By Doug Palmer

WASHINGTON (Reuters) - The United States on Tuesday slapped tariffs of up to 30 percent on a range of steel imports to aid the struggling domestic industry, setting the stage for a trade war as the world's major steel producers vowed to fight back.

Photos Reuters Photo

The European Union said it would file an immediate complaint at the World Trade Organization and take "whatever measures are necessary" to prevent a surge in steel imports into its own market as a result of the U.S. restrictions.

"The U.S. decision to go down the route of protectionism is a major setback for the world trading system," EU Trade Commissioner Pascal Lamy said in a statement.

President Bush, who acted under powerful political pressure from steel-state lawmakers, defended the three-year "safeguard" action as legal under WTO rules and vital to restoring balance to the world steel market. He said the market had been badly distorted by 50 years of foreign government intervention and subsidies.

"We're a free-trading nation, and in order to remain a free-trading nation we must enforce law," Bush told reporters.

"This relief will help steelworkers, communities that depend upon steel and the steel industry adjust without harming our economy," he said in a statement, adding that WTO rules recognize "sometimes imports can cause such serious harm to domestic industries that temporary restraints are warranted."

The new duties cover 10 steel product categories and range from 8 percent to 30 percent. They take effect March 20 and cover flat-rolled steel and other steel imports from a bevy of countries including Brazil, South Korea, Japan, Taiwan, Russia, Germany, Turkey, France, China, Australia and the Netherlands.

The tariffs will be ratcheted down over three years, so the 30 percent duty on flat steel, which accounts for about 60 percent of U.S. imports, will fall to 24 percent in year two and 18 percent in year three.

Bush aides said it was hard to say whether the curbs actually would cut U.S. steel imports, which totaled 27.35 million metric tons in 2001, since the U.S. economy is recovering from a slump and demand for steel could rise.

However, costs faced by steel consumers could rise by 8 to 10 percent from current 20-year lows, they said.

While it enraged foreign steel producers, the import relief plan fell short of the four-year, 40 percent across-the-board tariff sought by the U.S. steel industry, which blames low-priced imports for 31 bankruptcies since 1997.

SOME COUNTRIES EXEMPTED

Bush exempted imports from Canada and Mexico because of their partnership with the United States in the North American Free Trade Agreement. Also exempted were Israel and Jordan, which have free trade agreements with the United States.

Under WTO rules, Bush spared imports from about 80 developing countries that account for less than 3 percent of total imports for individual steel product lines.

Senate Majority Leader Tom Daschle, a South Dakota Democrat, applauded Bush for the decision although "it wasn't everything many of us had hoped for." Rep. Phil English, a Pennsylvania Republican who chairs the House of Representatives Steel Caucus, called the announcement "a clear win."

Sen. Jay Rockefeller, a West Virginia Democrat who has pressed hard for import relief, said the action was a "good first step," but urged Bush to address retiree health care and pension costs that have stymied industry consolidation.

Industry reaction split along predictable lines.

The American Iron and Steel Institute, which represents major steel firms, called it a "courageous decision" even though it fell short of the industry's request.

Companies that import and consume steel blasted the decision, which they said violated Bush's pledge not to raise taxes and would cost more jobs than it saves.

GLOBAL OUTRAGE

Reports of the looming decision fanned global outrage to a fever pitch even before the official announcement came out of the White House, a vocal proponent of freer trade. Along with the EU, Russia, Japan, South Korea and Brazil all vowed to fight back if Washington set up the levies.

However, U.S. Trade Representative Robert Zoellick said countries such as Russia and Brazil might not fare as badly as they fear under the curbs. He told reporters that the EU, Japan, China, Taiwan and South Korea would be most affected.

Under a new tariff-rate quota, 5.4 million short tons of slab steel -- the most common kind of semi-finished steel -- will be able to enter the country duty-free, Zoellick said. That, along with exemptions for individual steel product lines, should spare about 85 to 90 percent of Brazil's U.S. exports.

Russia also should benefit from the slab quota, which will be allocated among countries based on their share of the U.S. import market in 2000, Zoellick said.

The EU charges the U.S. domestic industry is responsible for its own woes because it failed for years to restructure. It also pins some blame on the strong U.S. dollar.

But the United States said its tariffs were a response to decades of government subsidies in the other countries.

The decision could affect U.S. congressional elections in November and Bush's own re-election chances in 2004 in the crucial steel-making states of Pennsylvania and Ohio.

Bush aides said the import restrictions will help ensure that the U.S. industry does not bear more than its fair share of the plant closings needed to cut more than 200 million metric tons of excess global steel production capacity.

Major steel-producing nations, which have held three sets of talks in Paris since last year, estimate that plants with 117.5 million metric tons of steelmaking capacity will be permanently closed by 2005.

The 39 countries are scheduled to meet again April 18 to discuss the potential for further plant closings. However, the EU's Lamy has warned that unilateral U.S. action to restrict imports could cripple any chance of reaching a final deal.

U.S. Commerce Undersecretary Grant Aldonas said the United States remained committed to those talks and that he hoped Lamy would not make good on his threat to walk away.

Aldonas noted that Bush's order would allow tariffs to be reduced more quickly than scheduled if there is progress in the Paris negotiations toward reducing excess capacity and ending market-distorting government support for the steel sector.

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