The EU sanctions are in response to a ruling by the World Trade Organization (WTO) that a U.S. tax-break regime for U.S. exporters is illegal. The break amounts to some $4 billion a year. Now, the EU is imposing retaliatory tariffs on a long list of U.S. imports. The tariffs could amount to $1 billion by the end of next year.
Arancha Gonzalez is a spokeswoman for Pascal Lamy, the EU's trade commissioner. She said yesterday the EU had given the United States ample time to reconsider its tax breaks, and that countermeasures were now inevitable. "We have been, as you know, waiting for more than two years for compliance from the [United States], and they have not yet brought their legislation in line with WTO rules," she said. "We have therefore been left with no other choice than imposing these countermeasures."
The EU has now drawn up a list of U.S. goods on which it will start levying customs tariffs at gradually increasing rates. Sanchez explained: "We have agreed to impose customs duties on a list of U.S. goods exported from the United States to the European Union starting at 5 percent in March, which will be increased by a gradual, additional 1 [percentage point] every month. So it's 5 percent this month, 6 percent next month, and 7 percent in the month of [May]. The purpose is again the same -- to put pressure on the system so that at the end of the day, the system delivers on what we really want, which is [a] change in the legislation. It's well below the $4 billion that the WTO awarded us as a maximum [penalty]. If these duties are imposed during the entirety of 2004 -- and we hope that will not be the case -- a total amount in the order of 300 million extra U.S. dollars will be collected in 2004, and if it continues into 2005, it will be in the order of $600 million."
Yesterday, EU Trade Commissioner Pascal Lamy rejected suggestions that the move marks a dramatic escalation in the generally tense EU-U.S. trade relationship. "We are not in a trade war,” he said. “We just want the U.S. to comply with the WTO ruling that they have to repeal their system for subsidizing their exports and we have been authorized by the WTO to impose sanctions, which are just there to [bring about] compliance."
The EU strategy may have worked. U.S. President George W. Bush yesterday urged Congress to quickly scrap the export-tax break by passing legislation that reforms the Tax Code and "removes the underlying reason for tariffs that have been imposed today on American exports."
The French news agency AFP quoted a U.S. trade spokesman as saying Washington had asked the European Commission to refrain from levying the sanctions until Congress can come up with the new legislation.
EU officials acknowledge the upcoming elections in the United States complicate matters. A quick end to the tax-break regime could jeopardize jobs in the United States. Nor is it politically easy for Washington to bow to orders from the WTO. However, the EU points to the fact the United States has had 3 1/2 years to comply with the original WTO ruling.
Spokeswoman Gonzalez yesterday said the sanctions are intended to "focus the minds" of U.S. legislators, who are currently working on three separate bills pertinent to the tax-break issue.
Lamy also said the EU would lift its sanctions as soon as the United States brings its legislation into line with WTO requirements. "The more rapidly they will repeal their legislation, the more rapidly we will lift the sanctions. I am ready to lift the sanctions the day the president of the U.S. repeals this legislation," he said.
However, the sharp decline in the value of the U.S. dollar means the impact of the sanctions will -- at least initially -- be relatively mild.
The EU sanctions appear to be the first the bloc has ever imposed on U.S. goods. The United States, on the other hand, has twice penalized EU exporters.