Fri, Jan 18, 2002 page21

• EU's Lamy threatens US with sanctions

  • BLOOMBERG
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  Europe's top trade official threatened to impose billions of dollars in sanctions on the US over a corporate tax dispute, rebuffing protests by business leaders that the move would damage the European economy as well.

  The comments by European Trade Commissioner Pascal Lamy drew criticism from US and European business representatives, who complained that Lamy was turning up the heat at a time of increasing tension between the trans-Atlantic trading partners.

  Lamy said the EU will make the most of Monday's WTO ruling against a US tax break for exporters that paves the way for as much as US$4 billion in EU tariffs on American goods, the largest in the WTO's seven-year history.

  "I don't agree with this idea that sanctions would be as harmful to the EU as to the US," Lamy told reporters in Geneva, where the WTO is based. "EU policy is made by the EU institutions and not by EU businesses. It's not a system where I phone businesses before making decisions." The tariffs, to be decided by the WTO in late March, would hit manufacturers from Caterpillar Inc to General Electric Co as well as the US units of Germany's DaimlerChrysler AG at a time when economies are slowing on both sides of the Atlantic.

  Frank Vargo, international vice president of the US National Association of Manufacturers, said Lamy's comments were "troublesome" and fly in the face of his previous attitude.

  "Lamy knows better than this," Vargo said. "He knows sanctions aren't going to work here. He also knows that the commission and the [EU] countries have to consult with business because they don't want to harm the European economy." Trans-Atlantic trade is almost US$400 billion annually, and total investment between the US and EU tops US$3 trillion, Vargo said. European companies ship a fifth of their exports to the US, which fell into its first recession in a decade in 2001.

  Unemployment in Germany, Europe's largest economy and exporter, has climbed for 12 months.

  "Trade wars are bad for direct investments," Hilmar Kopper, supervisory board chairman of Deutsche Bank AG and the German government's foreign investment envoy, told a news conference in Berlin.

  The UK's largest business organization also warned that sanctions could damage the trans-Atlantic relationship, and called for cool heads to prevail.

  Burden on Business "EU and US politicians need to recognize that business -- not governments -- pay the costs of sanctions," said Gary Campkin, the Confederation of British Industry's head of international trade.

  "If they proceed at that level, trans-Atlantic trade will be akin to the Titanic hitting an iceberg," he said. "We call on both sides to show flexibility and work towards a common sense solution."

  The export-tax dispute goes back to the early 1970s. The new ruling adds to tensions as the EU seeks to head off US quotas and tariffs on steel imports, while the US considers a WTO complaint against European restrictions on genetically modified foods.

  "Sanctions are anathema to the WTO system," said Manuel Szapiro, an adviser at Unice, the European employers federation in Brussels. "It hurts businesses and it's also not at all in the spirit of the rule-based WTO system." EU `Suffering' WTO arbitrators will decide whether to whittle the penalties down from the EU's request of US$4.04 billion. The eventual penalties will reflect "the damage that we are suffering," Lamy said.

  In Monday's ruling, the trade body said the US illegally allows US taxpayers to protect much of their income earned outside the country from US tax, as long as they have paid tax overseas.
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