The Bush administration is to make $150 million in payments to U.S. steelmakers and other firms over the next two weeks under a program declared illegal by the World Trade Organization, a U.S. Customs official said Tuesday.

The "Byrd amendment" payouts could set the stage for the European Union, Japan and many other trading partners to retaliate on U.S. exports, just as President Bush is expected to lift steel tariffs in the face of another retaliation threat from abroad.

Steel industry protection, with strong support in steel producing states such as Pennsylvania, is a political hot potato for Bush as he faces re-election.

Jeff Laxague, who administers the program for Customs, told Reuters another $90 million in the Byrd amendment payments was on hold pending the outcome of a court case over which companies are entitled to some of the funds.

The government has paid out about $560 million to businesses in the two previous years of the program, he said.

The law, known officially as the Continued Dumping and Subsidy Offset Act, gets its nickname from Sen. Robert Byrd, a Democrat from the steel-producing state of West Virginia, who helped set up the program.

The provision requires Customs to distribute the revenue raised by anti-dumping duties to firms that applied for the protection against below-cost imports.

Japan, the European Union and a host of other trading partners challenged the scheme, saying it violated WTO rules and would encourage more anti-dumping petitions.

The WTO agreed and in June set a Dec. 27 deadline for the United States to repeal the measure.

However, Congress adjourned for the year in November without taking any action on the provision.

Instead, more than two-thirds of the U.S. Senate has urged Bush to work out an agreement with the EU, Japan and other trading partners to preserve it.

Lewis Leibowitz, an attorney representing steel-consuming industries, said Congress' failure to meet the Dec. 27 deadline opens the door for the WTO to appoint an arbitrator next year to decide how much retaliation the United States could face.

"There will be a bit of a battle over that," he said.

In the meantime, the EU has threatened to raise duties on $2.2 billion worth of U.S. exports if Bush does not remove the steel tariffs by mid-December.

Japan also has threatened to hike duties on $458 million worth of U.S. goods in the steel case, but has not set a specific deadline.

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