GENEVA — The European Union said it would reimpose punitive tariffs of 14 to 17 percent on U.S. products — including textiles and apparel — valued at about $4 billion a year if Washington fails to withdraw export tax breaks found to be illegal under a World Trade Organization ruling affirmed on Monday.
“The U.S. now has three months to act to avoid reimposition of retaliatory measures,” said Peter Mandelson, EU Trade Commissioner. “The EU will not accept a system of tax benefits which gives U.S. exporters, including Boeing, an unfair advantage against their European competitors. We are seeking nothing more than the reestablishment of a level playing field.”
U.S. officials and some members of Congress charged that the EU revived the tax break dispute as retaliation after the U.S. filed a WTO dispute against EU subsidies to aircraft manufacturer Airbus.
Sen. Chuck Grassley (R., Iowa), chairman of the influential Senate Finance Committee, said the Europeans seemed to have “appreciated and accepted” our compliance efforts until the U.S. raised the issue of Airbus subsidies.
“Their blatant linkage of WTO disputes is a dangerous precedent,” he said.
A spokeswoman for U.S. Trade Representative Rob Portman said, “It’s a serious concern and we will continue to urge them not to reimpose sanctions. Prolonging the dispute is not helpful to fostering trade relations.”
A three-member WTO appellate body panel rejected a U.S. appeal and upheld earlier panel findings that ruled the U.S. “still maintains” tax breaks prohibited under global norms. The panel found that despite efforts to repeal the offending measures, the U.S. still maintains prohibited subsidies through transitional and grandfathering measures and “it continues to fail to implement fully” the recommendations and ruling to withdraw the illegal subsidies.
EU officials countered that the benefits to U.S. corporations from the transition and grandfathering provisions allow Boeing and other firms to benefit from illegal subsidies. EU officials said the measures, which could kick in 60 days after the latest WTO ruling is adopted, would start with punitive
duties of 14 percent and increase by 1 percent each month until they reach 17 percent, or $680 million after a year.
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In March 2004, the EU slapped 5 percent duties on many products including textiles, agricultural goods, electronics and steel, and increased them to 14 percent over a nine-month span. The WTO in May 2003 authorized the EU to impose sanctions after the U.S. had failed to repeal the illegal tax breaks.
Both the Foreign Sales Corporation Act and its successor, the Extra Territorial Income Act, granted income tax rebates to U.S. exporters. However, the EU suspended the sanctions on Jan. 1, 2005, to challenge the revised U.S. law — the American Jobs Creation Act — that also was found in breach by a WTO panel in September 2004 and upheld Monday.