In a speech to the European Institute in Washington on Tuesday, Lamy said the EU would push forward with retaliation ?if the US does not move to comply? by a pair of fast-approaching deadlines in separate disputes over US tax breaks for large exporters such as Boeing and US steel tariffs. But Lamy, in Washington to press lawmakers and Bush administration officials for swift action in both cases, expressed hope retaliation could still be avoided. He also brushed off suggestions the EU risked starting a trans-Atlantic trade war, saying it was only asking the United States to comply with international trade rules.

Richard Mills, a spokesman for the US Trade Representative?s office, confirmed Lamy was ?firm? on the subject of retaliation in his meeting with US Trade Representative Robert Zoellick. The White House has urged Congress to meet the EU?s deadline for repealing corporate tax breaks by the end of the year, but has been silent recently on the more politically-sensitive topic of the steel tariffs.

?Do it?

Rep. Sander Levin, a Michigan Democrat who favours keeping the steel tariffs and opposes a Republican bill in the House of Representatives for ending the tax breaks, accused Lamy of ?sabre rattling? and urged the administration and other lawmakers not to ?buckle under to threats by the EU.?

Lamy said the EU would proceed slowly in the export-subsidy case ? the bigger of the two disputes ? to give United States time to finish legislation before sanctions actually begin taking effect on March 1. The WTO has given the EU the right to impose 100-percent tariffs on more than $4.0 billion worth of US exports if Congress does not repeal the tax breaks for exporters by the end of the year. Key House and Senate committees have approved separate bills to do that, but it remains uncertain whether they?ll finish their work before Congress adjourns for the holidays. ?The feeling I got (from lawmakers) was it can be done,? Lamy told reporters. ?Well, the message is ?Do it.?

The European Commission was expected to approve a proposal yesterday that would impose a five percent tariff on the more than $4 billion in US exports beginning March 1 if the illegal US tax breaks are still in place. The duties would increase by one percentage point each month, up to a first-year cap of 17 percent, Lamy said. He also warned lawmakers to steer clear of a proposed three-year transition period for phasing out the exporter tax benefits, saying that would run afoul of WTO rules. Meanwhile, the EU could retaliate on $2.2 billion of US exports as early as December in the steel case, Lamy said.

Bush imposed tariffs ranging up to 30 percent in March 2002 to help US steel producers get back on their feet after a string of more than 30 bankruptcies. A WTO panel already has declared the tariffs illegal and the WTO appellate body is expected to uphold that decision in a ruling due on Monday. Lamy said the EU, under legislation that was approved in the summer of 2002, would "automatically" impose retaliation on $2.2 billion worth of US exports if the appellate panel decides against the United States and Bush does not remove the tariffs by mid-December. The Bush administration already has been mulling whether to end the tariffs early as part of mid-term review. The duties were originally set to run for three years and this past September was the 18-month mark.

Doug Palmer