Sanctions To Kick In On U.S. Goods

The European Union will start imposing sanctions on U.S. goods as of Monday because of Washington's failure to end export tax breaks that have been ruled illegal by the World Trade Organization.

"We've been waiting for years," European Commission spokesman Diego de Ojeda said Friday in confirming that the sanctions would go ahead as announced months ago. They "are automatic and there's nothing we can do about it."

The World Trade Organization declared the U.S. law allowing big exporters to benefit from reduced export taxes to be illegal in 2002. It authorized the EU to impose sanctions on up to $4 billion worth of U.S. goods — the biggest amount ever.

The Bush administration has promised an overhaul but so far Congress has failed to pass a new law.

The EU decided in December to impose tariffs beginning March 1, starting small and increasing each month. EU officials said U.S. companies will have to pay $16.5 million in March, rising to $46.4 million by December for a total of $315 million by the end of the year. It could be more than twice that in 2005 if Congress fails to act.

A preliminary list released by the Commission shows that U.S. jewelry exports, worth an annual $1.43 billion, will be the category hit hardest. Other items targeted include machinery, paper, fruits and vegetables, meat and dairy products, cotton and textiles, leather, tools, toys and sports equipment.
Boeing — which saved $195 million in 2002 from the U.S. tax break — is being spared because of pressure from European subcontractors.

Sanctions hurt U.S. producers by making it more expensive for them to sell their products in Europe. But they can also backfire by pushing up prices in Europe or disrupting production if other suppliers can't be found.

"The longer Congress takes to act, the more damage could be done to U.S.-EU trade relations," said Richard Weiner, a trade lawyer with Sidley, Austin, Brown and Wood in Brussels.

The duty might not be taken seriously at first by U.S. exporters coasting on the weak dollar, he said. "But if that flipped and the dollar reached parity, this would become a major issue."