By Jennifer M. Freedman

Sept. 4 (Bloomberg) -- Mexican import duties on olive oil from Italy, Spain and Greece are illegal, World Trade Organization judges ruled, backing a complaint by the European Union while rejecting the bloc's call for a repeal of the taxes.

``Having found that Mexico has acted inconsistently with provisions'' of WTO rules on subsidies and import duties, ``we recommend that Mexico bring its measures into conformity,'' judges said in a 110-page report posted today on the Geneva- based WTO's Web site.

The EU, which produces four fifths of the world's olive oil, said when asking judges to rule on the case in December 2006 that Mexican duties as high as 30 percent were imposed in August 2005 without any evidence of a threat to the domestic industry. Mexico imported 8,000 metric tons of olive oil worth $21 million annually from the EU when the complaint was lodged.

The Mexican government said the measures, imposed in August 2005, complied with WTO rules and were necessary because of European olive oil subsidies.

Judges ruled against Mexico on several points, including exceeding the time limit on its investigation and the country's failure to base the probe on evidence that would allow an objective examination of the data.

No Repeal Call

``We welcome the judgment of the panel but regret that we were not able to resolve this issue through negotiation,'' European Commission spokesman Peter Power said in a statement from Brussels. ``We now expect Mexico to abolish the duties as quickly as possible.''

WTO judges ignored an EU request to press Mexico to repeal the import duties. ``We decline to make a suggestion as to how Mexico should bring its measures into conformity with its obligations,'' judges said in today's report.

The panel also ruled against the EU on some points, saying the 27-nation bloc didn't prove that Mexico ignored trade rules by starting its probe before inviting the EU for consultations or by failing to say what facts it considered when deciding to impose the import duties.

To contact the reporter on this story: Jennifer M. Freedman in Geneva at jfreedman@bloomberg.netLast Updated: September 4, 2008 11:39 EDT

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