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European Union could slap $4 billion in duties on selected US exports such as grain and live animals, Lamy warns

BRUSSELS The European Commission has given the US an autumn deadline to change disputed tax break laws for major corporations or face the threat of up to $4 billion in sanctions according to the Reuters News Service.

The long-running row over an export mechanism for US multi-nationals such as Boeing and Microsoft is one of a series of EU-US trade spats and re-emerges just weeks after both had pledged to work together to boost stalled global trade talks.

"The Commission will review the situation in the autumn," European Trade Commissioner Pascal Lamy told the news service after the Geneva-based World Trade Organization (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 said.

The US has been discussing ways it can comply with the WTO rulings against the system of tax breaks, known as the Foreign Sales Corporation (FSC) program, and two bills have been introduced to that end in Congress in recent months.

Lamy said the EU was encouraged by the determination of Congress and the US 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 Geneva-based trade body.

The ruling means the EU can set duties up to 100% on hundreds of US imports, including live animals, aluminum and copper goods, cereals like buckwheat, and components for nuclear generation plants.

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 stalled.

Lamy and US Trade Representative (USTR) Robert Zoellick have both pledged to try to give the Doha Round of trade talks a push by focusing on points of agreement rather than issues of division.

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 US, they told Reuters, are so closely intertwined that Europe would also suffer.

The two economic powerhouses are also at odds over other issues including US duties on steel and a European block on genetically modified foods.

A list of the US products that the European Commission is threatening to levy prohibitive duties on can be found at http://europa.eu.int/comm/trade.

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