Associated Press | January 16, 2002 | By MARTIN CRUTSINGER, AP Economics Writer
WASHINGTON - The Bush administration left all options open on Tuesday on how it plans to proceed following the country's biggest defeat before the World Trade Organization, a ruling could set the stage for $4 billion in retaliatory tariffs against U.S. exports to Europe.
Meanwhile, a European official on Tuesday suggested a way to avoid setting off a huge trade war between the United States and Europe would be for the Bush administration to agree to lower U.S. tariffs on an equivalent amount of European products.
Both sides were talking compromise on Tuesday in the wake of Monday's decision by the WTO that a U.S. law granting $4 billion annually in tax breaks to more than 6,000 American companies constituted an WTO-illegal export subsidy. General Electric Corp. and Boeing Corp. are two of the biggest beneficiaries of the tax break.
A senior U.S. trade official said the administration planned to listen closely to suggestions put forward by members of Congress and the affected companies and to read the WTO ruling to determine just what options the U.S. has left.
"We will be consulting very closely with Congress and affected U.S. industries to determine the next step," the official, who spoke on condition of anonymity, told reporters Tuesday. "We are also analyzing very closely the appellate body ruling to determine the next step."
U.S. officials in the past have raised the possibility that if the United States lost its case, the administration might bring cases against European nations with tax laws that it thinks are out of compliance with WTO rules. Two European nations worried about protecting those tax breaks for businesses are Belgium and Spain.
Meanwhile, a senior EU trade official, also speaking on condition of anonymity, said that the United States could avert billions of dollars in sanctions on its products by agreeing to lower U.S. duties on European products.
"Compensation is an option but has to be based on very serious assessment of where we're going," the official said.
He said the two sides would have to agree on the sectors and products covered.
Trade analysts have raised the possibility that Europe will use its huge victory as a bargaining chip to force the United States to back away from raising barriers on steel imported from Europe and other countries. President Bush must make a decision in that case in March.
However, both the EU and U.S. official rejected the idea of such a trade-off.
The tax case now will go to an arbitration panel that will determine exactly the level of harm being done to Europe by the U.S. tax breaks.
Once that is done, the EU, which in the past has put the harm at $4 billion, will be able to select an equivalent amount of American products on which to impose punitive tariffs of 100 percent or more, effectively eliminating those products from the European markets.
Under the time table both sides agreed to in September 2000, the EU could begin levying the retaliatory sanctions in April.
Last year, U.S. Trade Representative Robert Zoellick warned the EU that actually imposing sanctions in the tax dispute would be the equivalent of detonating a "nuclear bomb" on U.S.-EU trade relations.
Some members of Congress have suggested the United States should consider scrapping the tax break in an overhaul of the U.S. tax system that would bring American policies into compliance with world trade rules.
But representatives of U.S. companies retort that such a move would come at a terrible time considering the country is now in its first recession in a decade.
"As America struggles to recover from recession, U.S. companies shouldn't have to face an annual tax increase of more than $4 billion or comparably expensive trade sanctions imposed by the EU," said Michael Baroody, executive vice president of the National Association of Manufacturers.
The problem is the United States operates under a global tax system, which subjects U.S. companies to a tax on earnings regardless of where they come from.
European nations operate under a territorial tax system, in which only companies' domestic earnings are subject to taxation.
The U.S. tax break was passed in 1984 to compensate American firms for an EU tax rebate given to European companies for products sold overseas.Associated Press:
