Posted on 2-3-2004

Europe Sanctions US Trade
by Mark Tran and agencies, March 1, 2004, Guardian UK

The EU today rolled out sanctions against the US in a long-running dispute
over tax breaks for American exporters.
The measures mark the first time the EU has resorted to sanctions against
the US under World Trade Organisation rules, but the amounts involved are
a drop in the bucket compared to overall EU-US trade.

US exports to Europe ranging from jewellery to steel, textiles and farm
products will be subject to a 5% tariff that will rise by one percentage
point each month over the next year unless Congress acts. In all, the
sanctions on US goods could reach some $300m (£160.6m) this year and
double that in 2005. This is well short of the $4bn in sanctions the EU
was authorised to impose under WTO rules.

EU officials described today's move as "a gradual and measured approach
... to put the pressure on the system so at the end of the day, the system
delivers what we really want."

Pascal Lamy, the EU trade commissioner, insisted that the sanctions would
be ended immediately once Washington repeals legislation giving tax breaks
to major exporters.

"The US has not brought its legislation in line with WTO rules. We are
therefore left with no choice but to impose countermeasures," Mr Lamy said
in a statement.

The EU has deliberately kept the sanctions on a pinprick scale so as not
to unleash a full-scale trade war, just when the global economy is picking
up. EU officials made it clear that today's move was designed to
concentrate minds on Capitol Hill as Congress debates proposals to change
some $5bn in corporate tax breaks known as the Foreign Sales Corporation
(FSC) law.

Under the FSC law, US exporters such as Boeing and Microsoft received tax
concessions, but the WTO ruled two years ago that the tax breaks amounted
to illegal subsidy. The EU's measures are more symbolic than substantive
as US exporters are benefiting from a weak dollar.

Mr Lamy was in Washington last week to discuss the tax breaks. He said he
was "encouraged that progress can be rapidly achieved to adopt legislation
repealing the FSC." The US described the EU decision as regrettable - and
insisted it was pushing Congress hard to approve legislation to end the
tax breaks "as quickly as possible."

Washington has twice used WTO rules to impose trade sanctions on EU goods.
In a dispute over bananas, the US hit European products worth $120m a year
from 1999 to 2001. A conflict over European restrictions on beef treated
with growth hormones has seen the US impose sanctions worth $116m a year
since 1999.

Meanwhile, Michael Howard, the Conservative party leader, criticised the
US and other western governments for the "appalling" way in which they
kept out exports from poor countries.

Speaking at a Conservative central office seminar on trade justice, Mr
Howard accused countries like America of thwarting poorer countries'
efforts to escape poverty by imposing damaging trade tariffs. Mr Howard
cited George Bush's decision in 2001 to impose tariffs to protect the US
steel industry, which were lifted only recently.

"It is appalling that the west should close its markets to so many of the
world's poor. It is even worse that it should target its tariffs primarily
to exclude agricultural products," Mr Howard said, addressing an audience
that included Bob Geldof, the rock star behind the 1985 Live Aid concert.