Roundup: EU May Soften Huge Sanctions Against US

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Last updated at: (Beijing Time) Sunday, September 01, 2002

Roundup: EU May Soften Huge Sanctions Against US

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The European Union (EU) on Friday got a nod from the World Trade Organization (WTO) to impose 4.043 billion in sanctions against the United States over its illegal export tax breaks, scoring a key victory against the giant trading partner.

The 4.043 billion figure met exactly the EU calculations for trade losses it said companies in the 15-state bloc suffered as a result of the disputed tax concessions, granted to US giants like Microsoft and Boeing.

The finding is by far the highest level of retaliation authorized since the Geneva-based international trade body was setup in January 1995.

The disputed provision, known as the "Foreign Sales Corporations" (FSC), allows US companies with a foreign presence to exempt between 15 percent and 30 percent of their export income from US taxes. The US Congress passed the FSC in 2000 to replace an earlier version.

The FSC has been ruled in violation of WTO rules four times when past Washington efforts to reform it were deemed insufficient. The last time was in January when a WTO panel was finally asked toset a figure for EU sanctions.

Hailing the victory, EU Trade Commissioner Pascal Lamy said in a statement that the EU is satisfied by the ruling that makes the cost of non-compliance with the WTO crystal clear.

"The arbitrators have endorsed the EU's request. They have given us an amount of potential countermeasures which will create a major incentive for the United States to eliminate this huge, illegal export subsidy," he said.

Commission trade official Nikos Zaimis told a press conference the EU would seek fast implementation of the WTO ruling.

"We know that they (the United States) have (congressional) elections in November. This is an important date for the future. Of course, we would like to see the United States comply before that date," he said.

However, many observers wonder whether the EU will go ahead with the sanctions at the risk of severely damaging transatlantic relations.

The ties between the EU and the United States have been disputed because of the US steel tariffs and US war rhetoric against Iraq. The potential sanctions could further split the two sides.

The EU has said that before taking any sanction actions, it will consult with European industry on what goods it will hit.

It has also hinted it is preparing to stay its hand as long as Washington is making efforts to revise its laws.

In a bid to hold off EU retaliation, US President George W. Bush pledged in May that the United States would comply with the WTO rulings, and there have been moves in the US Congress on an alternative bill to aid US exporters.

The WTO chief, Mike Moore, called on both sides to get over their conflicts.

"I urge both parties to continue to cooperate and work towards resolving this dispute, and the others between them, in an amicable and constructive fashion," he said.

"The European Union and the United States are among the most important members of this organization and both hold a special responsibility to ensure the continued health and soundness of the WTO and the global trading system," he said.

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