EU sanctions target US tax breaks

  1. Last Update: Monday, March 1, 2004. 3:51pm (AEDT)

    EU sanctions target US tax breaks

    The European Union has imposed sanctions on the United States for the first time as a dispute over tax breaks for US firms turns into a trade war that could cost American exporters $US300 million this year.

    The lower tax rates for exports for firms, including Boeing and Microsoft, were judged an illegal subsidy by the World Trade Organisation (WTO).

    The WTO ruled the EU could impose $US4 billion in sanctions a year on US goods.

    But European trade commissioner Pascal Lamy has decided to apply gradual pressure by phasing in measures that will hit a wide range of goods, including textiles, jewellery and toys.

    The sanctions are intended to prod the US Congress quickly to replace the tax breaks with measures in line with WTO rules.

    The sanctions start at $US16 million as an extra 5 per cent duty on selected US products in March and rise by 1 per cent a month to $US315 million in 2004 and $US666 million if they run throughout 2005.

    "The EU's objective remains the withdrawal of the US illegal subsidy," the Commission said in a statement.

    "The EU has opted for a response which is measured, gradual and geared towards focussing the mind of the US legislature to comply."

    Officials have tried to play down the impact of the trade row, which is the first time since the WTO was created in 1995 that the EU has retaliated on US goods.

    -- Reuters