EU threatens US trade sanctions

THE European Union is threatening to impose trade sanctions on America worth up to $2.2bn (£1.3bn) after President George Bush's tariffs on steel imports were branded illegal.

The World Trade Organisation has rejected most of a US appeal of an earlier ruling that duties of up to 30% introduced in March 2002 by Bush breached trade rules. The decision is final.

The countries that brought the case said the US had 'no other choice' but to remove the duties. The EU said it would impose retaliatory sanctions by introducing 100% duties on some US imports.

But Washington said it was right to impose the tariffs, which it wants to run for three years. 'We disagree with the overall WTO report and we are going to study it and look at its implications and go from there,' said White House spokesman Scott McClellan.

He would not offer a timetable for a White House decision on whether to rescind the tariffs or accept the sanctions.

The WTO's ruling has left Bush with a dilemma. If he accepts the ruling, he will alienate the very voters the tariffs were designed to win, but the EU's sanctions - targeting fruit, vegetables and textiles - will hit jobs in key states such as Florida and California.

Florida, whose vote decided that last election, remains almost evenly split between Republican and Democrat supporters, while California carries the most weight as the most populous state.

Visiting South Carolina on Monday, Bush drew fire from Democratic presidential hopeful Dick Gephardt for choosing to address a BMW plant rather than a textile firm.

Bush told workers he would 'try to do everything we can' to protect American workers against unfair competition. The President is also facing a revolt from medium to smaller manufacturing companies that use steel, with worse to come as the economy picks up speed and demand for steel grows.

The signs are that Bush will decide that the jobs-votes equation will come down against the steel tariffs, with even Republicans urging a rethink.

'If we want other nations to comply with decisions that go in our favour, we need to set the right example when decisions don't go our way,' said Senator Chuck Grassley, chairman of the Finance Committee.