A trade war between Europe and America threatened to reignite last night after the US rejected a final ruling from the World Trade Organisation that its protectionist tariffs on foreign steel are illegal and industry accused it of planning fresh measures.
US officials said they rejected the findings of the WTO appeal body as the EU urged Washington to lift tariffs of up to 30% on some foreign steel imports or face EU sanctions worth €2.2bn (£1.5bn) a year, from as early as next month.
The UK steel industry warned that Washington was planning to get round the WTO ruling by changing the way anti-dumping duties are calculated, thus extending the tariffs for up to three more years.
Welcoming the WTO decision, Ian Rodgers, director of trade body UK Steel, said: "It looks to us as if the US is preparing to cheat on its obligations. We are urging the [European] commission and British government that if this proposal is enacted, the EU must still proceed with its retaliation even if the tariffs are apparently withdrawn."
The WTO said the tariffs, imposed by President Bush in January 2002, were "inconsistent" with free trade and quashed a last-ditch US appeal. Washington had claimed the "safeguard measures" were necessary to protect the US steel industry from an unexpected surge in cheap imports but the WTO concluded that America had comprehensively failed to prove its case. The decision is a victory for the EU as well as Japan, Brazil, South Korea, Norway, New Zealand and Switzerland, which had all contested the US measures.
EU sanctions will come in the form of higher import tariffs on a range of US goods such as Harley-Davidson motorcycles and Ray-Ban sunglasses. They will see many US goods priced out of the European market and have been calculated to inflict maximum pain upon US manufacturers based in "swing states" whose support will be crucial for Mr Bush's re-election campaign next year.
"The measures are not there to punish the US but to focus the minds of the US administration," said a commission spokeswoman. "The sooner they terminate the measures the better, and we won't need to use these sanctions."
The EU and the other victorious parties said, however, that the US now had "no choice" but to scrap the tariffs and demanded Washington act "as quickly as possible".
In Britain the CBI said America should abandon the "mutually damaging" tariffs. "These illegal tariffs are not only damaging to industry outside the US," said CBI leader Digby Jones. "They are actually harming America's reputation and American industry, which is paying above the odds for steel both from home and abroad."
Anglo-Dutch group Corus, which negotiated exemptions, also welcomed the ruling and urged President Bush to remove the tariffs swiftly. It said its sales to the US in the first half of this year were down 10% because of the tariffs and currency movements, with exports from Holland down 30%.