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He said Australia may even slap tariffs on imported EU pigmeat, arguing Europe's subsidies would undermine Australia's domestic and overseas markets.

The EU rejected the claims, saying it could not understand Australia's actions against subsidies that would not affect local farmers.

The EU introduced pork subsidies in late January following low prices, high grain costs and subdued domestic demand.

The subsidy is due to finish in April.

Australian farmers believe the move will hit the local market which is also struggling because of the high value of the Australian dollar.

The high dollar has brought down the price of imported pigmeat, mainly from Denmark and Canada, and undermined domestic producers.

Mr Truss said he had warned Europe Australia may use the WTO to retaliate against the subsidies due to their impact on Australian farmers and key overseas markets.

"While the subsidies cover few of the pigmeat cuts exported to Australia, we consider that any increase in export subsidies further damages an already distorted world market," he said in a statement.

"By subsidising exports into other markets, the European Union may damage Australia's export opportunities."

Australia is considering using a section of WTO law currently being tested in a case between Brazil and the United States over cotton.

Under that law, Australia would have to show that EU subsidies have hurt world prices as well as markets into which Australia sells.

Australia is also consider using its anti-dumping laws.

The Government will monitor the level of EU exports into Australia, and other markets, to assess the impact of the subsidies.

Senior adviser to the European Commission delegation to Australia, John Tuckwell, said the EU was surprised by the Government's action.

He said the subsidies would have no impact on European exports to Australia, or to one of Australia's prime pork markets, Japan.

"We're very surprised by this action against what are temporary and extraordinary export refunds," he told AAP.

"It seems very strange that they are threatening WTO action when any action they will take will happen after the assistance ends."

Australian Pork Ltd (APL) backed the action, saying EU pig exporters had received $US5.7 billion worth of subsidies between 2000 and 2002.

"Australia's pork industry does not fear free trade," APL chairman Paul Higgins said in a statement.

"However, we cannot continue to compete in a world market where the topography of the level playing field continues to be distorted by countries who don't play by the rules."

The pork industry is also facing a battle with quarantine watchdog Biosecurity Australia which has found pigmeat from 11 nations can be safely imported into the country.

Source: eFeedLink - 26th February 2004