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EU trade sanctions on US goods go into effect today

The EU is set to launch record multimillion-dollar trade sanctions against the US starting today in retaliation for illegal tax breaks given to US exporters.

Backed by a WTO ruling in a long-running row, EU duties will be slapped on a wide range of US goods entering Europe until the US Congress repeals the law allowing the tax breaks.

The sanctions, in a long-running row over the Foreign Sales Corporation (FSC) law, risk re-igniting a full-blown transatlantic trade war and follow recent EU-US spats over steel and anti-dumping legislation among others.

The US administration says the EU decision is regrettable -- and insists it is pushing the Congress hard to push through legislation to end the tax breaks "as quickly as possible."

"We've urged the European Commission to refrain from imposing retaliatory tariffs, given the complexity of the legislation and we regret that they are moving forward," said a spokesman for the US mission to the EU.

"But we will continue to work with Congress to get the legislation moving as quickly as possible," he added.

But in the meantime the EU insists the sanctions -- in the form of import duties levied initially at 5 percent rising by 1 percent a month up to a ceiling of 17 percent by March next year -- will go ahead from today.

"The name of the game is repeal. It is not retaliation, not sanctions. It is repeal, and to have a WTO-compliant legislation," said EU Trade Commissioner Pascal Lamy, on a visit to Washington last Thursday.

The WTO has ruled that the FSC law flouts global trade rules by allowing thousands of US firms, operating through subsidiaries in offshore tax havens, to benefit from reduced export taxes.

WTO arbitrators have agreed with the EU that just over US$4 billion (3.4 billion euros) would constitute "appropriate countermeasures" based on the trade impact of the US policy.

The Brussels commission argues that it has given Washington long enough and has no alternative but to impose the sanctions.

"We've been waiting for two years already," said a spokesman. "It is quite automatic here. There's nothing we can do about it."

Lamy said last week that he had no desire to take sides on the various proposals for US legislation to replace the FSC law, saying he only wanted to see the final version of the proposed law.

The House of Representative and Senate must find a compromise text that must then be signed by President George W. Bush and checked by the European Commission to see if it complies with WTO rules. The FSC row is at the forefront of a slew of trade disagreements between the Europeans and the Americans.
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