- The Washington Times - Wednesday, March 5, 2003

The European Union is considering trade sanctions against the United States that would target politically sensitive regions and products as it tries to get the Bush administration and Congress to comply with a World Trade Organization ruling.
"Inevitably, trade measures of this kind are a tool for compliance. They are there to focus minds. You focus minds better if you target either products or identifiable territories or regions," EU Trade Commissioner Pascal Lamy told The Washington Times yesterday.
The European Union last week announced, but did not publicly release, a $4 billion list of U.S. products that could be targeted for sanctions. The 15-nation bloc is gauging U.S. progress on compliance with a 2002 WTO ruling that affects the way American companies are taxed on their exports.
Mr. Lamy, in Washington this week to meet administration officials and legislators, has demanded that the U.S. comply with WTO decisions.
But in a joint press conference with U.S. Trade Representative Robert B. Zoellick Monday, both men also called for cooperation and careful handling of trans-Atlantic economic relations.
The Bush administration has asked Congress to comply with the WTO ruling by repealing the portion of the U.S. tax code that allows companies a so-called "extraterritorial income exclusion."
The exclusion, which provides partial exemption from taxes on some foreign sales and leases, saves U.S. companies about $4 billion each year. But a WTO panel said the provision is an illegal export subsidy.
Congress is not expected to wade into the tax issue before this spring, and Mr. Lamy has refused to set a specific timetable for European Union retaliation.
"The important thing and I'm not saying we are there today the important thing is when will legislation be repealed and the benefits it provides for a number of EU competitors disappear," he said.
The move to target specific geographic regions and products to pressure U.S. policy-makers is not unprecedented.
In March 2002, press reports indicated that EU retaliation against U.S. steel tariffs, which never materialized, would target goods from states that are politically important for President Bush, such as Florida, Wisconsin, Pennsylvania and West Virginia. The 2000 presidential race saw close finishes in those states.
The United States also has targeted specific EU products in past trade disputes, such as Roquefort cheese and Shetland sweaters.
Mr. Lamy did not discuss specific products, states or strategies. The European Union wants to be "as clever as possible to maximize the impact on the other side."
"It is leverage," he said.
He also acknowledged that sanctions would be designed not to harm EU consumers or companies that rely on imports of U.S. products. And the full $4 billion in sanctions which would be the heftiest the WTO has ever authorized may not be implemented.
"We haven't made decisions, but of course we've been considering this sort of scenario where we don't put the whole $4 billion in place," Mr. Lamy said.
Any sanctions would mean that U.S. companies selling targeted products would suddenly find themselves priced out of the EU market.
While the international tax issue is one of several WTO disputes that has bothered the European Union, the U.S. Congress and Bush administration have also been annoyed with EU trade policy, in large part because of regulations that block genetically modified crops from entering the market.
A few congressional officials have also mentioned trade sanctions against France because the country has opposed U.S. foreign policy toward Iraq.
"The only real thing that appeared on my radar are congressional attitudes, which haven't materialized. But given the huge role of Congress … that's a radar screen that must be watched very carefully," Mr. Lamy said.
While the United States could not directly retaliate if the EU imposed sanctions, a congressional source said that anti-EU rhetoric and pressure to bring trade cases on genetically modified crops, for example could increase as a result.
House Ways and Means Committee members met with Mr. Lamy this week.
In a move to emphasize that the United States will comply with international trade rules, Rep. Bill Thomas, California Republican and Ways and Means chairman, yesterday gave Mr. Lamy a copy of legislation that would repeal a 1916 act that the WTO has ruled against. The act is another trade irritant frequently mentioned by the EU.

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