The European Union slapped multi-million dollar trade sanctions on the United States on Monday over illegal tax breaks given to US exporters, urging US lawmakers rapidly to repeal the measures.
Backed by a World Trade Organisation ruling, the European Commission announced duties on a wide range of US goods entering Europe until the US Congress annuls the tax breaks under the Foreign Sales Corporation (FSC) law.
"Despite waiting for more than two years, the US has not brought its legislation in line with WTO rules. We are therefore left with no choice but to impose countermeasures," said EU trade commissioner Pascal Lamy.
"The name of the game is not retaliation but compliance: countermeasures will be lifted the day the FSC is repealed," he added.
The commission underlined that the level of sanctions is substantially less than the four billion dollars allowed by the WTO. The sanctions take the form of import duties starting at five percent, rising by one percentage point per month, on goods ranging from American meat to nuclear reactor parts.
This year they would amount to over 300 million dollars if continued until December, said Lamy's spokeswoman Arancha Gonzalez, but added that Brussels hopes the US measures will be repealed before then.
The WTO has ruled that the FSC law flouts global trade rules by allowing thousands of US firms, operating through subsidiaries in offshore tax havens, to benefit from reduced export taxes.
WTO arbitrators 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. In Washington, the US administration said it regretted the EU's decision to go ahead with the sanctions. A spokesman for US Trade Representative (USTR) Robert Zoellick underlined that US lawmakers were working hard to formulate legislation replacing the offending law.
"Given the economic and political complexities of this legislation, we have urged the EC (European Commission) to refrain from imposing retaliatory tariffs and we regret that they are moving forwards," Mills said.
"We will continue to work with Congress to move legislation as quickly as possible," he added.
US Treasury Secretary John Snow, Commerce Secretary Don Evans and Zoellick sent a letter to Congressional leaders last week urging prompt action, Mills said.
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 European business group UNICE said last month that it could consider, "while reluctantly, a reasonable transition period, as short as possible, for repeal of the current legislation," it said.
Lamy signalled last week that he has "a margin of appreciation" on the issue, and his spokeswoman left open the door to such an option Monday.
"We will have to take a decision on this transition period," she said. "We will examine this whenever both house and senate have moved piece of legislation forward."
The Brussels spokeswoman denied that the EU sanctions amounted to retaliation, adding: "The day this legislation is passed the EU will immediately lift its countermeasures."
"We have been .. waiting for more than two years for compliance from the US .. clearly the ball is in their camp," she said.
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