Germany could file WTO suit against U.S. over border tax

BERLIN (Reuters) - Germany could file a suit against the United States at the World Trade Organization over President Donald Trump's proposed border tax, the economy minister said on Friday ahead of a meeting between Chancellor Angela Merkel and Trump later in the day.

Trump has warned that the United States will impose a border tax of 35 percent on cars that German carmaker BMW plans to build at a new plant in Mexico and export to the U.S. market.

Asked how Germany would react to the proposed tax, Economy Minister Brigitte Zypries told Deutschlandfunk radio it was very difficult because of the complexities of such a tax system.

"The other option is that we file a suit against him at the WTO - there are procedures laid out there because in the WTO agreements it is clearly laid out that you're not allowed to take more than 2.5 percent taxes on imports of cars," Zypries said.

Later on Friday Trump and Merkel are due to hold their first meeting since the new U.S. president took office in January.

Merkel is likely to press Trump for assurances of support for a strong European Union and a commitment to fight climate change while he is expected to seek her support for his demand that NATO nations pay more for their defense needs.

Germany's 50 billion euro trade surplus with the United States has been a source of tension between Washington and Berlin.

"We know ourselves that that's a problem and we're working on it," Zypries said.

"Thankfully we just heard today that wage rises have been agreed again so that means domestic demand can increase again and we want to address tax incentives for research ... so we're on a good path," she added.

Around 72,000 steel workers in northwestern Germany will get 2.3 percent more pay from April and then a further wage increase of 1.7 percent from May 1, 2018 employers' group Arbeitgeberverband Stahl said on Friday.

"The Americans need our machines and our plants ... and the other point is that we only have an export surplus in the machines and plants sector; in the service sector it's the other way round," due to big internet companies in the United States, Zypries said.

Carl Martin Welcker, president of Germany's VDMA engineering industry association, warned in an interview with newspaper Tagesspiegel about the "poison of protectionist measures".

He said any such measures would hit Germany's engineering sector hard at a time when there is widespread concern, following Britain's decision to leave the European Union and calls from French far-right candidate Marine Le Pen for a referendum on France's EU membership.

"First there's America first, then England's withdrawal and then perhaps a referendum in France soon - we're scared of this contagious disease because we sell 75 percent of our products abroad," Welcker said.

(Reporting by Michelle Martin; Editing by Nick Macfie and Toby Davis)