BRUSSELS, 31 August — Europe won a huge moral victory in the trans-Atlantic trade war yesterday when international arbitrators said the EU could impose $4 billion tariffs on US exports — by far the biggest sum ever permitted — to compensate for illegal American tax breaks. The decision strengthens the hand of the authorities in Brussels as they do battle with Washington over a series of other trade disputes, including the US decision to impose tariffs of up to 30 percent on imported steel. However its also raises an acute dilemma for EU trade officials. Imposition of the $4 billion sum could prompt a new cycle of retaliation from the US and run the risk of depressing world trade and strangling economic recovery. Trans-Atlantic trade is worth $600 billion a year and both sides have an over-riding interest in keeping their disputes under control.
Washington has promised to change the tax breaks for US exporters, called Foreign Sales Corporations, which saved the US’s Boeing Corporation $291 million in 2000 alone. And the signs from the European Commission yesterday indicated that it will not seek to impose sanctions quickly.
Yesterday’s ruling comes at the end of a saga which dates back 30 years and follows an earlier World Trade Organization decision that America’s tax rules discriminated against foreign firms. In awarding $4.043 billion in annual compensation the arbitrators gave the EU the figure it requested; Washington had argued that retaliation should amount to no more than $1 billion.
The ruling delighted officials in Brussels, although they were anxious to stress their efforts to reach a negotiated solution.
Pascal Lamy, the EU trade commissioner, said the ruling made "the cost of non-compliance with (the) WTO crystal clear" but that "President Bush took a first, important step at the last EU-US summit by stating that the US administration will do everything in its power to comply."
The US trade representative, Robert Zoellick, said he was "disappointed that the arbitrator did not accept the lower figure put forward by the United States" but added that "the findings will ultimately be rendered moot by US compliance with the WTO’s recommendations and rulings in this dispute." Observers agree that the EU has a delicate hand to play, with several trade disputes now in play, and that imposition of the full $4 billion is unthinkable.
Nick Clegg, Liberal Democrat spokesman on trade in the European Parliament and a former EU trade official, argued that the EU is "fully entitled to use this stick very aggressively to change US behavior". He added, however: "This is giving the EU the largest weapon every handed legitimately to anyone, to use against their biggest trading partner. Like all nuclear weapons it is best used for deterrence than for deployment." During the next 10 days the European Commission will draw up a list of products on which the EU could levy tariffs of 100 percent, allowing a further 60 days for consultation with the 15 EU member states who take the final decision. These items will be restricted to those which are made in Europe or in other markets so as not to disadvantage EU importers. (The Independent)
