EU imposes duties on selected US-sourced products
BRUSSELS, Belgium - 03/01/04 - The European Union (EU) has imposed ean Union Trade Commissioner Pascal Lamy said on Thursday the EU would slap a 5% duty on more than $4 billion worth of US exports beginning today because of Congress' failure to repeal tax breaks declared illegal by the World Trade Organization.
"The picture is now quite clear. Countermeasures will go into effect..,"? Lamy told the European-American Business Council after a meeting last week in Washington, DC with the chairman of the US House of Representatives Ways and Means Committee.
The retaliation, the first imposed by the EU on the US, will hit a wide array of agricultural and manufactured goods ranging from buckwheat to nuclear reactor parts. Lamy said the sanctions would remain in effect until the US Congress passes legislation to repeal the tax breaks.
"It's up to the US Congress to change the tax legislation," said a US trade official, who spoke with reporters on condition of anonymity. "And that's a complicated procedure that always takes some time."
The World Trade Organization declared the practice - known in the US as the Foreign Sales Corporation program, or FSC - illegal four years ago and last autumn, EU Trade Commissioner Pascal Lamy set a March 1 deadline for the US to get rid of it - and threatened a 5% duty if they didn't.
US Trade Representative Robert Zoellick warned last week that levying the full amount would be like a "nuclear bomb" on trade relations. The Bush Administration has promised an overhaul but so far Congress has failed to pass a new law.
The sanctions begin with duties on more than $4 billion worth of US exports to Europe. The duty will increase by 1 percentage point each month up to a cap of 17%, said EU trade officials in Brussels.
EU officials estimated the monthly value of the duties would rise from $16.5 million in March to $46.4 million in December for a 10-month total of about $315 million.
If the duties were to stay in effect at 17%, they would collect about $667 million annually - assuming there was no impact on trading patterns, the officials said.
The largest category of US goods hit by the sanctions is jewelry, with an estimated $1.43 billion worth on the list.
Other items include machinery, paper products, leather, meat and dairy products, fruits and vegetables, grains, cotton and textiles, tools, toys, games and sporting equipment.
The extra levy will be added to the existing tax. The charge on natural honey, for example, will go from 17.3% to 22.3%.
The tax breaks at the center of the dispute benefit large US exporters like Microsoft. The WTO had ruled, in a case dating back to the late 1990s, that the measures are illegal export subsidies.
Aerospace giant Boeing - which saved $195 million in 2002 from the FSC program - is reportedly being exempted from the punitive tariff?because of pressure from European subcontractors.
The Senate is expected to begin debate the week of March 8 on a bill to repeal the provisions and use an estimated $50 billion in savings to lower the corporate tax rate for manufacturers to 32%, from 35% currently.
The outlook for action on a similar bill in the House of Representatives is less certain.
However, industry officials are hopeful lawmakers can agree on a bill in the coming months to send to the White House for the President's signature.
WTO Director-General Supachai Panitchpakdi told reporters after a speech at the National Press Club in Washington, DC that he hoped the US and EU could resolve the trade spat soon.
With world trade talks showing new signs of life, "I don't want the conflict to overflow to other areas," he said.
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