Starting Monday, the EU will impose trade sanctions on US imported goods. That means an extra 5% tarriff on goods ranging from honey to nuclear reactors. And that is to continue increasing 1% a month.
This landmark sanction is an attempt to retaliate against U.S. corporate tax breaks (Foreign Sale Corporation- FSC--ruled illegal by the WTO).
This is a huge move that some EU officials are celebrating and others are calling the beginning of a hostile relationship between the EU and US. I see the move as justified, as many U.S. corps are able to get the leg up with tax breaks and dominate the market, but I foresee the consequences snowballing negatively.
Here are a few different viewpoints.
'Sad day' as EU imposes sanctions on US goods
Financial Times
By Tobias Buck in Brussels
http://news.ft.com/servlet/ContentServer?pagename=FT.com/StoryFT/FullStory&c=StoryFT&cid=1077690772765&p=1012571727108
Europe slaps sanctions on US over export tax breaks
EU Business
http://www.eubusiness.com/afp/040227224025.yw5ij37j
Sanctions give Europe Prime Opportunity
Scotsman.com
http://news.scotsman.com/international.cfm?id=240252004
US firms to be hit by multimillion-euro sanctions
EU Observer
http://www.euobserver.com/index.phtml?sid=9&aid=14634
'Sad day' as EU imposes sanctions on US goods
By Tobias Buck in Brussels
For the first time in the history of transatlantic trade relations, the European Union will on Monday impose trade sanctions on US goods, in an attempt to force Washington lawmakers to repeal controversial corporate tax breaks.
EU customs officials will levy an additional 5 per cent tariff on a wide range of American products. The duty on imports of natural honey, for example, will rise from 17.3 per cent to 22.3 per cent. Roller skates will be subject to a 7.7 per cent duty up from 2.7 per cent.
The punitive tariffs will also apply to textiles, agricultural products, steel and glass, books and newspapers, sugar and toys - even nuclear reactors. And they will rise, by 1 percentage point each month, until they affect US exports worth $666m a year.
The aim is to force the US Congress to change the foreign sales corporation provision (FSC), which grants tax breaks to US exporters and was ruled illegal by the World Trade Organisation in 2002.
But to John Disharoon, vice president of the trade committee at the American chamber of commerce to the EU, Monday is simply "a sad day for trade relations between the US and Europe". He says: "Nobody wants to see sanctions. It adds to the negative climate."
European companies share some of Mr Disharoon's concerns. But according to one trade expert, there is "no sense of disaster" among European trade officials, business lobbies and observers. The European Commission is keen to play down the significance of the trade sanctions. It insists that Brussels has shown patience and diplomacy in the run-up to March 1, and that Washington as well as US companies have had ample warning and enough time to prepare for the sanctions.
"We've been extremely patient, but there is no way now we can avoid these sanctions, which hopefully will concentrate a few minds on the urgency of this legislation," Pascal Lamy, EU trade commissioner, told reporters in Washington on Friday following two days of meetings with US lawmakers. He added: "The day the necessary legislation is there, I will remove the sanctions." Officials close to Mr Lamy have argued for months that there would be no backlash from US lawmakers.
Monique Julien, a trade expert at Unice, a business federation that claims to represent some 16m European companies, says: "If you look at the record on the European side there has always been an attempt at conciliation. Sanctions were repeatedly postponed but at the end of the day, it is a question of [upholding] the credibility of the WTO dispute settlement system."
But even Europeans admit that - at some point - the Commission and its counterpart in Washington might have to rethink the way they approach trade disputes. Like many trade experts, Ms Julien is worried about the "multiplication" of recent EU-US trade spats - of which the dispute over FSC is only the most visible example.
In the past two months the EU has moved closer to trade sanctions in a string of cases, many of which are linked to US anti-dumping legislation and practices. In a dispute over the so-called Byrd amendment, which allows US companies to keep the anti-dumping proceeds raised from foreign competitors, sanctions could come this summer.
Nick Clegg, a British Liberal Democrat member of the European Parliament and trade expert, warns that "everything is being shuffled off to the WTO, and if that trend continues it begins straining the credibility of the institution".
Although he applauds Mr Lamy's approach in the FSC case, Mr Clegg believes that at some point it could become necessary for the EU and the US to settle their disputes through direct negotiations. "If we continue along the same trajectory, there needs to be some kind of political decision to clear the decks in a comprehensive way.
"I think more and more businesses, especially big companies with transatlantic links, are asking: is this really the best way to handle the biggest trade relationship in the world?" Additional reporting from Edward Alden in Washington
Europe slaps sanctions on US over export tax breaks
http://www.eubusiness.com/afp/040227224025.yw5ij37j
EU Business
European trade chief Pascal Lamy said time has finally run out and Europe will launch sanctions Monday to pressure the United States to scrap illegal export tax breaks.
But for the first time, Lamy said he would consider allowing a transition period for removing the subsidies, ruled illegal by the World Trade Organization.
"We have been very patient but there is no way now that we can avoid this action, which hopefully will concentrate a few minds on the urgency of this legislation," the European trade commissioner said.
The European sanctions, to be ratcheted up each month to increase pressure on the United States to overturn the law, would be lifted when Congress passes legislation to repeal the subsidies, he said.
Tariffs, already approved by the WTO, begin at five percent on a range of goods from American meat to nuclear reactor parts. The duties will rise by one percentage point a month.
In 2004, the extra duties would be worth a total 315 million dollars, according to the Europeans.
The WTO has ruled that the so-called foreign sales corporation (FSC) law flouts global trade rules by allowing US firms, operating through subsidiaries in offshore tax havens, to benefit from reduced export taxes.
WTO arbitrators have agreed with the EU that just over four billion dollars (3.4 billion euros) would constitute "appropriate countermeasures" based on the trade impact of the US policy.
Lamy said he had no desire to take sides on the various proposals for US legislation to replace the FSC law; he only wanted to check the final proposal before it becomes law.
The House of Representative and Senate are drawing up rival proposals for legislation, which would need to be hammered out in a compromise text before signature by President George W. Bush.
Two of the main proposals contain a three-year transition period to phase out the tax break, however.
"The WTO ruling says that the only WTO-compliant transition period is zero. That is what the WTO ruling says," Lamy said.
"This being said, we have a margin of appreciation and if my judgment at that time is that I can use a bit or part of this margin of appreciation, I will do it (while) keeping my goal ... which is getting this thing repealed."
The trade boss said he would have to consult with the European industries affected by the US tax break, however, "to see whether or not they can live with such and such option."
Lamy noted that he had received a letter from European business chiefs suggesting they could live with a transition period.
The European business group UNICE sent a letter to Lamy on February 13 noting that the Congress was considering a three-year transition period for removing the tax break.
"For our part, we are ready to consider, while reluctantly, a reasonable transition period, as short as possible, for repeal of the current legislation," it said.
"It would therefore be appreciated if such flexibility could be explored, provided that the final outcome would be WTO-compatible and not affecting negatively European interests."
Sanctions give Europe prime opportunity
Scotsman.com
http://news.scotsman.com/international.cfm?id=240252004
OFF a dirt road in a quiet section of Tripoli, a trailer camp flies two flags. One is the green flag of Libya. The other is a red banner bearing a single word: "Halliburton".
The British general manager, Richie Jones, squirms a bit when a journalist shows up. He explains that United States sanctions bar him from expanding his business. He can’t import anything with a US part, he can’t use US technology. He isn’t even supposed to communicate with Americans or anyone who pays US taxes.
"I don’t know if we’re breaking the sanctions by talking to you," Mr Jones says in a conspiratorial tone. "If you sent me an e-mail it would be illegal for me to open it."
He manages the Libyan branch of Halliburton Germany GmbH, a subsidiary of the oil services giant once run by the US vice president Dick Cheney, and his hands are tied. The US sanctions, imposed in 1986 to punish Libya for supporting terrorism, bar Americans from most Libyan business. While sanctions have cost Libya at least $30 billion (£16 billion) in lost revenues, they have also taken a toll on US business.
European and Asian companies are cashing in, building a $5 billion (£2.67) project to pump and pipe Libyan natural gas to European power plants. They will soon vie for work on a $2 billion (£1.07 billion) upgrade for a major oil refinery.
"We’re preparing for a very active and promising decade," says Tarek Hassan-Beck, planning director for the government-owned National Oil Corp. But unless the sanctions end, the Americans will be sitting it out.
US firms to be hit by multimillion-euro sanctions
EU Observer
http://www.euobserver.com/index.phtml?sid=9&aid=14634
The EU will impose sanctions worth hundreds of millions of euro on US businesses from next Monday.
The move is retaliatory, counteracting tax breaks for US companies which the WTO has ruled illegal.
"I think the picture is now clear: countermeasures will come into force by Monday", Trade Commissioner Pascal Lamy said after talks with his US counterparts Thursday.
A 5% levy will be placed on all US exports to the EU, with that figure rising each month that the US tax break stays in place.
"Our countermeasures will start in a relatively modest way but the system has been devised so that it increases every month, the notion being that this will focus minds on the necessity to comply, which is the real name of the game", Mr Lamy said.
The figure is expected to rise by over 30 million euro a month.
With the US in an election year, any pressure from the sanctions will be made all the greater, with voters calling for politicians to protect US jobs and interests.
The Foreign Sale Corporation (FSC) - as the tax break is known - creates a loophole allowing US companies to benefit from decreased export tax.
The EU, backed by the WTO, says the FSC gives US companies an unfair market advantage.
Coupled with the strong euro, the FSC has led to very cheap US imports.
Similarly, the strong euro may also mean that the US companies hit by the sanctions will not feel the pinch quite as much as they otherwise would, with their products still being competitively priced.
The WTO has ruled that the EU may impose sanctions of up to 3.4 billion euro.
It is up to the US Congress to repeal the law.
Sanctions have been applied in the past, by the US at least (I remember one on mustard...).
It might be a good opportunity to consider the relationship between politics and economy. Aznar, for instance, defends the US at all cost. When it is business-related, not everybody feels the same way, even among the most pro-american.