EU Sanctions

EU Hits U.S. Goods with Sanctions
Mon Mar 1, 2004 05:14 PM ET

By Doug Palmer and Patrick Lannin
WASHINGTON/BRUSSELS (Reuters) - The European Union on Monday slapped hundreds of millions of dollars in annual economic sanctions on U.S. jewelry, textiles, food, equipment and other exports, stepping up pressure on Washington to repeal corporate tax breaks that violate world trade rules.

The move could cost U.S. companies some $315 million this year in extra duties on exports to Europe, and $666 million in 2005, unless Congress scraps the tax breaks. It was the first time the EU has levied trade sanctions on the United States since the World Trade Organization was formed in 1995. The EU has promised to lift the sanctions as soon as the U.S. Congress passes legislation repealing the tax breaks.

President Bush, who has faced criticism from Democrats for 2.8 million lost manufacturing jobs since he took office, urged lawmakers to redirect the $50 billion in current tax breaks for exporters to "American manufacturers and other job creating-sectors of the U.S. economy." "I urge Congress to take up and pass ... legislation that reforms the tax code, removes the underlying reason for the tariffs that have been imposed today on American exports, and further advances the competitiveness of American manufacturers and job creators," he said in a statement.

The WTO, in a case dating back to the late 1990s, has repeatedly ruled the U.S. tax breaks amount to illegal export subsidies under international trade rules. "We understand why the European Union took its action. We regret it, but we understand it," Secretary of State Colin Powell said at a briefing with EU counterparts.

European External Relations Commissioner Chris Patten told reporters Brussels very much hoped Congress would act quickly so it could end the sanctions "in the next few weeks." The disputed tax loopholes, valued at about $5 billion annually, benefit a wide cross-section of U.S. exporters, from Boeing, Microsoft and Caterpillar to Eastman Kodak, grain company Cargill and food processor Archer Daniels Midland Co.

EU Trade Commissioner Pascal Lamy said the EU had "no choice" but to resort to the sanctions after the United States missed a final March 1 deadline for repealing the provisions