European Union Imposes Sanctions on U.S. Goods

European Union Imposes Sanctions on U.S. Goods By THE ASSOCIATED PRESS Published: March 1, 2004 Filed at 3:09 p.m. ET BRUSSELS, Belgium (AP) -- The European Union sought to pressure the U.S. Congress into quickly changing its export subsidy laws by imposing sanctions Monday which could total $300 million in key industrial sectors by the end of the U.S. election year. The 15-nation EU said it had run out of patience with the United States for failing to repeal the Foreign Sales Corporation legislation two years after the tax breaks it offers to exporters were ruled illegal by the World Trade Organization. ``We are therefore left with no choice but to impose countermeasures,'' said EU Trade Commissioner Pascal Lamy. The sanctions will hit an array of industries, ranging from jewelry to textiles and agricultural goods. Since the sanctions are gradual, they will increasingly hurt as time ticks down to congressional elections in November. ``The faster they get on, the faster we can lift the sanctions,'' was the message to U.S. legislators from Lamy's spokeswoman Arancha Gonzalez. She told reporters the EU hoped a breakthrough in Congress was ``probably just a question of a few weeks.'' Under proposals being debated in Congress, Washington has to restructure some $5 billion in corporate tax breaks. After a visit to Capitol Hill last week, Lamy said he ``encouraged that progress can be rapidly achieved to adopt legislation repealing the FSC.'' If the dispute drags on, EU sanctions would rise to over $600 million next year. The measures mark the first time the EU used WTO rules to impose sanctions on the United States. However, they are much less than the $4 billion the WTO has authorized and the EU is hoping its measured approach will quickly sway the U.S. Congress into changing its Foreign Sales Corporation legislation. ``The name of the game is not retaliation but compliance: countermeasures will be lifted the day the FSC is repealed,'' Lamy said. The targeted products will be subject to a 5 percent penalty tariff that will ratchet higher by 1 percentage point each month over the next year unless Congress acts. There were some doubts though, the duty would be taken seriously early on since U.S. exporters are currently coasting on a weak dollar. Sanctions hurt U.S. producers by making it more expensive for them to sell their products in Europe. But they can also backfire by pushing up prices in Europe or disrupting production if other suppliers can't be found. ``These retaliatory tariffs will hurt U.S. exports to Europe at a time when ... the global economy is showing signs of renewed growth. Moreover, these tariffs will negatively impact jobs of American workers,'' according to a joint letter to Congress, signed by U.S. Chamber of Commerce president and CEO Thomas Donohue. ``The United States must lead by example and comply with adverse WTO decisions if we are to expect similar behavior from our trading partners,'' the letter urged. Washington has twice used WTO rules to impose trade sanctions on EU goods. In a dispute over bananas, the U.S. hit European products worth $120 million a year from 1999 to 2001. A conflict over European restrictions on beef treated with growth hormones has seen the United States impose sanctions worth $116 million a year since 1999. In the tax dispute, the EU decided in December to impose tariffs from March 1. That means U.S. companies will have to pay an estimated $16.6 million in March, rising to $46.4 million by December for a total of $315 million in additional duties by the end of the year.