EU sanctions hit US goods

The European Union yesterday slapped hundreds of millions of dollars in annual economic sanctions on US jewellery, textiles, food, equipment and other exports, stepping up pressure on Washington to repeal corporate tax breaks that violate world trade rules.

The move could cost US companies some $315 million this year in extra duties on exports to Europe, and $666 million in 2005, unless Congress scraps the tax breaks. It was the first time the EU has levied trade sanctions on the United States since the World Trade Organisation was formed in 1995.

The EU has promised to lift the sanctions as soon as the US Congress passes legislation repealing the tax breaks.

The Senate could begin action this week on legislation, but the outlook in the US House of Representative is clouded.

"We urge Congress to act quickly and replace the FSC/ETI (tax breaks) with tax provisions that end the threat of these tariffs and promote the competitiveness of American manufacturers," said White House Scott McClellan.

The disputed tax loopholes, valued at about $5 billion annually, benefit a wide cross-section of US exporters, from Boeing, Microsoft and Caterpillar to Eastman Kodak, grain company Cargill and food processor Archer Daniels Midland Co. EU Trade Commissioner Pascal Lamy said the EU had "no choice" but to resort to the sanctions after the United States missed a March 1 deadline for repealing the provisions.

"Despite waiting for more than two years, the US has not brought its legislation in line with WTO rules," Mr Lamy said.

A bill crafted by US House of Representatives Ways and Means Committee Chairman Bill Thomas faces strong opposition from Democrats and some Republicans because of provisions they argue would give American manufacturers incentives to move jobs overseas.