By Adam Entous
WASHINGTON, Nov 21 (Reuters) - U.S. President George W. Bush may end tariffs on steel imports as early as next week but keep in place a system -- favored by U.S. steel producers -- to license and track imports to minimize the risk of sudden surges, industry sources said on Friday.
Groups representing steel importers, which oppose the steel tariffs, say they would go along with the import licensing plan if necessary.
Under pressure from major U.S. trading partners and senior White House advisers, Bush is expected to repeal -- or at minimum scale back -- the steel tariffs to head off a trade war with the European Union, according to Republican sources, industry executives and congressional aides.
The WTO's highest court ruled that the tariffs violated international trade laws, and the EU has threatened to retaliate by mid-December on $2.2 billion of American exports if Washington refuses to repeal them.
Eliminating the tariffs would boost Bush's standing with small- and medium-sized Midwestern manufacturers and help ally concerns in financial markets that he is stepping up protectionist measures to stem U.S. job losses before next year's presidential election.
Repealing the tariffs could cost Bush politically in the pivotal steel-producing states of Michigan, Ohio, Pennsylvania and West Virginia.
To soften the blow to U.S. steel makers, the administration is considering keeping the steel import licensing and monitoring system in place, several industry sources said.
The system requires businesses which import steel products to obtain a license. Advocates call it an "early warning system" against potential surges in steel imports.
U.S. steel producers have been urging the White House to make the system permanent regardless of what the president decides to do with the steel tariffs.
"What we're saying is, 'use this to gauge whether or not there is a surge coming'. This just gives our government the ability to act proactively to prevent a downward spiral in pricing," said Dan DiMicco, chief executive of Nucor Corp. , the largest steel producer in the United States.
He said the licensing and monitoring system was similar to those in place in Europe, Latin America and Asia, and does not run afoul of WTO rules.
Steel importers say the system may cause more harm than good but signaled they would not oppose it.
"We think it's an unnecessary burden on the import process... But we can live with it if necessary," said David Phelps, president of the American Institute for International Steel, which represents steel importers.
It remains to be seen how the European Union would respond to the surge control mechanism.
"A licensing scheme could have a trade-deterring effect. Would the EU go forward with retaliation? Who knows," said Bill Reinsch, president of the National Foreign Trade Council, a business group representing major U.S. exporters.
Rep. Joseph Knollenberg, a Michigan Republican who has led efforts in Congress to have the tariffs repealed, would oppose "any monitoring or licensing system that impedes trade," according to Chris Close, his spokesman.
White House officials insist no decisions on the tariffs have been made but say a decision would be made soon.
Administration sources said an announcement was likely within the next two weeks.
Key members of Bush's economic and political team have urged him to lift the tariffs.
They say the tariffs may be doing more harm than good and have already served their purpose -- giving the steel industry time to consolidate operations and become more competitive after a string of bankruptcies.