Trade war threatens as Europe warns US over steel import curbs

Europe and the United States edged closer to a trade war over steel yesterday after the EU Trade Commissioner, Pascal Lamy, warned Brussels would take action if the US went ahead with plans to impose swingeing tariffs on imports of European steel.

His warning to the Bush administration was echoed by the UK's Secretary of State for Trade and Industry, Patricia Hewitt, who described the proposed US action as a "smokescreen to cover the problems of their own industry" which would be "vigorously contested".

The US is preparing to impose duties of between 20 per cent and 40 per cent on imported steel following recommendations from its own International Trade Commission. The US claims the action is necessary to protect its own steel makers from unfair competition from subsidised overseas rivals.

The move threatens EU exports worth £3bn a year and would put thousands of jobs at risk, including at least 2,000 in the UK.

In a hard-hitting speech in London yesterday to the UK Steel Association, Mr Lamy warned that the EU had "no intention of standing idly by" if the US chose the route of what he called "blatant protectionism of its ailing steel industry".

He added: "The EU has no alternative but to be ready to take all necessary steps to ensure that our fairly traded exports continue to have access to overseas markets ... and that our market is not flooded by imports, simply because others have put up the trade shutters."

Mr Lamy went on to describe the threatened US action as "a perverse and extraordinary signal to the world" at a time when the ink was barely dry on the World Trade Organisation agreement in Doha. The EU would have no choice but "to examine all options to protect the EU industry from the consequences of US action".

Ms Hewitt later reinforced the warning, saying: "We are not going to sit back and allow the UK industry and its workers to be punished because of failures in the US."

A spokesman for Corus said the US measures would jeopardise 1.3 million tonnes of exports – about 7 per cent of its total steel production – including 700,000 tonnes of strip steel produced in Holland and 600,000 tonnes of engineering steels produced at its UK plants.

Tony Pedder, the Corus chief executive, said he welcomed the EU stance. But he said the root of the problem was the world steel industry's excess amount of subsidised capacity and called on the Government and the EU to tackle this problem.

Mr Lamy said that the European Commission would take the US to the World Trade Organisation but it would be a year before there was even an initial ruling. He therefore announced that the EU would quickly reintroduce the system of "prior surveillance" of steel imports – a measure designed to hold up imports and block any deemed to amount to steel dumping.

The International Iron and Steel Institute, which meets this weekend, is due to endorse a series of demands from the world's steel industry including elimination of state aid and state loans for new steel plants and urgent financial support from governments to help with the environmental and social costs of closing down unneeded capacity.