Northland Forest Products was selling as much as $100,000 worth of lumber to Europe each month in 2003 and early this year. But on March 1, the European Union put up new trade barriers against more than 1,000 U.S. products, including one of Northland’s lumber lines.
“Since March 1, I haven’t sold one stick of it,” said Rob Cumbia, international sales manager for the Kingston, N.H., company.
The trade barriers that started at 5 percent in March are increasing by one percentage point a month, up to 7 percent today . They are the result of a World Trade Organization ruling against the United States.
The WTO in August 2002 said the European Union, with 25 member states as of today, could impose up to $4 billion a year in trade retaliation after a ruling against U.S. export subsidies.
The European Union has implemented a small fraction of the potential duties — an estimated $23 million for May — on products that make up a small segment of EU imports, such as Northland’s surface lumber, hams, milk powder, tomatoes, trousers, bed linen, hand tools, steam engines, refrigerators, paper products and some steel.
The duties are the equivalent of a new, $475 million tax on U.S. products sold in Europe during the first year of sanctions, according to Commerce Department estimates.
The rising duties are the first time the European Union has put up WTO-authorized trade barriers to U.S. goods, but may not be the last.
The European Union last year prepared to target a wide array of U.S. products after it won a WTO case on steel tariffs. The list focused on goods from Florida, Pennsylvania, Ohio and other politically sensitive states. The Bush administration repealed the tariffs.
Europe is drawing from the same list for yet another WTO case, this one dealing with the “Byrd amendment,” a U.S. law that allows American companies to be paid millions of dollars in duties collected from foreign competitors.
The WTO in September 2002 said it was illegal, but Congress has refused to repeal it. It is not clear when Europe would impose new sanctions.
The overall impact on U.S. companies from active European trade sanctions has been blunted because the dollar has slumped by more than 20 percent compared with the euro since August 2002, when WTO arbitrators said the Europeans could drop the $4 billion bomb on American exporters. A weaker dollar makes U.S. products cheaper abroad.
But for some U.S. companies that rely on exports to Europe to boost profits, the impact is severe.
“This is critical to my business and to many American companies that are trying to survive in the export business,” said Mr. Cumbia from his Ivy, Va., sales office.
The EU tariff hurting Northland specifically affects surface lumber, a product used to make window frames and door frames.
Mr. Cumbia said the firm has not had to lay off any of its 70 employees, but the lost revenue is painful.
“It’s a major disaster for me,” he said.
The Senate next week is scheduled to pick up legislation that would end the offending export subsidies.
“We hope to finish it next week,” said Amy Call, spokeswoman for Senate Majority Leader Bill Frist.
The bill working its way through the Senate was originally a bipartisan effort meant to scrap the subsidies — worth about $50 billion over 10 years to companies like Boeing and Caterpillar — and replace them with across-the-board tax cuts for domestic manufacturers and multinational corporations with overseas operations.
Instead, the bill has morphed into a $170 billion package that is loaded with extra provisions from both parties.
Sen. John McCain, Arizona Republican, last month said it was “being dragged down with the unnecessary weight of billions of dollars in wasteful subsidies, tax breaks and special exemptions for special interest industries.”
Tax breaks for archery equipment, farm cooperatives, film and television production, timber, distilled liquor, car dealerships, and other interests have been inserted in the legislation.
And both parties have waged a bitter fight over a series of amendments that Democrats say are germane to the bill but that Republicans consider unrelated, election-year talking points on the economy.
“The bill has become an unwieldy monstrosity. This should have been so easy to deal with — get rid of the offending provisions and lower the tax rates. Instead, the bill has become a vehicle for every pet legislative idea that has been floating around,” said Dan Griswold, assistant director at the Cato Institute’s Center for Trade Policy Studies, a libertarian think tank.
Senate Democrats and Republicans still are trying to narrow a list of about 80 amendments that could be added into the final legislation.
The House also must pass the bill before sanctions would be lifted, but it is not on the chamber’s calendar.
Lawmakers there are waiting to see the Senate’s approved legislation before the House version comes up for a vote.
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