EU Gets Sanctions Go-Ahead Against U.S. By Patrick Lannin and Richard Waddington link 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. Interesting how the worm has turned on this one. Usually we are the ones asking for sanctions. It is surprising that the EU has taken this step.
