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EU cleared for U.S. trade battle

U.S. steel exports are on the list of products to be hit by EU trade sanctions.
U.S. steel exports are on the list of products to be hit by EU trade sanctions.

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GENEVA, Switzerland -- The World Trade Organization has given the go-ahead for the European Union to impose a record $4 billion (3.5 billion euros) in annual trade sanctions against the United States.

Wednesday's decision is the last hurdle for the EU in its long-running dispute with the U.S. over tax breaks for multinational companies.

The trade sanctions -- the largest approved by the WTO in its eight-year history -- are set to take effect by January 1, 2004.

The European Commission, the EU's executive arm, on Wednesday gave the U.S. until the autumn to change its tax laws or face punitive duties on up to 95 categories of products.

"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," European Trade Commissioner Pascal Lamy said in a statement.

Lamy: Sanctions on U.S. exports are set to start January 1, 2004
Lamy: Sanctions on U.S. exports are set to start January 1, 2004

The duties -- some as high as 100 percent -- could be slapped on U.S. products ranging from iron and steel, machinery, meat and vegetables, fur and textiles, wood, dairy, electronics and sound systems.

The EU first challenged the U.S. tax breaks in 1997, arguing that they allowed American companies to operate through subsidiaries in offshore havens and benefit from lower export levies.

The tax breaks provide U.S. companies with de facto subsidies that give them an unfair advantage over their European counterparts, the EU said.

In 2000, the U.S. Congress made changes to the so-called foreign sales corporation tax law (FSC) after an earlier ruling against the U.S. by the WTO. However, the EU reacted by saying the changes did not go far enough.

The WTO decided in January 2002 that the FSC system contravened global trade rules. That led to an agreement by trade arbitrators to back the EU's contention that $4 billion would be "appropriate counter measures" given the impact of the tax breaks on European trade.


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