By IPS Correspondents
BRUSSELS, Mar 1 2004 (IPS)

The EU decision to impose trade sanctions on the United States is likely to strain relations between the two.

The European Union (EU) imposed multi-million dollar trade tariffs on U.S. companies Monday over what it describes as illegal tax breaks given to U.S. exporters.

Backed by a World Trade Organisation (WTO) ruling, the European Commission, the executive arm of the EU, announced duties on a wide range of U.S. goods entering Europe. The duties will stay in place until the United States annuls tax breaks of about 4 billion dollars a year to big U.S. exporters such as Boeing, Microsoft and Caterpillar, EU officials said Monday.

The EU sanctions are expected to cost U.S. businesses hundreds of millions of dollars.

EU customs officials will levy an additional 5 percent tariff on a wide range of U.S. products that range from natural honey and roller skates to steel and nuclear reactors.

The duty imposed under the sanctions will rise by 1 percent each month until it reaches 17 percent by March 2005.

This is the first time that the EU has hit U.S. firms with sanctions as part of a trade dispute.

The European Commission insists that it has shown patience, and that Washington has had ample warning and enough time to prepare for the sanctions.

EU trade commissioner Pascal Lamy said the Union had been left with no option. "Despite waiting for more than two years, the U.S. has not brought its legislation in line with WTO rules," he said in a statement Monday. "We are therefore left with no choice but to impose countermeasures."

But many are concerned that the sanctions will weaken EU-U.S. relations.

It is "a sad day for trade relations between the U.S. and Europe," John Disharoon from the American Chamber of Commerce said in a statement Monday. "Nobody wants to see sanctions. It adds to the negative climate."

Monique Julien, a trade expert at Unice, a business federation that represents about 16 million European companies, told the British newspaper the Financial Times that she was concerned about the "multiplication" of recent EU-U.S. trade rows.

"If you look at the record on the European side there has always been an attempt at conciliation," she said. "Sanctions were repeatedly postponed but at the end of the day, it is a question of the credibility of the WTO dispute settlement system."

Nick Clegg, British Liberal Democrat member of the European Parliament warned that "everything is being shuffled off to the WTO, and if that trend continues, it begins straining the credibility of the institution."

Although he welcomed the EU sanctions, Clegg said that at some point it could become necessary for the EU and the United States 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," he said in a statement Monday.

The latest trade row is just one of a growing number of disputes between the EU and the United States, the world’s largest trading partners.

The U.S. was forced to withdraw sanctions against EU and other steel producers last year after the WTO ruled them illegal. The United States is meanwhile pursuing a case against the EU before the WTO over its reluctance to import genetically modified foods.

At the same time, the EU and the United States are major players in getting world trade talks under the WTO back on track.

Lamy said the two must focus on the future. "We now need to turn our attention to the post 1 March period," he said. "I am encouraged that progress can be rapidly achieved."

Excerpt: