Labour donor's steel factories to escape US tariffs

Tony Blair faced fresh embarrassment over his backing for Indian billionaire Lakshmi Mittal last night after the United States announced that his Romanian steel factories would be exempt from its controversial new tariffs.

As the European Union confirmed it would be seeking retaliation against the American move, Washington revealed Romania was one of nine countries that would not be hit by the 30 per cent tax on imports.

A proclamation by President George Bush lists the country as one of those which would only have the trade barrier applied if imports rose above nine per cent of the foreign steel coming into the US.

Last night, the Tories claimed the new revelation proved Mr Mittal had "effectively bought himself exemption" and had undermined Mr Blair's attempt to relaunch the Government.

Mr Blair backed Mr Mittal in his bid to buy the nationalised Romanian steel industry months after he donated £125,000 to the Labour Party.

However, the tycoon also spent $600,000 lobbying the Bush administration to impose new tariffs to protect his factories in the US.

Yesterday's decision means that Mr Mittal's Romanian factories will be exempt from the 30 per cent bar, while Britain's Corus plants will be hit hard. India, Mr Mittal's base, will also be exempt from the tariff.

The other countries on the President's proclamation are Albania, Poland, Hungary, the Czech Republic, South Africa, Moldova and Turkey, all of which are described as developing country members of the World Trade Organisation.

The Romanian Foreign Trade Ministry was yesterday delighted by the exemption, which gives it another chance to undercut the selling price of steel from the UK.

Romania already has substantial advantages over Corus, the Dutch-owned former British Steel, thanks to lower labour, rents and energy costs.

Meanwhile, the European Commission announced plans for new powers to slap tariffs on subsidised US airlines flying into Europe.

The move, backed by the full Commission in Strasbourg yesterday, follows protests from European carriers, which are angry at the huge cash aid offered to their American competitors to keep them in the air after 11 September.

European airlines believe that a £10bn aid package to the American aviation industry has allowed it to slash fares on transatlantic routes.

Although the European Commission insisted that the twin issues of steel and air travel are not related, the action was immediately interpreted as an escalation of the growing rift between the two blocs, its criticism of the US government was barely disguised.

The move could mean a hike in the cost of transatlantic flights for passengers using American airlines.

"In the European Union our airlines have to play by the book whether or not they are undergoing a crisis such as the one bolstered by the events in September 2001," said the European Commission vice-president, Loyola de Palacio.

She added that the Commission's work on the issue began last October when it became clear that "there were some states in the world giving huge amounts of subsidies and support", and that she had written to the US authorities urging them to monitor how airline subsidies were used.

European governments and carriers have been restrained by rules which prevent large-scale state aid to industry. As a consequence EU airlines have been given direct aid only to cover losses incurred during the days on which it was impossible for them to fly because US airspace was closed. Yesterday the Commission approved a £40m scheme to compensate UK carriers for the losses caused by the closure of airspace between September 11-14 last year.

Under the tariff scheme outlined yesterday, which requires the approval of EU states and the European Parliament, the Commission would be allowed to impose tariffs on airlines from third countries benefiting from subsidies, probably by increasing airport taxes.