The World Trade Organization (search) 's highest court ruled Monday that U.S. duties on imported steel (search) introduced last year are illegal, and the European Union (search) is threatening to retaliate with $2.2 billion in sanctions unless Washington lifts the tariffs swiftly.
The White House quickly disputed the decision by the WTO's appeals panel, which rejected the bulk of the U.S. appeal seeking to strike down a July ruling that the duties break WTO rules.
"We disagree with the overall WTO report and we are going to study it and look at its implications and go from there," White House press secretary Scott McClellan. He would not offer a timetable for a White House decision on whether to rescind the tariffs.
"We believe (the duties) are fully consistent with WTO rules and we will carefully review those decisions."
The WTO issued its initial July ruling after a complaint from the 15-member European Union and seven other nations. In a joint statement Monday, those nations said Washington has "no other choice" but to remove the import duties without delay.
European Union trade chief Pascal Lamy (search) said the EU could impose sanctions on U.S. imports within weeks if Washington fails to drop the duties. Other countries also could join in.
The EU is threatening to impose up to $2.2 billion of sanctions on U.S. imports -- ranging from cigarettes to frozen vegetables to paper products -- by introducing 100 percent duties, effectively pricing the goods out of the EU market.
When his administration introduced the three-year duties of up to 30 percent in March of last year, President Bush (search) claimed they were justified to protect domestic steel producers during a period of restructuring.
The appeals panel upheld the major findings of the July report which said that the United States failed to prove that its industry had been harmed by a sudden flood of cheap imports -- a condition for imposing such duties under WTO rules.
That report also said it was illegal for Washington to exclude imports from the countries with which it had free trade agreements at the time -- Canada, Mexico, Israel and Jordan.
To increase political pressure, many of the products on which the EU may slap sanctions are produced in swing states that would be crucial to Bush's re-election campaign next year.
The White House also is facing heavy political pressure in the dispute, especially from steel-producing states such as Pennsylvania, West Virginia and Ohio, to keep the tariffs kept in place. The Bush administration has been reviewing whether to maintain the duties for the full three-year coverage period, which would run past the 2004 election until March 2005.
Brussels says it will start retaliating if the U.S. steel duties are still in place five days after the report has been formally adopted by the WTO, which would likely be at the end of November.
Lamy told Dow Jones that he believed the removing the duties would be much more effective at pushing the U.S. steel industry to restructure, while leaving them in place simply protects the industry artificially.
As well as the European Union, complaints were filed by Japan, South Korea, Norway, Switzerland, China, New Zealand and Brazil. All of those countries also could now seek to impose sanctions on U.S. imports if the duties are not removed, and Tokyo already has warned it may retaliate.
"Should the U.S. make no improvement, we will simply take the necessary steps," Japan's vice minister of economy, trade and industry, Seiji Murata, told a news conference Monday, according to the Kyodo news agency.
WTO Director-General Supachai Panitchpakdi said earlier Monday he hopes the countries will be able to solve the problem without resorting to sanctions.
"I'm sure there will be some way out," Supachai said, speaking in Beijing. "I expect the conciliatory approach that we have seen in the past, and I certainly recommend that approach."
As well as provoking an outcry among Washington's trading partners, the steel duties have been heavily criticized by some groups within the United States, especially automakers. They claim the move has increased the price of their materials, causing job losses in the industry and making vehicles more expensive for consumers.