to $2bn.

The European trade bloc, backed by South Korea, China and Japan, claims the tariffs protect inefficient US steel producers from fair foreign competition, in clear breach of trade agreements.

But the US says the duties are a temporary measure designed to protect its domestic industry from predatory pricing by foreign producers until it has had time to restructure.

"Safeguard" measures of this kind are permitted under WTO rules.

Talks go on

EU officials said they hoped the threat of retaliatory measures would increase the chances of a negotiated settlement.

"It's smarter to keep sanctions ready in your pocket to see what that produces, " said a spokesman for EU Trade Commissioner Pascal Lamy.

"If we shoot now, their motivation to concede something could not only be reduced, it could disappear."

If talks with the US fail, European foreign ministers will hold a second vote, probably in July, on whether to proceed with the retaliatory duties.

If a majority of the 15 EU ministers votes in favour, the sanctions could be applied the following month.

However, the US is attempting to buy off some individual EU member states by offering their steelmakers targeted exemptions from its own import duties.

On Friday, the Department of Commerce said 61 steel products would be exempt from the tariffs because they were not "sufficiently available from US producers".