“A sad day for trade relations between the US and Europe”. This is how John Disharoon, vice president of the trade committee at the American chamber of commerce to the EU described the decision by the European Union to begin imposing trade sanctions on US goods as of today. Of course, the arguments about why this measure is totally justified (or conversly totally un-justified) will be legion. However, at the end of the day, I can’t help agreeing with the above-mentioned comment. With all the problems we face out there in front of us, with all the dangers of a renascent protectionism which we can clearly see inside the US itself, this, it seems to me, is the last thing we need right now. It wreaks of the worst kind of logic of bureaucratic decision making.
For the first time in the history of transatlantic trade relations, the European Union will on Monday impose trade sanctions on US goods, in an attempt to force Washington lawmakers to repeal controversial corporate tax breaks.
EU customs officials will levy an additional 5 per cent tariff on a wide range of American products. The duty on imports of natural honey, for example, will rise from 17.3 per cent to 22.3 per cent. Roller skates will be subject to a 7.7 per cent duty up from 2.7 per cent.
The punitive tariffs will also apply to textiles, agricultural products, steel and glass, books and newspapers, sugar and toys – even nuclear reactors. And they will rise, by 1 percentage point each month, until they affect US exports worth $666m a year.
The aim is to force the US Congress to change the foreign sales corporation provision (FSC), which grants tax breaks to US exporters and was ruled illegal by the World Trade Organisation in 2002.
But to John Disharoon, vice president of the trade committee at the American chamber of commerce to the EU, Monday is simply “a sad day for trade relations between the US and Europe”. He says: “Nobody wants to see sanctions. It adds to the negative climate.”
European companies share some of Mr Disharoon’s concerns. But according to one trade expert, there is “no sense of disaster” among European trade officials, business lobbies and observers. The European Commission is keen to play down the significance of the trade sanctions. It insists that Brussels has shown patience and diplomacy in the run-up to March 1, and that Washington as well as US companies have had ample warning and enough time to prepare for the sanctions.
“We’ve been extremely patient, but there is no way now we can avoid these sanctions, which hopefully will concentrate a few minds on the urgency of this legislation,” Pascal Lamy, EU trade commissioner, told reporters in Washington on Friday following two days of meetings with US lawmakers. He added: “The day the necessary legislation is there, I will remove the sanctions.” Officials close to Mr Lamy have argued for months that there would be no backlash from US lawmakers.
Monique Julien, a trade expert at Unice, a business federation that claims to represent some 16m European companies, says: “If you look at the record on the European side there has always been an attempt at conciliation. Sanctions were repeatedly postponed but at the end of the day, it is a question of [upholding] the credibility of the WTO dispute settlement system.”
But even Europeans admit that – at some point – the Commission and its counterpart in Washington might have to rethink the way they approach trade disputes. Like many trade experts, Ms Julien is worried about the “multiplication” of recent EU-US trade spats – of which the dispute over FSC is only the most visible example.
In the past two months the EU has moved closer to trade sanctions in a string of cases, many of which are linked to US anti-dumping legislation and practices. In a dispute over the so-called Byrd amendment, which allows US companies to keep the anti-dumping proceeds raised from foreign competitors, sanctions could come this summer.
Nick Clegg, a British Liberal Democrat member of the European Parliament and trade expert, warns that “everything is being shuffled off to the WTO, and if that trend continues it begins straining the credibility of the institution”.
Although he applauds Mr Lamy’s approach in the FSC case, Mr Clegg believes that at some point it could become necessary for the EU and the US to settle their disputes through direct negotiations. “If we continue along the same trajectory, there needs to be some kind of political decision to clear the decks in a comprehensive way.
“I think more and more businesses, especially big companies with transatlantic links, are asking: is this really the best way to handle the biggest trade relationship in the world?”
Source: Financial Times