* To seek consultations on June 22, may lead to WTO panel
* EU, U.S. say China duties/quotas distort market-sources
* Materials used in steel, aircraft, autos, chemicals
(Adds reaction, more details)
By Darren Ennis
BRUSSELS, June 11 (Reuters) - The European Union and the United States will take action against China at the World Trade Organisation this month over export restrictions on around 20 industrial raw materials, EU and industry sources said.
The sources told Reuters that Brussels and Washington would formally request consultations with Beijing on the issue on June 22 after failing to persuade China to reduce its export tariffs and increase quotas during talks over the past 12 months.
If these talks fail, the next step would be to request that a WTO panel hear the complaint. Such a step could take years and prove costly for either side in terms of litigation.
The European Commission, which oversees trade policy for the 27-nation EU, and the United States Trade Representative's office declined to comment on the Reuters story.
"This is a confidential process and for legal reasons I cannot comment," a Commission spokesman said.
The Chinese mission in Brussels also declined to give its reaction to the news.
The action is expected further to damage already brittle trade relations with China.
Trade disputes between Brussels and Beijing are on the rise since the EU's trade deficit with China has ballooned. Brussels has imposed a number of anti-dumping tariffs on imports of Chinese goods ranging from shoes to steel products.
EU exports to China rose to 78 billion euros ($106.3 billion) in 2008 from 26 billion euros in 2000, while imports from China rose to 248 billion euros from 75 billion euros over the same period.
The EU and United States say China has continued to restrict exports of raw materials used in steel, semiconductors, aircraft and other products despite Beijing's pledge to eliminate taxes and charges on exports when it joined the WTO in 2001. The United States is expected to show the largest decline in steel demand in the post-war period with apparent steel use likely to drop 36.6 percent in 2009.
Europe is expected to see a decline of over 25 percent in 2009, according to the World Steel Association.
UNFAIR QUOTAS
The materials expected to be covered by the case include yellow phosphorous, antimony, bauxite, coke, fluorspar, indium, magnesium carbonate, molybdenum, rare earths, silicon, talc, tin, tungsten and zinc.
"China has been placing unfair export quotas and taxes on these raw materials which are distorting the global market and hindering European and U.S. companies," an EU source said.
"It is violating its commitments as a member of the WTO."
The sources said the list of materials had yet to be finalised by Brussels and Washington. The number "will be in the region of 20", one source said.
The European Commission -- which oversees trade policy in the 27-nation EU -- will inform member states at a meeting on Friday of its decision to challenge China at the WTO.
"Member states, notably Germany and France, have been chomping at the bit for over a year to mount a case," a diplomat familiar with preparations for Friday's meeting said.
CHEMICAL SECTOR
European and U.S. steelmakers accuse China of giving its own steel companies an unfair advantage by restricting exports of coke and other materials used to make steel.
"If the US and the EU did indeed file a WTO case against China on raw material export restrictions, we welcome this action," a spokeswoman for the American Iron and Steel Institute (AISI) said.
"U.S. steel producers have long believed that this government of China policy is a WTO violation and that it is benefiting Chinese manufacturers artificially while disadvantaging manufacturers everywhere else."
European industry also has objected to China's use of export curbs to drive down domestic raw material costs at the expense of foreign producers.
Europe's chemical sector is particularly unhappy with Beijing's decision last year to impose a 120 percent tax on yellow phosphorous.
Phosphorus is crucial for the chemical industry and is used in many products including fire extinguishers and detergents.
"This tax is killing us. It costs us in Europe around $2,500 more per metric tonne than Chinese producers," a European chemical industry official said.
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(Editing by Dale Hudson and Peter Blackburn)