US goods set to double in price as Europe plans huge trade war

American jeans, Florida orange juice and dozens of other US products could double in price from next month because of a growing transatlantic trade war.

The World Trade Organisation gave the European Union permission yesterday to impose huge import tariffs, which will allow price increases of between 8 and 100 per cent on a range of goods.

The row, which began when America imposed special duties of up to 30 per cent on European steel last year, reached a climax yesterday when the trade watchdog gave a final decision in favour of the EU. It said the US action was "inconsistent" with free trade commitments. Europe can now impose duties on products ranging from T-shirts and lavatory paper, to bras, pantyhose, suspenders, ballpoint pens, ski suits and bowling alley equipment. Harley Davidson motorcycles were included in an early draft of the sanctions list, but were not included yesterday.

The EU says its sanctions, amounting to ¤2.2bn (£1.5bn) a year, will come into force on 15 December unless Washington drops its steel duties. The sanctions would be the biggest in the history of the WTO.

Most of the affected imports face tariffs of 30 per cent on top of existing duties, though a small number will be set at 8 or 15 per cent and some at 100 per cent.

President George Bush now faces a dilemma over whether to back down and remove the steel tariffs. The American government issued a statement yesterday saying that it disagreed with the ruling but would study it carefully.

The WTO's decision comes at a sensitive time, with the US presidential campaign about to begin in earnest. In drawing up its list of sanctions, the EU has deliberately selected products from states which are crucial to President Bush's electoral hopes.

The steel tariffs have proved controversial in the US, where they dented President Bush's credentials as an advocate of free trade and angered American-based car makers. They say that the tariffs have increased the price of their raw materials, causing job losses and making vehicles more expensive for consumers.

But the White House is also facing heavy political pressure from "rust-belt" states such as Pennsylvania, West Virginia and Ohio to keep the steel import duties, which are due to continue until 2005.

The steel row is only one of a number of trade disputes which threaten to poison relations between the EU and the US, and could help stymie prospects for economic recovery. The EU has threatened to impose another set of sanctions against Washington from next spring if it does not repeal tax breaks for American exporters. Meanwhile, the WTO is considering a complaint from the US that Europe is blocking the import of genetically modified products. Washington is already retaliating against an EU ban on beef from cattle which are given hormones to stimulate growth.

A spokeswoman for the EU trade commissioner, Pascal Lamy, said the measures were "not there to punish the US but to focus the minds of the US administration". The EU did not need to use these sanctions, she said. A British official argued that the WTO ruling "backs our view that the decision by the US to impose these tariffs was wrong".

Richard Mills, a spokesman for the US Trade Representative, said its tariff measures were designed to give the US steel industry "breathing space needed to restructure and consolidate thereby becoming stronger and more competitive". This, he said, was consistent with WTO rules which allow short-term measures to cover restructuring. He added: "We disagree with the overall Appellate Body Findings. We will be reviewing the WTO report carefully."

The WTO's director general, Supachai Panitchpakdi, said he hoped the countries would be able to solve the problem without resorting to sanctions.

"I'm sure there will be some way out," he said yesterday. "I expect the conciliatory approach that we have seen in the past, and I certainly recommend that approach."