By Michael Mann in Brussels and Robert Cottrell in Moscow

Published: March 5 2002

The European Union on Tuesday night pledged to launch an immediate complaint with the World Trade Organisation against new US steel tariffs, which it said represented a "clear violation of WTO rules".

In a hard-hitting statement, Pascal Lamy, the EU trade commissioner, said the EU would take whatever measures necessary to protect its steel industry from an expected surge in imports as steelmakers accustomed to exporting to the US search for alternative markets.

"I fear today's short-sighted move will end any hope of finding an internationally agreed solution at the Organisation for Economic Co-operation and Development to overcapacity problems faced by the world steel industry, and will not rein in global subsidies," Mr Lamy said. Talks are supposed to resume next month at the Paris-based OECD to look for negotiated cuts in global steel output.

The EU, which supplies about one-fifth of US steel imports, is likely to be hardest hit by the US actions. Despite efforts by Mr Lamy and Robert Zoellick, the US trade representative, to avoid confrontation, EU governments are likely to back the Commission's tough res- ponse. The steel issue is likely to be the sternest test yet for their relationship.

The EU believes it would have a watertight case in the WTO, arguing that world trade rules forbid the introduction of defensive tariffs unless a country has suffered a sudden surge in imports. The Commission said the value of US steel imports fell 23 per cent last year, while EU imports are at record levels.

The EU believes that the US steel sector failed to complete the painful restructuring process undergone in Europe in the 1970s and 1980s. It has proposed the creation of a fund financed by a levy on all US steel sales to aid US restructuring. The US has countered that EU producers benefited from huge state subsidies to ease their transformation.

The EU already has surveillance mechanisms to measure the volume of imports in preparation for the introduction of measures, such as tariffs, to protect European steel producers. The Commission estimates that EU steel producers could lose exports of about 4m tonnes to the US market and face imports totalling as much as 16m tonnes diverted from the US.

EU safeguard measures could be in force within weeks and would initially last 200 days. Conscious of not harming producers in countries such as Poland, which is a candidate for EU membership, the EU would aim "to let the market grow slightly but not surge", one official said.

Russia, the world's fourth biggest steel producer, reacted sharply to the prospect of higher US tariffs. The foreign ministry called the move "unjustified from a legal or economic point of view". In what is widely seen as a retaliatory move, Russia is suspending imports of US poultry.