The US and EU on a collision course

Society Business and Career
1

The following sanctions can start up a major dispute between the two along with further weakening of the world economy…

EU Gets Sanctions Go-Ahead Against U.S.

Wed May 7,10:55 AM ET

By Patrick Lannin and Richard Waddington

BRUSSELS/GENEVA (Reuters) - The European Commission (news - web sites) gave the United States an autumn deadline on Wednesday to change disputed tax break laws for major corporations or face the threat of up to $4.0 billion in sanctions.

The long-running row over an export scheme for U.S. majors such as Boeing and Microsoft is one of a series of EU-U.S. trade spats. It re-emerges days after the two pledged to work together to boost stalled global trade talks.

“The Commission will review the situation in the autumn,” said European Trade Commissioner Pascal Lamy after the Geneva-based World Trade Organisation (WTO) gave the EU the final green light to impose the sanctions.

“If there is no sign that compliance is on the way at that time, it (the Commission) would then start the legislative procedure for the adoption of countermeasures by January 1, 2004,” he added in a statement.

The United States has been discussing ways it can comply with the WTO rulings against the system of tax breaks, known as the Foreign Sales Corporation, and two bills have been introduced in Congress in recent months.

Lamy said the EU was encouraged by the determination of Congress and the U.S. administration to change the law and hoped that any solution would be fully in line with WTO rules. But he has also said in the past that EU patience is not infinite.

The row over FSC goes back to 1998 and the level of the punitive duties was set according to the annual loss in earnings claimed by EU companies. The sum of $4.04 billion set by the WTO was a record for retaliation allowed by the trade body.

The ruling means the EU can set duties up to 100 percent on hundreds of U.S. imports, including live animals, aluminum and copper goods, cereals like buckwheat and nuclear reactor parts.

TRADE TALKS CLOUD

The tax dispute is one of a number of spats involving the world’s two biggest economic blocs and both Brussels and Washington are anxious not to stoke tensions, particularly as key WTO talks to free up global commerce have run into trouble.

Lamy and his U.S. counterpart Robert Zoellick pledged last week to try to give the global trade talks, the Doha Round, a push by focusing on where they agree rather than disputes.

Apart from the risk that sanctions could trigger a trade war at a time when the world economy is already struggling, many economists argue that their use could be counter-productive.

The economies of Europe and the United States are so closely intertwined that Europe would also suffer, they argue.

The two economic powerhouses are also at odds over other issues including U.S. duties on steel and a European block on genetically modified foods.

2

Could this be the start of a trade war?? I think the EU is right to press the US on its tax schemes which have already been deemed illegal by the WTO.

EU slaps $200m trade sanctions on US imports](http://www.timesonline.co.uk/article/0,,1-881691,00.html) The Times 05 Nov 03

The European Commission today announced that it would slap tariffs worth hundreds of millions of dollars on American imports.The move could see EU member states impose $200 million (£120m) of duties on American products coming into the bloc beginning in March 2004. The trade sanctions are an attempt by the commission to overturn a US corporate tax scheme that allows American firms to benefit from reduced export taxes.

The tax scheme, known as the Foreign Sales Corporation (FSC) scheme, was ruled illegal by the World Trade Organisation (WTO) in January 2002 as it was seen as giving an unfair advantage to American exporters. A spokeswoman for the commission said that duty would rise by $40 million (£30m) a month if US authorities did not repeal the scheme.

Arancha Gonzalez, spokeswoman for Pascal Lamy, the EU Trade Commissioner, said: “The faster the US acts, the less the measures will bite.” The WTO ruled in January last year that the FSC law flouted its rules by allowing thousands of US firms operating through subsidiaries in offshore tax havens to benefit from reduced export taxes. The WTO pointed out that the EU could impose tariffs of $4 billion (£2.4bn) if the FSC system was not dismantled by the end of 2003.

That penalty would have been an unprecedented sum which threatened to undermine trade relations between the EU and US yet further, after a range of disagreements over American steel subsidies and the EU ban on GM foods. Ms Gonzalez said: “We have opted for this measured but responsible approach which gives the US a last chance to comply.” “We want to give a last chance to the US legislative procedure. But March 1, 2004 will be cast in stone when the Council of Ministers adopts this proposal.”

M Lamy, on a visit to Washington yesterday, urged the US Congress to repeal the FSC to avoid the sanctions on its exports. Ms Gonzalez added: “The signs we’ve got from Congress are encouraging. We hope this will be done and sanctions can be avoided. But this should focus the minds of US legislators.”

3

Movement is taking place in dealing with the tax breaks currently in place, EU would be wise to hold tight.

4

Utd, it seems Mr.Bush will be forced to do a humiliating climbdown on his tax shelters policy. But his administration also faces another 2 Billion dollars worth of EU sanctions due to Bush’s implementation of illegal tarriffs within the US steel industry.

EU Warns of Multi-Billion Dollar Sanctions Against US VOA News 05 Nov 03

European leaders say they have waited long enough for American legislators to change the law, and they are threatening a series of sanctions if Congress does not act quickly.Sanctions that could ultimately total $4 billion may gradually be imposed on American exports beginning next March.

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[QUOTE]
Originally posted by Dil he Pakistani: *
Sanctions that could ultimately total $4 billion may gradually be imposed on American exports beginning next March.*
[/QUOTE]

For the life of me I can't understand that $4 billion will be any kind of threat to the USA or it's economy.

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Old man. It isnt 4 billion dollars. It is a 4 billion dollar tax on exports of american products to the EU. This means that american products would become more expensive in the EU. Thus it is not just 4 billion dollars, the spill over will affect other products and could total more than 4 billion easily. Also the EU is the US's largest trading partner. If this starts you have a domino effect with the US retaliating and you have the start of a trade war where the whole world will suffer considering the current economy environment.

Simply put.

A. Its bad.
B. Its gonna get worse.

7

[QUOTE]
*Originally posted by CM: *Simply put.
A. Its bad.
B. Its gonna get worse.
[/QUOTE]

I expect the EU to become the next powerhouse and major superpower in the world - taking over from the USA.

8

Agreed if they can economically hold it together and establish an effective power-sharing system. Because with enlargement they will have 25 countries with different views. Plus they need to move away from NATO and establish the Europa Corps as they have been dubbed along the wishes of France and Germany (mainly france) to step out from underneath the shadow of the US.

9

More on the steel tarrifs..

Bush weighs case for repealing steel tariffs](http://news.ft.com/servlet/ContentServer?pagename=FT.com/StoryFT/FullStory&c=StoryFT&cid=1066565703229) FT News 07 Nov 03

Grant Aldonas, the US undersecretary of commerce for international trade, this week called it “a relatively stark choice”. Nearly two years after President George W. Bush deviated from his free trade rhetoric by imposing tariffs of up to 30 per cent on imported steel, Mr Bush must now decide whether to risk European trade sanctions by leaving them in place.

The World Trade Organisation is expected on Monday to issue a final ruling that the tariffs violate its rules. Pascal Lamy, the European Union trade commissioner, said sanctions against as much as $2.2bn (£1.3bn) in US imports were “a racing certainty” by mid-December if the US did not remove the tariffs. The administration has given few hints about what Mr Bush will do. What is clear is that support for the tariffs has waned among many of his top advisers …

10

This could really be the beginning of a huge trade war. I think the EU is correct in taking action against the unfair trade practices implemented by the Bush Adminstration.

US goods set to double in price as Europe plans huge trade war](http://news.independent.co.uk/world/politics/story.jsp?story=462607) Independant News 11 Nov 03

By Stephen Castle in Brussels

**American jeans, Florida orange juice and dozens of other US products could double in price from next month because of a growing transatlantic trade war. The World Trade Organisation gave the European Union permission yesterday to impose huge import tariffs, which will allow price increases of between 8 and 100 per cent on a range of goods. **

The row, which began when America imposed special duties of up to 30 per cent on European steel last year, reached a climax yesterday when the trade watchdog gave a final decision in favour of the EU. It said the US action was “inconsistent” with free trade commitments. Europe can now impose duties on products ranging from T-shirts and lavatory paper, to bras, pantyhose, suspenders, ballpoint pens, ski suits and bowling alley equipment. Harley Davidson motorcycles were included in an early draft of the sanctions list, but were not included yesterday.

The EU says its sanctions, amounting to ¤2.2bn (£1.5bn) a year, will come into force on 15 December unless Washington drops its steel duties. The sanctions would be the biggest in the history of the WTO. Most of the affected imports face tariffs of 30 per cent on top of existing duties, though a small number will be set at 8 or 15 per cent and some at 100 per cent. President George Bush now faces a dilemma over whether to back down and remove the steel tariffs. The American government issued a statement yesterday saying that it disagreed with the ruling but would study it carefully.

The WTO’s decision comes at a sensitive time, with the US presidential campaign about to begin in earnest. In drawing up its list of sanctions, the EU has deliberately selected products from states which are crucial to President Bush’s electoral hopes. **The steel tariffs have proved controversial in the US, where they dented President Bush’s credentials as an advocate of free trade and angered American-based car makers. They say that the tariffs have increased the price of their raw materials, causing job losses and making vehicles more expensive for consumers. But the White House is also facing heavy political pressure from “rust-belt” states such as Pennsylvania, West Virginia and Ohio to keep the steel import duties, which are due to continue until 2005. **

The steel row is only one of a number of trade disputes which threaten to poison relations between the EU and the US, and could help stymie prospects for economic recovery. The EU has threatened to impose another set of sanctions against Washington from next spring if it does not repeal tax breaks for American exporters. Meanwhile, the WTO is considering a complaint from the US that Europe is blocking the import of genetically modified products. Washington is already retaliating against an EU ban on beef from cattle which are given hormones to stimulate growth. …

11

The EU is a toothless tiger, so their empty threats make no difference. They should concentrate more on the discrimination of Muslims in their countries.

12

Imdad incorrect. Economically speaking the EU could cripple the US, as they are the largest trading partner. The world formost Pharma companies are European. A ban that would make their products more expensive in the US would heavily affect the medical sector the US economy. This is just one example.

13

“The EU, fed up with the protectionist fences erected around politically sensitive areas of the US economy while President George W. Bush preaches the gospel of free trade, seems more intent on tough action than at any other time in a long history of transatlantic feuds.”

EU takes on US over steel tariffs](http://www.nzherald.co.nz/storydisplay.cfm?storyID=3533882&thesection=news&thesubsection=world) The New Zealand Herald 13 Nov 03

14

people will understand only when it will hit them more closer to home.

15

[QUOTE]
*Originally posted by CM: *
Imdad incorrect. Economically speaking the EU could cripple the US, as they are the largest trading partner. The world formost Pharma companies are European. A ban that would make their products more expensive in the US would heavily affect the medical sector the US economy. This is just one example.
[/QUOTE]
I agree, but politically they are powerless. Just a large bureaucratic organization that gets very little accomplished.

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*The United States and European Union slapped each other with World Trade Organization suits yesterday, accusing one another of paying out billions of dollars in illegal subsidies to their top aircraft manufacturers. The cases escalate U.S.-EU trade friction and step up the high-stakes battle between Boeing, headquartered in Chicago, and Airbus, based in Toulouse, France, to control a wider share of the world market for commercial airplanes. * Excerpt

U.S., EU sue each other over subsidies](http://washingtontimes.com/business/20041006-101943-9823r.htm) Washington Times, 07 Oct 04

17

EU should stand up more to the US...we need a shift in power