- The Washington Times - Tuesday, May 13, 2003

U.S. companies will face up to $4 billion in trade sanctions starting Jan. 1 if the federal government is not “on the way” to bringing its tax code in line with international rules by the fall, the European Union said yesterday.

The World Trade Organization (WTO) yesterday authorized the 15-nation European Union to hit American exports including jewelry, machinery, appliances, and wood and paper products with stiff tariffs.

The authorization follows an August WTO ruling against a section of the U.S. tax code that allows companies a partial exemption from taxes on some foreign sales and leases.

The tax rule is popular among exporters, such as Boeing and Caterpillar, and saves hundreds of companies about $4 billion annually.

The European Union called it an illegal subsidy for exports, and the WTO agreed.

Now the European Union has set its deadline for the United States to repeal the tax credit.

“The commission will review the situation in the autumn, and if there is no sign that compliance is on the way at that time, it would then start the legislative procedure for the adoption of countermeasures by Jan. 1, 2004,” EU Trade Commissioner Pascal Lamy said yesterday in a statement.

EU officials say they have not applied the sanctions to give Congress and the Bush administration time to comply.

Several proposals to bring the United States into compliance are planned in the House and Senate, including a recent proposal from Rep. Philip M. Crane, Illinois Republican, and Rep. Charles B. Rangel, New York Democrat, to repeal tax codes that violate WTO rules and replace them with a tax credit for domestic manufacturers.

The Senate’s top trade legislators, Sen. Charles E. Grassley, Iowa Republican, and Sen. Max Baucus, Montana Democrat, plan to introduce their own bill before Congress adjourns Oct. 3 for the year.

“It’s important to remember that [yesterdays] action doesn’t mean that the EU will impose extra duties any time soon. The Europeans know we’re working on this issue,” Mr. Grassley said yesterday.

In his 2003 budget plan, President Bush called on Congress to repeal the tax measure.

“As we’ve made clear, the United States intends to comply with our international obligations, we are continuing to consult with the [European Union], and the executive branch is working with Congress to comply with these obligations,” Richard Mills, spokesman for the U.S. Trade Representative’s Office, said yesterday in a statement.

In the meantime, industries that would be hardest hit are hoping the issue is resolved before tariffs close off a major market.

Jewelry, precious metals and precious stones top the list of products that face stiff EU tariffs.

“If the tariffs go much above existing rates, all [jewelry] exports to the EU would come to a halt. There’s no way the American product would be competitive if the tariffs are substantially increased,” said Jim Marquart, president of the Manufacturing Jewelers and Suppliers of America, a Providence, R.I., trade association.

For U.S. jewelry and gem exporters, that would mean a big market wiped out. U.S. jewelry exports to Britain, the biggest market among the 15 EU member states, reached $152.6 million in 2002, according to U.S. Census Bureau figures.

The United States exported $143.7 billion in goods to the European Union last year, according to U.S. figures.


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