The Hindu Business Line : EU slaps sanctions on US goods

MONDAY is widely rated as "sad and epoch making" day on both sides of the Atlantic. In an historic and unprecedented move and for the first time in trans-Atlantic relations, the European Union has imposed trade sanctions on the US goods, as an attempt to force Bush administration to repeal US corporate tax concessions for the US exporters and manufacturers. These have been promoted as controversial "export subsidies" for export of US goods.

The European sanctions on wide range of US goods starts today and could reach more than $300 million by year end. The proposed punitive tariffs could reach a record for the World Trade Organisation (WTO) case by August. It is today argued that the European sanctions on the US would even test resolve WTO to settle such major trade disputes. The heart of the matter is that controversial tax breaks for the US exporters have triggered current crises as the European Union customs officials levy an additional five per cent tariff on American products, which range from natural honey to roller skates. The punitive tariffs will also apply to textiles, agricultural products, steel and glass, toys, and even nuclear reactors.

The punitive tariff will rise by one per cent every month, until when the issue is resolved to mutual satisfaction. In all this, much will depend on WTO's dexterity, credibility and flexibility. A spokesman of the American Chamber of Commerce at the European Union said: "Today is a sad day for trade relations between the US and the European Union. Nobody wants to see sanctions. It adds to the negative climate." The US observers here are both sad and disenchanted and privately complain about the "creeping protectionist tendencies" in patches of the Bush administration, which has been consistently hoisting "free trade" flag in major trans-Atlantic forums.

As the European Union's Trade Commissioner (Minister), Mr Pascal Lamy put it: "We have been extremely patient but there is no way now we can avoid these sanctions." Last week, Mr Lamy told US presspersons in Washington, "The day the necessary (US) legislation is there I will remove the sanctions." According to European observers here, no backlash from the US legislator is currently predicted.

The European "UNICE" is a business federation, which claimed to represent 16 million European companies, stated that there has always been an attempt on part of the European authorities for reconciliation and sanctions were often postponed but now everything depends on WTO's settlement system. It is argued that a failure on part of WTO to resolve the current trans-Atlantic trade crises will reflect adversely on WTO's credibility. The Europeans feel that the US authorities have failed to respond to "basic" anxieties of the European trade lobby, which has disapproved of the US tax concessions to American exporters. Hence, as trade policy analysts in Washington put it: "The failure of the US to comply with dispute rulings is just alarming."

The WTO will report on its own trade dispute settlement process by May and will then form its own dispute panel, which reviews the current and potential sanctions. The foundations of WTO and global trading system were laid in 1947 and it is often argued that with the current pace and scope of globalisation, the WTO structure may need to be revised.