The EU plans to lodge a complaint with the WTO against Chinese duties on steel tubes used in power plants.
The move, revealed by EU sources today, will allow the EU to join a related complaint filed by Japan against Chinese duties in December and will open a new front in a rapidly escalating trade conflict with Beijing.
It follows China's decision last week to investigate alleged dumping of EU wine in apparent retort to the EU imposing provisional duties on Chinese solar panels, the biggest trade case the EU has launched.
The EU complaint would seek to overturn duties on exports to China of seamless stainless steel tubes made by firms such as Spain's Tubacex S.A and Germany's Salzgitter A.G , the sources said.
The filing, which may come as soon as Thursday or Friday, will send a signal to China that the EU is willing to take legal action against duties it considers to be based on retaliation rather than objective evidence.
China first announced the plan to impose the duties in early September 2011, just weeks after the EU slapped similar duties on Chinese-made stainless steel pipes and tubes in June.
China's Mission to the EU had no immediate comment.
WTO rules prevent members from levelling tit-for-tat sanctions, instead requiring proof assembled via a thorough investigation that a country's industry has suffered damage before any duties can be imposed.
The sources said the stainless steel tube case was separate from the dispute over solar panels and wine. Under WTO rules, the EU had a limited time to join a complaint already filed by Japan.
In February, the EU won a WTO dispute against Chinese duties on X-ray scanners, with a settlement panel in Geneva agreeing the duties imposed by China were not based on an objective examination.
EU Trade Commissioner Karel De Gucht said the X-ray measures were retaliatory following European tariffs on Chinese cargo scanners.
One EU diplomat said victory in the scanners case, the first time Brussels had challenged Chinese trade defence measures, had emboldened the EU.
"The Commission is quite confident that retaliation by the Chinese is now recognised, so they think they have a good chance to win," the source said.
Another source said the European Commission, the EU's executive, will brief the Chinese on Thursday before opening the complaint on behalf of the EU, ahead of a meeting of EU trade ministers in Luxembourg on Friday.
The Commission's spokesman on trade issues said he could not comment on a specific cases until filed at the WTO, but said if there were to be a complaint it would not be related to any on-going investigation, such as into solar panels.
"Trade dispute settlement via the WTO is a completely separate process based on many months of legal preparation and analysis. Any such action, if undertaken, cannot be interpreted in any way as a retaliatory step," said spokesman John Clancy.
"The EU does not engage in retaliatory actions. It works only on the basis of the law."
The WTO declined to comment.
Trade expert David Savage with legal firm Eversheds said the EU's willingness to approach the WTO repeatedly to challenge Chinese duties showed it was committed to defending producers' interests, but said WTO cases can take years.
"While approaching the WTO may present one solution, neither party can afford to ignore the potential for constructive discussions, which are likely to bring about a quicker and more mutually satisfactory resolution."
EU steel tube exports are estimated to be in the tens of millions of euros, and EU production was 13.8 million tonnes in 2012, according to data from the German Steel Tube Association.
China now makes about half of world production, and this case highlights the challenge the broader European steel industry faces due to a combination of declining demand and price pressure from Asian competitors, particularly Chinese.
Japan is challenging the Chinese steel tube duties and how they were applied, alleging that China did not have enough evidence for its complaint that Japanese imports were unfairly cheap, and that it kept what evidence it did have secret, shielding the companies who had complained.
Used in coal-fired power plants, the tubes are made in Japan by firms such as Nippon Steel & Sumitomo Metal Corp among others. Japanese stainless steel tube exports to China were worth 5.8bn yen ($58.5m) in 2011.
In October last year China was also found to have broken WTO rules by slapping punitive dumping duties on a type of US specialty steel.
China wants its own steel mills to make such high-grade products. Last month its Ministry of Commerce launched another anti-dumping investigation into steel tubes from the EU, Japan and US, which it hopes to complete by May 2014.