EU may impose sanctions against US

The European Union has retaliated against the United States's decision to impose steep tariffs on steel imports by lodging a complaint with the World Trade Organisation (WTO) and introducing measures to safeguard the European steel industry. The Trade Commissioner, Mr Pascal Lamy, ruled out "tit-for-tat" action against Washington but suggested some sanctions could be imposed to pressurise the US into obeying WTO rules.

"It's not a question of: 'You kick me in the shins, I punch you on the nose.' This is quite a natural reflex. But the purpose of sanctions is to bring pressure to bear to ensure that things are put right where they are wrong," he said.

At their weekly meeting in Brussels yesterday, the 20 Commissioners agreed the EU should take action to prevent cheap steel that is excluded from the US market being diverted to Europe. EU steel exports to the US amount to less than four million tonnes a year but the Commission fears that a further 16 million tonnes from other countries could be diverted to Europe.

Mr Lamy said the US action was in clear breach of WTO agreements and claimed it would not help to strengthen the ailing US steel industry. "The US steps are unfounded and unjust, and the way they are being presented to the American public is to say: 'It's the foreigners' fault'," he said.

The Commissioner said the tariffs would hit EU steel exporters especially hard because the highest tariffs would apply to the high-quality steel in which European producers specialise.

The dispute has raised fears of a full-scale trade war between Europe and the United States, with each side imposing sanctions on exports other than steel.

Mr Peter Sutherland, who served as the WTO's first director general, said yesterday that a trade war would cause severe damage to the world economy.

"The trade between Europe and the US is one of the most important motors of the world economy. Any falling-out over trade has very serious implications for economic growth. This is of considerable potential danger in terms of poisoning the trade relationship between a wide range of countries," he said.

The WTO agreed in Qatar last November to launch a new round of trade negotiations and Mr Lamy acknowledged yesterday that the steel dispute was a blow to the talks, but he insisted that the EU's strategy was to appeal to the WTO to apply its rules to the US rather than linking the steel dispute to other trade rows.

The WTO recently ruled in the EU's favour in a dispute over US tax breaks to exporters and Brussels can sanction some US companies from next month. But Mr Lamy suggested yesterday that the EU was not planning to punish such companies for Washington's action on steel.

"We are not establishing a link between one dispute and another," he said.