ELSH, Luxembourg -- Like many steel towns in Pennsylvania or Ohio, this one is still home to a hulking old mill in the grand tradition: iron ore at one end, giant smelters in the middle and finished products at the other side.

But there is at least one difference. Too many old mills in the United States are in business and going bankrupt at an alarming rate. The one here went out of business in 1997 and is a historic monument.

Taking its place next door is a 5-year-old mini-mill that melts scrap steel and produces almost as much as the old one at a fraction of the cost. The work force here has shrunk from 5,000 in the 1970s to 1,000. From melting and casting to rolling out new girders, the process is controlled by a skeleton crew of technicians.

The changes here help explain why European political leaders are so angry about President Bush's decision to protect American steelmakers by imposing high tariffs on imports.

From the European vantage point, steel companies have put themselves through a grueling transformation while, for the most part, the big, integrated American steel mills have not.

"If you look at our competitors, the United States has always been the leader in consolidation,'' said Guy Dolle, managing director of Arcelor, the Luxembourg-based company that owns the mills here. "But in steel, nothing has been done.''

The steel dispute threatens to become the most serious trade feud in decades between the United States and Europe.

Europe is hardly a region of low wages and low costs. But in an industry where size really counts, European steel companies have put themselves through so many mergers that the industry here is dominated by a handful of giants that are much bigger than any American rival.

Thus, improbable as it may sound, the tiny duchy of Luxembourg (population 420,000) is home to the world's biggest steel producer.

Arcelor, which came into being less than two months ago, is the result of a three-way merger among Arbed, Luxembourg's biggest steel producer; Usinor, France's biggest; and Aceralia, one of Spain's biggest.

Each of those companies, in turn, was created by numerous smaller mergers over the past 15 years. The result is a behemoth that produces 45 million tons of steel a year, about three times as much as U.S. Steel.

Arcelor is not alone. ThyssenKrupp is the result of a merger of Germany's two largest steel companies. Corus, the Anglo-Dutch steel producer, was formed in the 1999 merger of British Steel and Royal Hoogovens of the Netherlands.

The results of all this has been dramatic. In 1980, Europe's five largest steel companies accounted for 30 percent of steel production in the European Union. Today, the top five account for more than 60 percent.

By contrast, the top five American companies account for about a third of the American market, and they are all much smaller than their biggest rivals in either Europe or Asia.

Meanwhile, Europe's steel work force has shrunk radically, from nearly 800,000 in 1980 to less than 280,000 today.

To be sure, American steel companies have gone through wrenching changes of their own. U.S. Steel today is far smaller than it was in 1980, and far more focused on more profitable specialty products.

European steel executives also note that American mini-mill producers are extremely competitive. The problems, they contend, are with the big, integrated producers that begin with iron ore, smelt it to make steel and then produce finished products.

European executives also tend to agree with American steel executives on an important point: The biggest hindrance to consolidation in the United States is the huge burden of paying pension and health benefits for retirees.

The European companies do not have that problem. In most countries, pension and health care benefits are government responsibilities. On top of that, the European Commission carried out a sweeping plan in the 1970s and 1980s to help finance early retirement for companies that reduced their capacity.

American manufacturers have also been burdened by the high value of the dollar, which gained about 25 percent against the euro since early 1999 and remains near record levels. That makes American steel more expensive and imports cheaper.

But if exchange rates and retiree benefits are outside the control of steelmakers, their operational strategies are not.

European steelmakers have adopted a noticeably different strategy, embracing the mini-mill concept far more aggressively than their American counterparts. Luxembourg became a steel-producing country nearly a century ago because it had ample supplies of iron ore. Today, no one even mines iron ore because all the Luxembourg mills are mini-mills that melt down scrap.

Though many of Arcelor's mills are integrated producers, all three of its component companies have mini-mills for at least part of their output.

The physical changes here are startling. The old mill still exists, though the giant blast furnaces have been dismantled and sold to companies in China.

The new mini-mill produces a similar range of products as before -- steel beams used in construction and steel piling often used in docks and harbors.

Almost everything is automated. There are few workers visible. The giant chamber housing the furnace is normally empty of human beings. The continuous-casting area, where six golden streams of molten steel flow into the molds, is monitored by one or two workers.

A handful of others work in a control room and monitor the process on computer screens.

Perhaps more startling is the extent of cross-border mergers. Even before the three-way merger, Arbed of Luxembourg owned mills in Germany and Brazil. Several years ago, it bought 35 percent of Spain's former state-owned steel company, Aceralia.

Though industries such as banks, airlines and automobiles remain dominated by national champions in many European countries, the cross-border steel mergers have generated little anxiety.