High Representative of the European Union for Foreign Affairs and Security Policy Josep Borrell attends a news conference after Russia's invasion of Ukraine, in Brussels, Belgium, February 28, 2022. REUTERS/Yves Herman/File Photo

MADRID, June 10 (Reuters) - Algeria's decision to block trade with Spain following a diplomatic row over Western Sahara could be a violation of European Union trade law, two senior EU officials said on Friday.

"The EU is ready to stand up against any type of coercive measures applied against an EU Member State," EU foreign policy chief Josep Borrell and European Commission Vice President Valdis Dombrovskis said in a joint statement. "However, the EU continues to favour dialogue first to solve controversies."

Algeria announced on Wednesday the suspension of a 20-year-old friendship treaty with Spain and its banking association ordered payments to and from Spain to be stopped, which, according to Algerian sources, affects all trade except for gas supplies. read more

Algeria was angered when Spain said in March it supported a Moroccan plan to offer autonomy to Western Sahara. Algeria backs the Polisario Front movement seeking full independence for the territory, which Morocco regards as its own and mostly controls.

The EU's weighing in on the topic comes after Spanish Foreign Minister Jose Manuel Albares travelled to Brussels on Friday to raise it with Dombrovskis.

"Spain has not taken a single decision that affects Algeria," the minister said after the meeting. "We want a relationship based on friendship, dialogue, mutual respect and non-interference in internal affairs".

Spanish businesses have already begun to report interruptions in trade with Algeria, which receives around 1% of Spanish exports including meat, metals and industrial chemicals, and is Spain's second-largest gas supplier.

Juan Ignacio Pero, chairman of PMS International, a Barcelona-based company that exports chemical products to Algeria and has water treatment projects in the country, said they had detected since Spain's decision on Western Sahara in March a slowing in adjudications on tenders, and handling by customs.

He said shipping containers destined for the North African nation were stacking up in Spanish ports, and his Algerian staff were in limbo because there were no goods from Spain to process.

"What affects us enormously are the projects that we are in the process of tendering for in Algeria - we are going to lose these projects due to this situation," he said.

Spain's Central Bank Chief Economist, Angel Gavilan, told reporters on Friday the diplomatic rift with Algeria could have a significant impact on the Spanish economy and on short-term inflation.

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The European Commission launched two new legal proceedings against Britain on Wednesday after London published plans to override some post-Brexit rules governing Northern Irish trade, and resumed another challenge it had previously paused.

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