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:: Xinhuanet - English ::: "EU trade sanctions might end US tax breaks"


www.chinaview.cn 2004-03-01 11:04:42


BRUSSELS, May 1, (Xinhuanet) -- The European Union (EU) is to launch unprecedented multimillion-dollar trade sanctions against the United States Monday in a desperate move to end what it calls illegal tax breaks given to US exporters.

The US tax breaks, named as the Foreign Sales Corporation (FSC),have been attacked by the EU ever since they were introduced in 1984. The EU argued that it flouts global trade rules by allowing thousands of US firms, operating through subsidiaries in offshore tax havens, to benefit from reduced export taxes.

In the US view, however, the FSC simply offsets tax advantages enjoyed by European and Japanese companies.

Based on a complaint from the EU in 1998, the World Trade Organization (WTO) ruled the FSC in 2000 as an illegal trade subsidy. However, the US Congress has been reluctant to change itslaw to roll back tax breaks for US exporters.

Last May, the WTO authorized the EU to levy as much as 4 billion US dollars in punitive tariffs, but the 15-nation bloc decided last December to start at a lower level and raise the penalties each month the United States fails to change its way.

Under its sanctions plan, the EU will impose tariffs from March1, starting at 5 percent and increasing monthly up to 17 percent, unless a new law is enacted by the time.

It means that US companies will have to pay an estimated 16.6 million dollars in March, rising to 46.4 million dollars in December. They are expected to pay 315 million dollars of additional duties by the end of the year.

"The sanctions are automatic and there is nothing we can do about it," said a spokesman of the EU executive European Commission on Friday, confirming that the sanctions would take effect on Monday.

The EU penalties will affect 1,600 products, ranging from jewelry, apparel, wood and paper to electrical machinery and buckwheat to nuclear reactor parts.

The penalties would be the first paid by the United States in aWTO case. So far, the trade dispute between United States and Europe has been a war of words with tariffs threatened but not imposed. The historic move clearly shows that the EU finally has lost its patience.

The EU argues that it has given Washington enough time and has no alternative but to impose the sanctions.

"We've been waiting for four years already. We don't want to wait another four years," said an European Commission spokesman.

Taking into account the close political and economic relationship across the Atlantic, the EU, however, refrained itself from re-igniting a full-blown transatlantic trade war, especially at the sensitive time when the US election is just a few months away.

The EU has removed several main beneficiaries of the FSC, such as aircraft maker Boeing and software giant Microsoft, from the name-list. It will also not apply the sanctions to any area where the US products represent more than 20 percent of total European imports, in a bid to avoid hurting EU-US trade too much.

The "stick and carrot" policy seems to be working. The US government, which also could not afford a trade war, said it regretted the EU sanctions but did not threaten any retaliatory actions.

According to US Treasury Secretary John Snow, the US administration is urging the congress to end the tax breaks "as quickly as possible."

"The administration has been impressing upon the congress the urgent need to promptly pass legislation complying with the WTO ruling," Snow told visiting EU Trade Commissioner Pascal Lamy lastFriday.

Now the ball is on the side of the US Congress. It is reported that the US Senate is expected to begin debate this week on a billto repeal the FSC.