Financial Times 6^th March 2002

The US is to slap tariffs of up to 30 per cent on most imported steel, a decision that may help the country's ailing steel industry but could also touch off a bitter international trade dispute.

The action, announced by US President George W. Bush on Tuesday, while short of the 40 per cent tariff US steel companies had sought, will block billions of dollars worth of steel from the European Union, Japan, South Korea, Russia and China from sale in the world's largest market.

It will offer the US steel industry the most comprehensive trade protection in its history, exceeding the "voluntary" quotas negotiated with Europe and Japan in the mid-1980s.

"The European companies will get absolutely killed," said Richard Cunningham, a lawyer representing several European steel companies.

The European Commission pledged to take firm and rapid action to counter the US measures. "There is absolutely no doubt that any measures which restrict trade will have an impact on our relations with the United States," a spokesman said before Mr Bush's announcement. He added: "Trade friction should be kept to a minimum. We are not seeking confrontation."

The EU has made clear it will challenge the US trade restrictions in the World Trade Organisation. It plans to erect barriers around its own steel market if it detects any danger of imports from third countries being diverted to it as a result of the US measures.

The US argues the action is legal under world trade rules that allow countries temporarily to protect industries that are being damaged by a flood of imports. However, some in the EU believe it may be necessary to go further to register disapproval of Washington's actions. One option would be to subject US exports to punitive sanctions.

Flat-rolled steel, which accounts for more than half the value of all steel imported into the US, will face tarrifs averaging 25 per cent. Most other smaller steel products will face tariffs between 20 and 30 per cent.

The scheme provides several exemptions, which is why only a handful of countries will bear the brunt of the US measures. Canada and Mexico will be excluded because they are part of the North American Free Trade Agreement. Many developing countries will be left out because of trade rules that exempt developing country producers.