The World Trade Organisation's ruling on Monday that US tariffs on imported steel are illegal is a major blow to a Bush administration strategy that has cost Michigan's motor industry millions of dollars but has buoyed struggling steel producers, the Detroit News said.

The 'Motor City' newspaper said that, in rejecting an appeal of an earlier ruling, the WTO cleared the way for the European Union to slap $US2.2 billion in retaliatory duties on US exports by the end of the year - setting the stage for a trade war.

Michigan's automotive parts suppliers cheered the news, the Detroit News said, hoping the threat would prompt the Bush administration to reduce or eliminate tariffs that have driven up steel prices since they were imposed in March 2002.

But US steelmakers with Michigan operations warn their fledgling recovery from a bruising struggle with cheap imports is in danger, the paper noted.

The Detroit News said the WTO ruling puts the Bush administration in a difficult position: abandon efforts to protect steel workers halfway through a three-year commitment or risk a trade war with Europe.

Steelmakers are just getting back on their feet after a wave of bankruptcies and mergers and are urging Bush to stand up to Europe, arguing it will set the tone on "fair trade," while also supporting other US manufacturers bruised by cheaper imports, the paper added.

"The US should not buckle under to pressure from the European Union, which amounts to blackmail," Daniel DiMicco, president and CEO of Nucor Corp., a Charlotte, North Carolina steelmaker, told the Detroit News, adding: "The surge of illegally traded steel caused injury across all sectors of the steel industry. The president recognised a level playing field did not exist, and it does not exist today."

However, the paper noted, heavy steel users such as Michigan's automotive parts suppliers have mounted an aggressive campaign to get the Bush administration to reverse course - the WTO ruling, they say, helps their cause.

The Motor and Equipment Manufacturers Association, which represents automotive suppliers, reportedly urged Bush to lift the steel tariffs "as soon as possible," saying the duties have raised operating costs for suppliers.

The Detroit News said the Washington-based International Trade Commission said in September that duties have cost steel users, such as Troy-based Delphi Corporation, the world's biggest automotive parts maker, and Caterpillar, the largest earth-moving equipment maker, about $US680 million.

Ana Lopes, director of government relations for MEMA, told the paper that about 95% of the steel that US automotive parts makers use is produced domestically and, if the tariffs on imported steel are not lifted before 2005, retaliatory duties could ultimately backfire against the automotive industry.

"If you keep those tariffs in place until 2005," Lopes reportedly said, "perhaps (the steel industry) is in a better economic situation than before, but now your customers, if they're small and medium size business, have shut down, and your bigger customers ... have been forced to shift production overseas."

A spokeswoman for Troy-based Delphi told the Detroit News the tariffs were "potentially disruptive."

"We believe in open markets," Delphi spokeswoman Paula Angelo reportedly said, "and a tariff on foreign steel reduces global competition in the industry. At some point they could impact our ability to purchase steel at competitive prices in the future."

Original Equipment Suppliers Association head Neil de Koker told the Detroit News that the tariffs have been especially destructive to small automotive suppliers that use specialty steels only available from foreign steel makers.

"They can't pass that price increase onto their customers because they refuse to accept it," reportedly said de Koker. "If they can't pass it on, they're dead."

Representative Joe Knollenberg, a Republican from Bloomfield Hills, told the Detroit News the tariffs have hurt many of Oakland County's 1,500 manufacturers and added: "The other shoe is about to drop. It is the steel consumers who have borne the brunt of the steel tariffs. But with this ruling by the WTO, that pain will soon spread to other sectors of the economy because of retaliatory tariffs."

Steel makers reportedly said the US public was becoming increasingly wary about job losses as overseas competition causes bankruptcies and downsizing among US companies.

The Detroit News said this is an especially tricky decision for the Bush administration, given that many manufacturing jobs are vanishing in states around the Great Lakes, such as Michigan, Illinois, Ohio and Pennsylvania - Michigan alone has lost 150,000 manufacturing jobs since 2001.

"The public is beginning to realise this is a very basic manufacturing issue," Thomas Usher, chairman and CEO of US Steel, told the newspaper, adding: "People realise these jobs are important. Our manufacturing base is being destroyed."

Representative Sander Levin, a Democrat from Royal Oak, reportedly said threatened European tariffs on US goods ranging from citrus fruit to Harley Davidson motorcycles could undercut support for the WTO in Congress, added that the steel industry faced multiple bankruptcies when the Bush administration set its tariffs in 2001 and pointed out that WTO rules allow relief in cases where vital industries are failing because of a surge of cheap imports.

DaimlerChrysler, meanwhile, told the Detroit News that maintaining good cross-Atlantic trade ties is more important than the higher price of steel stemming from the tariffs.

Dennis Fitzgibbons, the Chrysler Group's director of public policy, reportedly cautioned it was important to settle the trade dispute without rancour.

"We have counselled and cautioned constraint on both side of the Atlantic," Fitzgibbons told the Detroit News, adding: "The relationship is much too important to be placed in jeopardy."

The possibility of a protracted trade war with Europe is high, Peter Morici, a trade expert at the University of Maryland who studies the steel industry, told the Detroit News, adding that Europe's threat to impose sanctions without first giving the United States a chance to bring its steel policy into compliance is a departure from accepted trade practice.

"If countries are allowed to impose punitive sanctions, the WTO is going to lose a lot of support," Morici told the Detroit News, adding: "It's the equivalent of a lynching. The question for the Bush administration is who makes US trade policy? Is it made in Brussels?"

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