The World Trade Organisation says that the US is breaching international trade law by introducing extra-high tariffs on steel imports from Europe and other countries . It is the latest round in an escalating trade war between Europe and the US.
What is the dispute about?
In March 2002 the US government imposed 30% tariffs on a range of imported steel products.
The move was based on a finding by the US International Trade Commission that an unexpected surge of imported steel had swamped US markets and damaged US steelmakers - and alleged that this steel was priced below the cost of production.
US steel producers have faced bankruptcy for many years, but have been slow to restructure. The idea was that higher import tariffs would give them time to rebuild the industry in order to make it more competitive with foreign imports.
The EU and eight other steel producing countries complained to the World Trade Organisation (WTO), the body that regulates world trade.
The WTO's disputes settlement panel, and now its appeals committee, have ruled decisively that the US steel tariffs were illegal under world trade rules, as there was no "surge" of imports.
The ruling comes into effect within 30 days.
What steps can the European Union take now?
Under the rules of the World Trade Organisation, the EU (and other countries whose steel imports have been reduced by the US tariffs) are now entitled to impose retaliatory tariffs equal to the amount of damage the illegal US tariffs caused to its industries.
These tariffs can be applied to any combination of US exports to the EU, and the EU is now planning to introduce extra tariffs duties of between 8% and 30% on a range of US goods with a total value of $2.2bn.
The list is intended to cause the most political damage, and includes such items as Florida citrus fruits, clothing and shoes, tobacco, rice, paper and cardboard, and pleasure boats (all mainly produced in the southern US, in states loyal to President Bush), as well as steel products, watches, spectacles and hand tools (all produced mainly in the Midwest).
The US has said it disagrees with the ruling and has not indicated whether it will comply with it.
But the WTO ruling is quite clear, why is the US sticking with the steel tariffs?
The short answer is politics.
President Bush is facing re-election in 2004, and wants to win key Midwestern states like Illinois, Ohio, and Pennsylvania - where the steel industry is concentrated - to secure his victory.
The steel unions have been strong advocates of giving the industry tariff protection after losing thousands of jobs in the past 20 years.
On the other hand, many users of steel, for example car manufacturers, have complained that steel tariffs have led to higher prices for domestic steel, and thus cost consumers dearly.
But as in most trade disputes, the immediate pain of job losses concentrated in a few areas is a more potent political force than the broad benefits of trade liberalisation dispersed over a large number of sectors.
Will the dispute have broader implications for relations between the US and Europe?
A number of other trade disputes are pending between the US and Europe, which could also be escalated.
In particular, the EU is poised to introduce an additional $4bn worth of sanctions on US companies if Congress does not pass legislation this year abolishing an illegal tax break which exempts foreign sales by US corporations from corporate taxation.
And the US has been pressing the EU to allow the import of genetically modified food and crops, despite the fact that EU public opinion is strongly opposed to such products. The US has launched a trade complaint at the WTO, while the EU has postponed a decision on whether to allow some GM crops to be imported.
In the run-up to the Iraq war, the US refrained from taking the GM trade complaint further, and the EU postponed action on the tax breaks.
Now the gloves are coming off.
And the growing tensions between the two giant trading blocs could make it more difficult to restart the world trade talks aimed at further global trade liberalisation.
These talks are now in deadlock following the failure in Cancun, Mexico in September to resolve differences on how to liberalise agriculture.
The reforms were supposed to to open Western markets to farm products from developing countries, and it is them who could suffer most from the fallout of the Western world's steel wars.