[A-List] Europe/US rivalry: trade wars

["Keaney Michael" <Michael.Keaney@xxxxxx>]

Europe fires latest shot in US tariff battle
By THE NEW YORK TIMES
FT.com site, September 11 2002

WASHINGTON, Sept. 10 - The European Commission has compiled a list of
hundreds of American products, from cereals and soybeans to clothing and
steel, on which it may impose retaliatory tariffs if the United States
refuses to eliminate a tax break for American exporters.

The list, which is scheduled to be made public in Brussels on Friday, is
the latest and most concrete salvo in Europe's escalating battle over
the American tax breaks. While the sanctions are not imminent, the list
amounts to a sharp warning, covering a range of products far more
sweeping than any other retaliatory action proposed in recent memory.
In what appears to be a calculated effort to hit at politically
sensitive areas, the list is heavily weighted to penalize American farm
exports, from live animals and meat to dairy products, cereals, citrus
fruits and fish. It also singles out many categories of clothing and
textiles, and it takes especially heavy aim at iron and steel products ?
an industry in which Europe is already battling American tariffs.

The World Trade Organization, which serves as a referee in trade
disputes, has already ruled that the United States has violated
international trade rules with tax breaks that favor foreign sales
subsidiaries of American manufacturing companies.

Late last month, the organization, based in Geneva, ruled that the
European Union is entitled to impose retaliatory tariffs of up to $4
billion, which would be by far the biggest trade retaliation ever
undertaken by any government since the World Trade Organization was
created in 1995.

A senior American official said that the United States had been
expecting the list but called it a "double-edged sword," saying it would
show the Europeans the "true implications" of putting tariffs on goods
coming into Europe.

The new list covers products worth $10 billion to $15 billion, and is
meant as a first draft that will be whittled down after being reviewed
by individual governments within the European Union.

European officials have said they will not impose any sanctions
immediately, and they are hoping that Congress will pass legislation
that repeals or at least rewrites the export tax breaks in ways that do
not violate international trade rules.

The Bush administration has said it will push hard to change the
existing laws, and Republicans on the House Ways and Means Committee
have already drafted a bill that would repeal the offending tax
provision and replace it with other benefits that would reduce corporate
taxes on foreign income.

The problem is that American corporations are deeply divided about the
best way to rewrite the law because there is no single formula that
would prevent at least a few big American corporations from losing
hundreds of millions of dollars in tax breaks.

Aerospace companies like Boeing as well as big exporters like Eastman
Kodak and Caterpillar are among the companies most worried about losing
big tax breaks without getting anything back from other tax changes.

Pascal Lamy, the European Commission's chief trade negotiator, has thus
far tried to avoid direct conflict over the tax issue and he still
refrains from saying when he will actually try to impose the tariffs.

The preliminary list will be refined over the next two months and
completed in November.

But European officials are not likely to impose the tariffs until at
least early next year, after Congress has had a chance to change the law
following elections in November.