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Last Updated: Monday, 25 October, 2004, 18:23 GMT 19:23 UK
Lamy tidies before his departure
By Manuela Saragosa
BBC Europe business reporter in Brussels

EU trade commissioner Pascal Lamy
Mr Lamy is wiping the slate clean before he leaves office
The European Commission's first step towards resolving one of its largest trade disputes with the United States came in the form of a promise by outgoing Trade Commissioner Pascal Lamy.

Now that the US government has passed a new tax bill which effectively repeals export subsidies for American companies, the European Union is prepared to lift economic sanctions, he said.

The move was described by some analysts as a timely and positive signal about trade relations.

Timely because it came just prior to Mr Lamy's departure from office at the end of this month.

Positive because it would give incoming trade commissioner Peter Mandelson, the UK politician, a more straightforward entry into what is bound to prove a complex job.

Loopholes

The trade dispute has focused on illegal export subsidies in the form of tax breaks which the US government has been giving to American exporters, known as the Foreign Sales Corporations.

Peter Mandelson
Mr Mandelson will still have many other trade disputes with the US to deal with

Two years ago, the World Trade Organisation (WTO) said the tax breaks were illegal, giving the European Commission the green light to slap $4bn worth of trade sanctions on US goods.

The EU's decision to lift the sanctions are seen as a measure of good will, not least since new US tax laws may still be found to breach international trade rules.

Mr Lamy acknowledged that he remains concerned about loopholes, but said he has asked a special panel at the World Trade Organisation to carry out further checks.

Consequently, this matter could return to haunt the US.

"There is the possibility of (renewed) sanctions," Mr Lamy said. "We'll see what WTO says."

Gradual increase

There are a dozen or so transatlantic trade disputes pending at the WTO.

US container port
The WTO says tax breaks for US exporters were illegal

Mr Lamy along with his US counterpart, Robert Zoellick, has often complained that these disputes overshadow a larger, healthier picture of growing US-EU trade figures.

One of those shadows was, of course, this dispute over export subsidies.

The EU's sanctions affect a broad range of US products, from jewellery and textiles to agriculture.

Those US goods coming into the EU were charged a 5% duty in March this year, and the EU has been increasing the duty gradually each month.

This year the duties amounted to about $300m and they were set to more than double next year.

That figure may be a far cry from the $4bn the European Union is allowed to collect under the WTO ruling on US export subsidies, but it still amounts to the largest penalties ever charged in a transatlantic trade dispute.

Any reinstatement of sanctions, if US tax laws are still found to be in contravention of global trade rules, would be on a "much, much smaller" order of magnitude, Mr Lamy said.


SEE ALSO:
EU suspends US export sanctions
25 Oct 04 |  Business
WTO rules for EU in US trade row
31 Aug 04 |  Business
EU opens new front in trade war
01 Mar 04 |  Business
EU gets go-ahead for US sanctions
24 Feb 04 |  Business
Q&A: Mandelson's new job
04 Oct 04 |  UK Election 2005


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