July 18 (Bloomberg) -- The U.S., European Union, Japan and other steelmaking nations said they moved closer to an accord on ending subsidies in the $350 billion-a-year industry, although a final agreement probably won't come until next year.

Three days of talks in Paris ended with some agreement on the main points of an accord. The details are unresolved and probably won't be until next year at the earliest, trade negotiators told journalists. It would have been unrealistic to expect a final agreement so soon after participants agreed to start negotiating in December, the officials said.

``For anyone to expect that one could strike a deal within six or seven months, I think these are dreamers,'' Wolfgang Hubner, head of the steel unit at the Organization for Economic Cooperation and Development, which is sponsoring the talks, told journalists. ``They're dreaming very heavily and they should be brought back to reality.''

Subsidies such as tax breaks and low-interest loans have helped create excess capacity of about 200 million tons, an amount equal to the production of the eight biggest steelmakers. Negotiators from 38 steelmaking nations are seeking an accord that would remove that glut, which last year sent prices in Europe and the U.S. to a two-decade low.

Bush's Steel Tariffs

A framework agreement may dissuade U.S. President George W. Bush from persisting with steel import tariffs set in March 2002. The World Trade Organization this month reaffirmed that the import taxes are illegal. Should the U.S. lose its appeal, the EU may impose as much as $2.2 billion in sanctions on U.S. imports.

Delegates said they would send a report on their progress on the global agreement to a WTO meeting in Cancun, Mexico, in September. Steel won't be part of the WTO's agenda in Cancun, OECD Deputy Secretary-General Herwig Schloegl told journalists.

Participants in the Paris talks still haven't decided whether a final agreement should be part of the WTO or remain an OECD agreement, the trade officials said.

There was concern at the start of this week's talks that they would stall over the issue of developing nations' right to continue with some subsidies. Progress was made after a last- minute proposal for a single standard for subsidies in all developing nations, that will be considered together with an earlier suggestion of negotiating terms for each nation.

`Tractable Issue'

The topic ``has gone from a serious challenge to a tractable issue to which we have multiple possibilities,'' Joseph Spetrini, the Commerce Department official representing the U.S. at the first two days of talks, told journalists. ``When you add those two possibilities together, our probabilities of success are substantially greater.''

There is already broad agreement on the three other key areas that were the focus of these talks. They include what products should be covered, what state subsidies should be allowed and which should be banned. Payments would be allowed, for instance, for permanently closing steelmaking capacity.

Nations at the talks today said a total of 100 million tons of capacity had been closed between 1998 and 2002, with a further 40 million tons to be shuttered by 2005.

Still, new smelters are being built elsewhere and overall capacity continues to rise, they said.

China

An agreement on exemptions for developing nations is crucial in winning the support of countries such as China, the world's biggest steelmaker, and India, the ninth-biggest, analysts have said. Chinese output gained 20 percent last year.

China sent delegates to the meeting of high-level trade officials for the first time since they began in September 2001.

Participants also made progress on the principle that developing nations will at some point cease to receive exemptions from subsidy rules, the trade officials said.

Exemptions for developing nations ``have a place in this agreement, but we don't want it to mean that the agreement is full of loopholes,'' said Ian Wilkinson, director at the European Commission's directorate-general for trade. ``There is good progress, but we're not about to sign an agreement, there are several more months' work ahead.''

Last Updated: July 18, 2003 17:16 EDT