EU and US threaten fresh trade war

Brussels warns of retaliation against American dumping duties. WTO to adjudicate in new dispute
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A fresh trade war was looming between Europe and America last night after Brussels said it planned to impose multi-million euro sanctions on the US.

The European Union, backed by seven other countries, said it would seek authority from the World Trade Organisation to retaliate against a controversial US trade law. The US said it would object to any sanctions.

The latest tensions come just weeks after the two economic superpowers reached the brink of a trade war over illegal tariffs imposed on steel imports to protect struggling US companies.

The so-called Byrd amendment allows the US Government to impose duties on cheap goods it says are being dumped on the US market and share the proceeds amongUS companies.

An unprecedented 11 WTO members - Australia, Brazil, Canada, Chile, India, Indonesia, Japan, South Korea, Mexico, Thailand and the EU bloc - successfully challenged the rules. The WTO confirmed exactly a year ago that the Byrd amendment was illegal.

Brussels estimates £160m worth of subsidies was distributed to US companies last year from the extra duties imposed on European imports.

Pascal Lamy, the European trade commissioner, said the Byrd amendment had raised widespread concerns "as evidenced by the large number of complainants in this case".

He added: "I hope the US will now take action to remove this measure, thus avoiding the risk of sanctions."

The EU and its allies put no figure on the sanctions sought. But they said it should be in line with sums handed out by Washington to US companies.

The retaliation request will be heard by the WTO's disputes settlement body at a special session called for 26 January.

EU and other officials have stressed that getting the go-ahead does not mean sanctions will be immediately enforced. The sectors affected include ball bearings, steel, seafood, pasta and candles.

The Byrd amendment enjoys strong support in the US Congress and the threat of sanctions could spark a backlash among US politicians as they prepare for a presidential election in November.

The EU declined to say where it would impose sanctions although experts credited its strategy of targeting exports from key marginal US states for its victory over the steel tariffs.

In London the Department of Trade and Industry said the UK had not been significantly affected but backed the principle behind the sanctions. A spokesman said: "It is at an early stage and we hope that the US will pull back from it but if they don't we support action against them via the EU."

The Conservatives backed the Government. "This action by the European Union is necessary to enforce the rules of free trade," said James Arbuthnot, the shadow trade secretary.

It is the latest in a series of international rows involving George Bush's administration. It was accused of sharing the blame for the collapse of crucial trade negotiations in September for refusing to back down on its support for cotton subsidies.

The EU also has authorisation to impose sanctions in retaliation for an illegal subsidy paid to US export companies, called the foreign sales corporation tax.

The EU has prepared a list of American imports to be hit with extra duties starting in March unless US lawmakers abolish legislation that gives companies tax breaks worth $5bn (£2.7bn) a year.

Dan Ikenson, a policy analyst at the Cato Institute, a US free-market think-tank, said earlier this week: "This mounting record on non-compliance calls into question the commitment of the US to the rules-based trading system. "With the Doha round of multilateral trade talks faltering, US delinquency on these matters could hasten the round's collapse."