EU Urged to Lift Sanctions
Brussels says, ''We don't think so?'' to appeal from USTR
WASHINGTON, DC - 10/15/04 - US Trade Representative Robert Zoellick (USTR) is urging the European Union (EU) to lift retaliatory tariffs against imports from the US because Congress has passed a bill repealing corporate export tax breaks ruled illegal by the World Trade Organization (WTO).
The Office of the US Trade Representative (USTR) issued Zoellick'../eWebPhotos/zoelickeu1.jpg" align=left vspace=15 border=0>sources reported comments from the office of EU Trade Commissioner Pascal Lamy (EUTC) asserting that removing the sanctions now would be premature.
"We are concerned about the bill's transition period, until 2007, for ending the subsidies as well as 'grandfathering clauses' allowing some beneficiaries of the breaks to continue receiving them," said a spokesman for the EUTC. "Those are two points which we're examining at the moment. In the meantime ... the sanctions will continue to apply."
The underlying goal of the bill Congress passed is resolution of a longstanding dispute with the EU over US corporate tax breaks to exporters under the Foreign Sales Corporation (FSC) law, and its successor regime, the Extraterritorial Income Act (ETI).
Under the FSC/ETI provisions, the income tax on certain US manufactured goods for export is reduced from the ordinary 35% rate to 27-32%.
The White House has said President Bush will sign the bill, which would phase out ETI export tax breaks for corporations over two years while reducing tax rates on domestic manufacturing in phases over five years from 35 to 32%.
Zoellick said that the bill would bring the US into compliance with its WTO obligations.
"We believe the concerns that prompted the EU to bring this action in 1997 have been addressed satisfactorily," he said. "We urge Europe to quickly move to end their tariffs on U.S. exports, so that trade can resume to the mutual benefit of both sides of the Atlantic."
Quoted in a Financial Times article, however, Lamy linked the lifting of the sanctions to certain conditions.
One concerns the EU's WTO challenge against alleged US subsidies to Boeing, filed in reply to the US WTO challenge against alleged EU subsidies to Airbus. The other concerns EU findings about US tax treatment of options by Boeing for selling aircraft.
Congress first addressed the controversial tax mechanism just two years ago after the WTO ruled the $4 billion-a-year subsidy for US exporters illegal, first in 2000 and again in 2002.
The Geneva-headquartered WTO authorized the EU to impose equivalent countermeasures until the law was repealed.
The WTO had repeatedly ruled that the FSC/ETI provisions violate international trade rules and has authorized the EU to impose up to $4 billion in retaliatory tariffs on US exports.
The EU began in March to impose tariffs of 5% on about 1,600 US-sourced products including steel, textiles, paper, Wisconsin cheese, and Florida oranges and said the rate would increase by 1 percentage point a month up to 17%.
As of October 1, the tariff rate was 12%.
According to sources, Caterpillar Inc., General Electric Co., Microsoft Corp., Intel Corp., Motorola Inc., and Seattle, Washington-based Boeing were among the major beneficiaries of the tax mechanism.
According to the EU, Boeing has benefited to the tune of more than $1.6 billion from the tax mechanism since 1992.
EU officials have suggested they could actually raise the tariff rate in reaction to the complaint filed last week by Washington at the World Trade Organization over European subsidies to Airbus SAS, which currently holds a 54% share of the global commercial aircraft maker and is Boeing's major competitor.
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