A LONG-RUNNING transatlantic trade dispute erupted yesterday as the EU reopened a dispute over US tax breaks before President Bush’s visit to Brussels this weekend.
The World Trade Organisation (WTO) agreed to a request from the EU to examine whether US measures to end the controversial tax breaks for America’s exporters went far enough.
The renewed hostility will cast a shadow over a visit by President Bush to Brussels to repair transatlantic ties damaged by the Iraq war.
It threatens to damage relations patched up last month by Peter Mandelson, the EU Trade Commissioner, and Robert Zoellick, his US counterpart, when they agreed to hold talks on ending subsidies. The economic superpowers stepped back from a potentially huge trade showdown over multibillion subsidies to Boeing and Airbus, the aircraft makers.
The new dispute centres around the Foreign Sales Corporation law, which the US Congress repealed last year after the World Trade Organisation declared it illegal, in the biggest transatlantic trade dispute for 50 years. This month the EU responded by lifting sanctions on $4 billion (£2.2 billion) of American goods. But it maintained that several provisions in the US’s replacement tax bill were also illegal.
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Brussels complained twice to the WTO, triggering the investigation launched yesterday.
Anthony Gooch, the European Commission’s US spokesman, said that by lifting sanctions and then issuing its new complaint, the EU was trying to resolve the dispute amicably, although he confirmed that reimposing sanctions remained an option.
“There are devils in the detail,” he said. “We don’t want this to drag on unnecessarily and we think if we nip this in the bud quickly we will finally be able to put this to rest.”
But Washington said that it was “profoundly disappointed” by the EU move. An official said: “We believe that the EU’s claims lack merit, and we are confident that a panel will agree.”
The Commission objects to “grandfather” clauses in the revised tax law that exempt older contracts. It is also unhappy that the US is to give transitional aid to companies such as Boeing and Microsoft, which benefited from the repealed tax regime.
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WTO officials said a decision in the case could be ready within 90 days.
In a separate dispute, the WTO also set up a panel to rule on the legality of £62 million of US sanctions imposed in response to the EU’s ban on imports of hormone-treated American beef.
The US has been applying duties on European exports such as cheese, mustard, truffles, hams and soups, in retaliation for the EU’s beef ban.
President Bush will fly to Brussels on Sunday for a three-night stay, which will include a visit to the EU headquarters.
FLASHPOINTS IN THE TRADE WARS
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Corporation tax: Last year Congress repealed a law introduced in 2000 to support foreign exporters. But the EU believes that its replacement law still falls foul of WTO rules
Beef: The US has applied £62 million tariffs on European exports in retaliation for the EU banning beef imports treated with hormones
Planes: Boeing and Airbus, the US and EU champion aircraft makers, agreed last month to work together to end state subsidies
Steel: Tariffs on steel introduced by President Bush in 2001 were declared illegal by the WTO
Farmers: The US complains about the EU’s Common Agricultural Policy. The EU complains about Washington’s own handouts to farmers