The Bush administration intends to lift its controversial duties on steel imports, most likely within the week, bowing to threats of retaliation from Europe and Asia, administration, industry and congressional sources said on Monday.

Ending the tariffs 16 months ahead of schedule to comply with a World Trade Organization ruling could spark a political backlash against U.S. President Bush in the pivotal steel-producing states of Ohio, Pennsylvania and West Virginia in advance of his reelection bid next year.

Visitors tour the Shanghai Krupp Stainless steel Co Ltd plant November 25, 2003.   [Reuters]

But the sources said Bush's senior advisers concluded the tariffs were causing more harm than good and that lifting them would boost his standing with small- and medium-sized Midwestern manufacturers, another important constituency whose profits have been squeezed by the higher price of steel.

White House spokesman Scott McClellan said Bush was still consulting with steel companies, steel users and members of the U.S. Congress.

"The president still has not made a decision," he said during a trip with Bush to Michigan.

The president was expected to sign off on his advisers' final recommendation and lift most of the tariffs by Friday -- just days before the European Union was set to make good on threats to retaliate on $2.2 billion worth of U.S. exports.

One source cautioned that Bush could still make some changes, like keeping some tariffs in place a few months longer.

STEEL IMPORTERS PLEASED

"Bush is going to do the right thing. We're very pleased," said David Phelps, president of the American Institute for International Steel, which represents steel importers.

Steel industry analysts said a drop in the value of the dollar over the past year and rising freight rates out of Europe would help U.S. steel remain competitive even if the tariffs were ended early.

But Leo Gerard, president of the United Steelworkers of America union, warned Bush could pay a price at the polls in next year's presidential election if he lifted the tariffs.

"Caving into the blackmail of the European Economic Community is not going to float well in Ohio, Pennsylvania, West Virginia, in Illinois and the other industrial states," Gerard said in an industry conference call with reporters.

To soften the blow to U.S. steel makers, the administration was expected to step up enforcement of rules that penalize steel importers for dumping their products in the United States at below-market rates.

The administration is also expected to keep an existing steel import licensing and monitoring system in place, according to industry sources.

That system requires businesses that import steel products to obtain a license. Advocates call it an "early warning system" against potential surges in steel imports.

"We're going to do everything we can to be more vigilant," an administration official said.

But United States Steel Corp. Chairman Thomas Usher told reporters the most helpful thing the administration could do was keep the tariffs in place for the full three years he originally promised the industry.

Usher said he would deliver that message personally to Bush on Tuesday when the president travels to Pittsburgh, a steel stronghold, for a fund-raising event that the steel company executive helped organize.

"I intend really to ask him where he stands on this," Usher said, adding that the industry had been kept in the dark about what Bush intends to do. "I don't have any great expectations one way or the other. I'm just waiting to hear."

Gary Hubbard, a spokesman for the steelworkers union, said members also would turn out to urge Bush to keep the tariffs.

"There undoubtedly will be a spontaneous combustion of steelworkers crowded around the Pittsburgh convention center waving American flags of distress," Hubbard said.

EU AWAITING DECISION

In Brussels, the European Commission said it had not been informed that the United States was set to lift steel duties.

Bush aides said the steel tariffs had already served much of their purpose by giving the industry time to consolidate operations and become more competitive after a string of bankruptcies.

Aides also pointed to cost cutting, productivity gains and new union contracts as signs of a stronger steel industry since Bush's March 2002 decision to impose tariffs of up to 30 percent on imported steel.

"Adjustment is going to happen more quickly without the tariffs," an administration official said.

Washington last week obtained a delay in a key WTO meeting to rubber-stamp a trade court ruling that the levies were illegal. The session was postponed for nine days until Dec. 10 to give the United States more time to drop the duties.

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