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World threatens retaliation over US steel tariffs

The world's major steel producers threatened the United States with lawsuits and trade reprisals on Tuesday as President George W Bush prepared to slap tariffs of up to 30 per cent on steel imports.

In a chorus of outrage against unilateral measures designed to protect the ailing US steel industry, the European Union, Russia, Japan, South Korea and Brazil vowed to fight back if Washington, which preaches free trade, erected new barriers.

European Commission President Romano Prodi wrote to Bush on Monday, expressing serious concern and appealed to him to avoid measures to close the US steel market, Commission spokesman Jonathan Faull said.

"If the US administration takes measures against imports, particularly if it imposes tariffs on imports, the European Union will have no choice but to react," Faull told reporters.

The EU response echoed anger in Asia and Latin America, but it is particularly crucial because the European Union and the United States, which have the world's biggest trade relationship, are the only two major steel import markets.

US steel firms and labour unions blame cheap imports for 31 bankruptcies in the past four years and have demanded a 40 per cent tariff to protect the domestic industry.

EU officials say the US woes are due to years of failure to restructure the steel sector as well as to a strong dollar, that has risen by 23 per cent against the euro in two years.

A senior EU official said the US step would be seen as part of "a trend towards unilateralism in Washington", driven by domestic politics, that was causing growing dismay to Europe.

SERIOUS IMPACT ON RELATIONS

Germany, the EU's biggest steel producer, and Sweden said the EU should take Washington to the World Trade Organisation if it imposed tariffs, and staunchly pro-American Britain wrote to Bush adding its concern.

Russia warned a tariff "could have a serious impact on the atmosphere of Russian-American relations".

European steel stocks suffered heavy losses on tariff fears. Shares in Arcelor, the world's biggest steel maker, fell by more than five per cent and Anglo-Dutch group Corus dropped more than six per cent on the day.

Elsewhere, a government source said Brazil would challenge US steel tariffs at the WTO, and steel makers in South Africa and Turkey forecast a devastating effect on the world market even if their own countries were exempted.

The Washington Post said Bush planned to exempt steel from Canada, Mexico, Argentina and some developing countries.

The Korean steel industry, which exported 2.1 million metric tonnes to the United States last year, said the tariff would affect 80 per cent of all US steel imports.

That would also hit Japan, which exported 2.2 million tonnes of steel to America last year and is facing a slump in demand for steel in its recession-bound economy. Tokyo joined a chorus of countries threatening to take the United States to the WTO.

US EXPORT PROBLEM

Both the European Union and United States import a lot of steel but European exports dwarf those of the American industry.

EU steel imports of 25.4 million metric tonnes from around the globe exceeded exports by only 2.25 million tonnes. By contrast, US steel imports of 38 million metric tonnes exceeded exports by 31.4 million tonnes.

The strength of the dollar against the euro also makes American exports more expensive than European ones.

If Washington tries to solve the problem with a tariff, EU officials believe they would have a strong argument at the WTO.

"The United States is imposing prohibitive tariffs, which under WTO rules is not allowed," an EU official said.

The official said the United States could argue its new tariff was a "safeguard" to protect its industry, but the argument would not hold water with the WTO.

"Safeguards are designed for an immediate danger," the official said. "This is an ongoing situation."

The WTO ruled in EU's favour in January in a dispute over US export subsidies in which Brussels has sought the right to impose up to $4 billion in trade sanctions.

The world's two biggest trade powers are also in dispute on issues ranging from hormone beef to genetically modified crops, though they represent only a fraction of transatlantic trade.

"There is absolutely no doubt that any measures which restrict trade will have an impact on our relations with the United States," Faull said, adding the Union hoped to avoid confrontation with Washington.

The EU rejected comparisons between the US steel industry's current crisis and massive European subsidies to help restructure the EU steel sector in the 1970s and 1980s.

Faull quoted Prodi as saying in his letter to Bush: "In the 1970s and 1980s, for example, we took a broad range of measures including public support for the industry to rationalise capacity, but the EU market remained open."

The EU reached voluntary restraint agreements with major steel producers during that period, but Faull argued those were different from tariff barriers.

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