EU to Remove U.S. Trade Penalty

EU Trade Commissioner Pascal Lamy said trade sanctions against $4 billion in U.S. exports, including apparel and textiles, will be lifted Jan. 1.

WASHINGTON — The 25-member European Union starting Jan. 1 will lift trade sanctions against $4 billion of U.S. imports, including apparel, leather goods, cosmetics, jewelry, footwear and textiles, pending a final decision by the World Trade Organization, EU trade commissioner Pascal Lamy said Monday.

The move came after President Bush on Friday signed legislation to repeal an export subsidy that the WTO and the EU said violated fair competition rules. The U.S. plans to rescind the subsidy, which benefited multinational corporations ranging from Wal-Mart, the world’s biggest retailer, to aircraft manufacturer Boeing, by the end of 2006. The bill permits the U.S. to continue tax breaks for contracts started before Sept. 17, 2003, and creates tax benefits to replace the loss of the subsidy.

“We have been trying to put [the subsidy] to bed for a long time,” said Lamy, according to a press statement. “It is now in bed, but we need to just check [with the WTO] before the lights go out.”

While EU officials indicated a two-year delay in repealing the subsidy might be acceptable, making wholesale exceptions to pre-Sept. 17, 2003 contracts remains among the “problems to resolve” at the WTO and among issues “which the EU believes are incompatible with WTO rules,” according to an EU statement released in Washington.

A spokesman for U.S. Trade Representative Robert Zoellick said the legislation signed by Bush meets WTO standards. “We will continue to explain to the EU and others how the new law brings the U.S. into compliance,” the spokesman said.

Julia Hughes, vice president of international trade with the U.S. Association of Importers of Textiles & Apparel, said “we are not pleased” by Lamy’s announcement. Hughes cited the Jan. 1 delay for the EU to lift sanctions and uncertainty surrounding the outcome of a WTO decision as creating a cloud over exporting USA-ITA members.

“Companies have said they are going to have to start raising prices or cancel business with the punitive tariffs,” she said.

The EU trade sanctions, now 12 percent on the $4 billion of annual shipments in targeted goods, account for a fraction of the $665 billion in two-way trade between the U.S. and Europeans last year. They have been in place since March, when they started at 5 percent, and have increased 1 percent each month. Together, the U.S. and EU form the largest economic bloc in the world.

This story first appeared in the October 26, 2004 issue of WWD.  Subscribe Today.

U.S. exports covered by the steep tariffs include $100 million worth of annual apparel shipments, $103 million worth of leather handbags and luggage, $16 million in cosmetics, $19 million in footwear, $1.5 million worth of cultured pearls, and $500,000 in man-made filaments and cotton.

The export subsidy trade issue comes as the EU and U.S. are feuding over airplane industry subsidies. The battle started last week when the U.S. filed a claim at the WTO against Europe’s Airbus Corp. and the EU retaliated with its own claim against U.S.-based Boeing.