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EU Threatens US over Corporate Tax Breaks

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US faces record sanctions

Prairies of the Midwest are under threat if sanctions go ahead

The World Trade Organisation has authorised the European Union to impose trade sanctions against the United States worth $4bn a year from 2004 in a dispute over tax breaks for American corporations.

The US, meanwhile, has said it will do its best to comply with the WTO's ruling.

The level of retaliation is the highest ever authorised by the WTO in its eight-year history but the authorisation does not mean the measures automatically take effect.

"The Commission will review the situation in the autumn," said European Trade Commissioner Pascal Lamy.

"If there is no sign that compliance is on the way at that time, the Commission would then start the legislative procedure for the adoption of counter-measures by January 1, 2004."

The office of the US Trade Representative in Washington DC tried to play down the matter.

"This is part of the process, and the EC is acting within their rights," a spokesman said, adding that the USTR was working on the US Congress to try to get the tax changes enacted.

Benefits

The EU had complained that Washington had ignored a WTO ruling against the tax breaks which were said to amount to an illegal export subsidy.

US companies such as Boeing and Microsoft have benefited from the tax break system which allows firms carrying out business through subsidiaries in offshore tax havens to benefit from reduced export taxes.

The EU has listed 95 categories of US products on which it could impose additional duties of up to 100%, including:

Dairy products, cereal, meat and vegetables

Wood, leather, fur and textiles

Glass and ceramic products, iron and steel

Copper and aluminium nuclear reactors, boilers and machinery

The WTO confirmed in January 2002 that the system flouted global trade rules, and arbitrators agreed with the EU that $4bn would constitute "appropriate countermeasures" based on the trade impact of the US policy.

Steel dispute

Washington had contested the level, arguing sanctions should be not more than $956 million.

There have been several transatlantic trade disputes in recent years.

At present, there is a WTO case about US tariffs on steel imports, imposed last year.

The WTO decision has not been published yet, but it is reported to find against the US.

The EU has also lost cases in transatlantic disputes.

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