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Exporting goods get eu tariffs Original Source Link: (May no longer be active)
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Tiffany, Weyerhaeuser Face EU Tariff as U.S. Keeps Tax Credit
Feb. 24 (Bloomberg) -- Hundreds of U.S. exporters from Tiffany & Co., the nation's largest luxury jewelry retailer, to Weyerhaeuser Co., the world's biggest lumber company, will be required to begin paying $200 million in European Union tariffs unless the U.S. ends an export-tax credit by March 1.
The EU will impose a 5 percent duty next week on $4 billion worth of U.S. imports such as gems, wood and toys after the World Trade Organization last May gave the Europeans the right to retaliate against the export subsidy. The U.S. Congress has failed to agree on a way to revise the law as lawmakers including Representative Donald Manzullo, an Illinois Republican, press for broader tax incentives that would help domestic manufacturers.
``It could really shut down the exporting of a lot of American goods,'' said James Marquart, head of the Manufacturing Jewelers and Suppliers of America, which represents New York- based Tiffany and 1,500 other U.S. jewelry companies that sell $2 billion in pearls, diamonds and other gems in Europe each year.
The dispute marks the first time the U.S. will have to pay tariffs approved by the WTO, a Geneva-based body set up in 1995 to oversee the rules for world trade. The EU duties, which may be increased through the end of the year to about $315 million, are aimed at a tax credit worth $5 billion a year to companies including Boeing Co., Microsoft Corp. and General Electric Co., according to the Treasury Department.
Phasing in Penalty
For now, the EU isn't targeting the top beneficiaries of the credit because European companies need their goods, Arancha Gonzalez, a spokeswoman for EU Trade Commissioner Pascal Lamy, said on Feb. 13. The EU excluded from the sanctions list any product where European companies rely on the U.S. for more than 20 percent of their supply, Gonzalez said.
The EU, which does 1 billion euros ($1.29 billion) a day in trade with the U.S., will phase in the duties, not impose them at once, to limit damage to its importers, Lamy said in November.
Microsoft, Caterpillar Inc., General Electric, Intel Corp. and Motorola Inc. were among 15 U.S. companies that obtained $6.2 billion, or 78 percent of the total export tax benefit, from 1997 to 2002. Boeing and General Electric alone received $1 billion each in benefits during the period, according to a report by the U.S. General Accounting Office. Those companies are pressing lawmakers to retain those advantages.
European companies such as Germany's DaimlerChrysler AG that have plants in the U.S. have also benefited from the export tax.
Congress Deadlocked
DaimlerChrysler has more than two dozen factories in eight U.S. states, including 11 vehicle-assembly plants in Michigan, Illinois, Delaware and Alabama, through its Chrysler Group.
Congress is deadlocked over plans to change the tax law, which allows U.S.-based exporters to exclude from federal income tax 15 percent of net earnings from exports. Lawmakers are seeking to minimize pain to U.S. manufacturers, which have lost 2.6 million jobs since 2001.
The House of Representatives is debating a bill that would mainly help companies such as 3M Co. and American Express Co. with extensive operations outside the U.S., while giving some aid to exporters such as Boeing, which makes almost 70 percent of its products in the U.S. A Senate alternative would replace the subsidy with a tax break for a wider group of manufacturers.
Senate Finance Committee Chairman Charles Grassley said the panel won't even begin considering a bill until March. Gonzalez said last week the Europeans won't bend on the March 1 deadline.
Dollar's Decline
The WTO, which represents 146 nations, gave the EU the right to impose $4 billion in duties, dwarfing penalties of less than $200 million the U.S. has levied on Europe in disputes over beef and bananas.
The EU scaled back the sanctions on Nov. 5 and has delayed imposing them to give Congress time to act.
The European Commission, the EU's executive arm, opted for ``a measured approach and have actually left the door open for U.S. action'' before the tariffs are applied, Lamy said in a statement at the time.
Rick Grafmeyer, former deputy chief of staff of Congress's joint committee on taxation, said there has been less urgency among U.S. lawmakers since the EU said it would phase in the sanctions.
The dollar's 15 percent decline against the euro in the past year will also mitigate the tariffs' impact, since the weaker currency makes U.S. exports less expensive in Europe, he said.
No Winners
U.S. companies such as International Paper Co. and Cargill Inc. face the 5 percent duty starting next week. The tariffs will rise 1 percent a month until they reach 17 percent in March 2005, or Congress rewrites the law.
The total amount of the penalties depends on how much the U.S. continues to export, according to the European Commission office in Washington.
``Sanctions don't make anybody a winner,'' said Adrian van den Hoven, a trade adviser at the European employers' federation, Unice, which represents European companies including Unilever NV and Groupe Danone. ``No company would ask that its rival be put on a sanctions list because in another case it risks their rival doing the same thing. And in this dispute, a 5 percent increase can be absorbed by the exporter.''
``The sanctions almost have to start hitting to get some of the malcontents in the House to take them seriously,'' said Grafmeyer, who's now a tax lobbyist. ``The feeling is we need to let this play out a bit.''
Manzullo of Illinois, who's leading a coalition of 25 Republicans in favor of greater domestic tax credits, said the House bill doesn't go far enough.
42 Months of Losses
``We've now had 42 consecutive months of manufacturing job losses,'' said Rich Carter, a Manzullo spokesman. ``We need to do something that will encourage jobs in the United States.''
The so-called Extraterritorial Income Exclusion is the latest version of an incentive introduced in 1971 by the administration of former President Richard M. Nixon to promote U.S. exports. After the Europeans complained, the U.S. revised the law in 1984 and again two years ago, saying it would be easier to defend under trade rules.
The EU challenged the law and won a WTO ruling three years ago.
In drawing up the sanctions list, the EU targeted jewelry makers and companies such as Cargill and International Paper, because the EU deemed their products less vital than those of exporters such as Chicago-based Boeing, the world's second- biggest planemaker.
`Innocent Bystanders'
``It's hard not to shoot yourself in the foot when putting a list together,'' said Richard Weiner, a lawyer with Sidley Austin Brown & Wood in Brussels, who has represented European companies in WTO disputes. ``You naturally end up sanctioning innocent bystanders.''
The tariffs are ``going to have a strong impact'' on U.S. wood and paper exports to Europe, said Barry Polsky, an American Forest and Paper Association spokesman. ``It's something we don't need at this time, that's for sure.''
U.S. wood products on the EU's retaliation list accounted for 7 percent, or $210 million, of the industry's exports to Europe last year, he said.
``We're concerned,'' said Frank Mendizabal, a spokesman for Weyerhaeuser. ``We just want to make sure this thing gets resolved.'' About $30 million of the $565 million in wood products Weyerhaeuser exported to Europe in 2002 will face sanctions.
International Paper spokeswoman Jennifer Boardman declined to comment.
Jamie Dolynchuk, a Cargill lobbyist, said the agricultural products company expects to face tariffs soon.
Quick Retaliation
``There is a real need to address the fact that this retaliation could occur quite quickly,'' he said.
Tiffany spokesman Mark Aaron declined to comment. The European market accounts for 5 percent of Tiffany's $1.7 billion in overall 2002 sales.
The U.S. House is debating a plan to rewrite international tax laws to help companies such as Dow Chemical with operations outside the U.S. The measure was revised to add benefits for companies with strong domestic bases such as Boeing.
A Senate alternative would replace the export subsidy with a tax break for a broader group of manufacturers with about half the breaks for multinationals as the House version.
``We're not any nearer than we were'' last year to passing legislation,'' said William Reinsch, president of the National Foreign Trade Council, an exporters group, and a former Commerce Department undersecretary.
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