EU Suspends Punitive Tariffs on US Exports
Brussels acts on Washington's move to dismantle the FSC/ETI export tax mechanism
BRUSSELS, Belgium - 10/28/04 - The European Union (EU) has said it will suspend the punitive tariffs it imposed on US-sourced products in March in response to the recent passage of legislation on Capital Hill dismantling the controversial Foreign Sales Corporation/Extraterritorial Income Act (FSC/ETI) tax break mechanism for US exporters.
The tariffs will be lifted January 1, the same day the new US tax plan goes into effect, but with the proviso that the US now complies "fully with its World Trade Organization obligations," said the Brussels-based European Commission.
According to sources, US companies affected by the tariffs could be expected to pay out as much as $315 million in additional Customs duties through the end of the year.
"We will continue to explain to the EU and others how the new law brings the US into compliance," said a spokesman for US Trade Representative Robert Zoellick.
In 2002, the WTO ruled that FSC/ETI initiative, in effect, constituted a package of illegal export subsidies to American companies, and gave the EU the go-ahead to respond with sanctions up to $4 billion a year - the biggest retaliation allowed since the creation of the 148-member global trade group in 1995.
Voicing its exasperation with what it felt was the intransigence of Washington in dealing with the issue, the 25-member EU implemented the tariffs last March, targeting about 1,600 US-sourced products with a 5% duty.
The duty increased 1 percentage point a month to 12% as of October 1.
US businesses voiced relief at the EU decision and will, several US industry representatives told the media, "try to reclaim lost profits and market share."
The tariffs "have made our products very uncompetitive and just about dried up orders coming out of the EU," said James F. Marquart, president and chief executive officer of the New York-based Manufacturing Jewelers and Suppliers of America.
US-made jewelry was covered more broadly by the sanctions than any other product, with paper and forest products, machine tools, food and agricultural goods, motorcycles, toys, and hundreds of other exports also seriously impacted.
According to sources, more than 300 US companies and trade groups wrote Congress last month, asking it to speed-up its efforts to repeal the FSC/ETI mechanism.
"These retaliatory tariffs continue to hurt US exports to Europe and negatively impact jobs of American workers," said the open letter, which was signed by a virtual Who's-Who of US industry including Dow Chemical, Eastman Kodak, Johnson & Johnson, Mars, and another 314 companies and business groups.
But, the European Commission said, the sanctions may be renewed.
According to EU Trade Commissioner Pascal Lamy, the EU is still "bothered" by a provision in the recently signed law dismantling the export tax initiative that "grandfathers" contracts signed before September 17, 2003 and allows export subsidies to continue for companies that entered binding contracts before that date.
Lamy singled out US commercial aircraft manufacturer - Seattle-headquartered Boeing - as one company likely to benefit from the "grandfather" clause.
The US and the EU are currently locked in an unrelated dispute with broadsides being fired by both sides over aircraft manufacturing subsidies to Boeing and Europe's Airbus SAS consortium.
Behind the scenes, several US trade officials have accused the EU of attempting to keep the tax issue alive to use as leverage in the Boeing-Airbus dispute, but EU officials have denied any connection.
"We have been trying to put [the tax break] to bed for a long time. It is now in bed, but we need to just check before the lights go out," Lamy told the press.
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