- The Washington Times - Wednesday, February 25, 2004

Jewelry makers, wood and paper producers, machine-tool shops and hundreds of other U.S. manufacturers face trade barriers starting Monday that will make their products more expensive in Europe and cut off some American exports.

The European Union in 2002 won the right to impose up to $4 billion in sanctions on U.S. products when the World Trade Organization ruled against a section of the U.S. tax code that allows tax breaks on some foreign sales and leases. The WTO called the breaks illegal export subsidies.

Congress and the Bush administration agree they must fix the tax code but have not been able to turn any proposals into law despite the deadline of Monday set last year by the 15-nation European Union.

The European Union’s top trade official is scheduled to be in Washington today but is not expected to offer any delay for sanctions. So, starting Monday, some U.S. companies will face levies starting at 5 percent and increasing a percentage point per month for a year unless the tax breaks are repealed.

“It’s a concern all right. It’s going to have a strong impact on our wood and paper exports,” said Barry Polsky, spokesman for the American Forest and Paper Association, an industry group whose members include Boise Cascade and Weyerhaeuser.

“We are concerned. We’re already in a situation where it’s very difficult to get into the European market,” said Paul Freedenberg, vice president for government relations at the Association for Manufacturing Technology, a McLean-based industry group for machine-tool makers like Cincinnati Machine.

Some of the sanctions’ impact will be blunted by a weaker dollar, which makes American products cheaper overseas. But Mr. Freedenberg and other industry officials said competitors vying for the European market often come from Asian nations, where the exchange rate does not offer as much of an advantage.

“We are competing with European manufacturers, with Chinese manufacturers. A weaker dollar doesn’t impact us directly,” said James F. Marquart, president and chief executive at the Manufacturing Jewelers and Suppliers of America, which represents firms like Tiffany & Co. and Zale Corp.

The industry groups are pressing Congress to act quickly before the sanctions escalate.

The Senate is scheduled to consider legislation to end the dispute as soon as next week, but the House appears deadlocked.

Sen. Charles E. Grassley, Iowa Republican, sponsored legislation to repeal the illegal subsidies, worth about $50 billion over 10 years, redistribute them as a broad tax break for domestic manufacturers and offer some relief for multinationals with overseas operations.

On the House side, Rep. Bill Thomas, California Republican, has written legislation that rolls back the subsidies and offers some tax breaks for manufacturers. But he also has championed extensive reforms aimed at multinational companies that raise the price of the bill.

The $60 billion price tag and benefits for companies operating overseas alienated Democrats and some Republicans and has left the body with no set date to consider the tax law.

Democrats yesterday tried to round up support for a “discharge petition,” an effort to gather signatures from a majority in the House and force a vote on an alternative to Mr. Thomas’ bill.

The alternative, originally sponsored by Rep. Philip M. Crane, Illinois Republican, and Rep. Charles B. Rangel, New York Democrat, more closely mirrors Mr. Grassley’s initiative.

But key Republicans who originally supported the Crane-Rangel legislation said they would not support the petition.

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