The European Union's executive body has drawn up plans to retaliate against US President George W Bush's decision to impose tariffs of up to 30% on imported steel.

It has sent the 15 member states a list of counter-tariffs on US exports to the EU worth $2.1bn (�1.5bn) a year for approval, said European Commission spokesman Anthony Gooch.

Meanwhile, Canada has begun an investigation into ways of safeguarding its steel producers from a flood of cheap steel imports as a result of the US action.

"We will not stand idly by and watch as our market gets flooded with the world's diverted steel", John McCallum, secretary of state for international financial institutions told parliament.

Canada escaped the US steel tariffs because it, along with Mexico, is a member of the North American Free Trade Area (NAFTA), but it still fears the consequences.

'Smart levies'

Mr Gooch declined to say what goods are on the EU's list.

Nor would he comment on a press report that the EU retaliation will consist of "smart levies" on goods produced in areas politically important to president Bush.

The counter-measures would aim to "encourage or induce" the US administration to reverse its stance, he said.

Many of the goods which would face tariffs are produced in states which Mr Bush only narrowly won in the presidential elections of 2000, and which are crucial to his hopes in this year's mid-term elections, according to a report in the Wall Street Journal.

President Bush's decision to impose tariffs on steel imports was widely seen as a political move to win support in steel-dependent areas such as Pennsylvania, which are important to his hopes of retaining control of the House of Representatives.

Coalition building

The list of goods being targeted by the EU includes Harley-Davidson motorbikes from Wisconsin, and orange juice from Florida - the key state in president Bush's election victory, the newspaper said.

EU trade commissioner Pascal Lamy told the Wall Street Journal: "Counter-measures are there to leverage a change of decision."

"You have to do that in sectors and places where you can build a coalition."

Once EU nations have agreed the final list of items to face retaliatory tariffs, they must notify the WTO by 20 May.

Compensation demand

The European Union also intends to cap imports of steel and impose a new tariff to protect its market from a flood of cheap steel imports predicted in the wake of the US action.

The EU and Brazil have already demanded compensation from the US for lost imports.

The EU, South Korea and Japan are lodging formal complaints with the World Trade Organisation (WTO).

And China is also preparing to launch its first WTO complaint since joining the global trade body last year.