US President Bush on Thursday scrapped import tariffs he had imposed last year to help the battered U.S. steel industry, defusing a threatened trade war with Europe and Japan but creating political problems for Bush in such key battleground states as Ohio and Pennsylvania.

The president declared that the 21 months the steep tariffs had been in place had given the U.S. industry a chance to consolidate and modernize and were no longer needed as a result of "changed economic circumstances."

US President Bush and Jordan's King Abdullah II  (left) speak to reporters in the Oval Office of the White House Thursday, Dec. 4, 2003, prior to their meeting to discuss the Middle East and developments in Iraq. [Reuters]

However, the decision prompted an angry response from the steel industry and its political supporters, who accused Bush of breaking a campaign promise and turning his back on an industry that was still in need of protection from unfair foreign competition.

Leo W.Gerard, president of the United Steelworkers of America, called the Bush's action "clear evidence of capitulating to European blackmail and a sorry betrayal of American steelworkers and their communities."

Sen. Robert Byrd, D-W.Va., said the administration had "shattered any credibility it ever had with the steel industry in West Virginia and across the country."

The steel tariffs carried high political stakes in Rust Belt and Midwestern states where the margin between Bush and Democrat Al Gore was slim in 2000, and where the president is determined to prevail in 2004.

Bush scored points with the sanctions in steel-producing states such as Pennsylvania, Ohio and West Virginia — which hold 46 of the 270 electoral votes at stake in 2004. But the tariffs angered small manufacturers and their workers in Michigan, Minnesota and Wisconsin, which account for 37 electoral votes.

Adding to the political pressure, the 15-nation European Union had drawn up a $2.2 billion retaliation list targeting a wide range of products from other key election states Bush is hoping to win next year such as Florida, California, Louisiana and the Carolinas.

Within minutes of the president's announcement that the tariffs were to expire at midnight Thursday, the EU said it was withdrawing its $2.2 billion list of targeted products.

Japan, South Korea and other countries that had joined in a successful challenge of the tariffs before the World Trade Organization had said they would also drop their retaliation threats if the tariffs were eliminated.

"These sanctions ... were there as a tool for compliance," said EU Trade Commissioner Pascal Lamy. "They've complied and the sanctions will disappear."

Bush's action was criticized by Democrats campaigning for his job.

Former Vermont Gov. Howard Dean said that despite Bush's claims "the steel industry needs additional breathing room to get back on its feet." Rep. Dick Gephardt said Bush's action demonstrated a "callous disregard for the workers and the communities whose jobs and livelihoods have been decimated by unfair competition." Former Gen. Wesley Clark said Bush needed to "listen to the 2.6 million manufacturing workers who've lost their jobs" while he has been in office.

However, Republican free-trade supporters and industries hurt by the steel tariffs praised Bush's decision, saying it had averted a debilitating tit-for-tat fight with some of America's biggest trading partners.

William E. Gaskin, head of the Consuming Industries Trade Action Coalition Steel Task Force, called the ending of the tariffs the "right decision for the 13 million workers in steel consuming industries ... and the overall U.S. economy."

Bush said restructuring has occurred to allow the steel industry to become more competitive, more flexible union contracts have been worked out, and the outlook has improved for the U.S. and global economies, boosting worldwide demand and helping to lift prices and steel company profits.

"I strongly believe that America's workers can compete with anyone in the world as long as we have a fair and level playing field," Bush said in a statement.

To soften the blow of his decision, Bush announced that an early warning monitoring system that had been put in place as part of the original tariffs would continue in operation.

Under this program, steel importers are required to apply for special import licenses, supplying the government and the domestic steel industry with early information on the amount of foreign steel that will be coming into the country.

Bush said this information would mean "my administration can quickly respond to future import surges that could unfairly damage the industry."

However, Bush's announcement did not contain pledges that the steel industry had hoped to see in terms of strengthening U.S. laws protecting domestic industries against the sale of foreign products in this country at unfairly low prices, a practice known as dumping.

The administration did pledge to push ahead with negotiations that have been under way for the past two years in Paris aimed at forging an agreement with other countries to limit the amount of government subsidies provided to the steel industry.

Commerce Undersecretary Grant Aldonas told reporters he believed an agreement could be reached on limiting government subsidies by May of next year. However, outside experts called that an extremely optimistic forecast, given the strong resistance in many countries to doing anything to trim subsidies for their steel industries.

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