US must ‘deal with tax break laws or face sanctions’

THE European Commission yesterday gave the United States an autumn deadline to change disputed tax break laws for major corporations or face the threat of up to $4.0 billion in sanctions.

The long-running row over an export scheme for US majors such as Boeing and Microsoft is one of a series of EU-US trade spats.

It re-emerges days after the two pledged to work together to boost stalled global trade talks.

“The Commission will review the situation in the autumn,” said European Trade Commissioner Pascal Lamy after the Geneva-based World Trade Organisation (WTO) gave the EU the final green light to impose the sanctions.

“If there is no sign that compliance is on the way at that time, it (the commission) would then start the legislative procedure for the adoption of counter-measures by January 1, 2004.”

The United States has been discussing ways it can comply with the WTO rulings against the system of tax breaks, known as the Foreign Sales Corporation, and two bills have been introduced in Congress in recent months.

Lamy said the EU was encouraged by the determination of Congress and the US administration to change the law and hoped any solution would be fully in line with WTO rules, but he has also said in the past EU patience is not infinite.

The row over FSC goes back to 1998 and the level of the punitive duties was set according to the annual loss in earnings claimed by companies in the EU.

The sum of $4.04 billion set by the WTO was a record for retaliation allowed by the trade body.

The ruling means that the EU can set duties up to 100% on hundreds of US imports, which include live animals,

aluminium and copper goods, together with cereals like buckwheat and nuclear reactor parts.

The tax dispute is one of a number of spats involving the world’s two biggest economic blocs and both Brussels and Washington are anxious not to stoke tensions, particularly as key WTO talks to free up global commerce have run into trouble.

Lamy and his US counterpart Robert Zoellick pledged last week to try to give the global trade talks, the Doha Round, a push by focussing on where they agree rather than disputes.

Apart from the risk that sanctions could trigger a trade war at a time when the world economy is already struggling, many economists argue that their use could be counter-productive.

The economies of Europe and the United States are so closely intertwined that Europe would also suffer, they argue.

The two economic powerhouses are also at odds over other issues including US duties on steel and a European block on genetically-modified foods.