New York Times/Business September 7, 2000 page C4 U.S. and Europeans Raising the Stakes in Trade Impasse By ELIZABETH OLSON
GENEVA, Sept. 6 — The European Union and the United States are holding fast in several trade disputes, their continued standoff threatening a more punishing confrontation between the two trading blocs, the world's biggest.
The European Union has rejected the United States' attempt to overhaul a tax benefit that saves American companies millions of dollars a year. The move comes at a time when Washington is drawing up a list of more than $300 million in tariffs on European goods, mainly food, after the Europeans refused to alter their restrictions on banana imports and on hormone-treated beef.
Earlier this year, a panel of the World Trade Organization, based here, ruled that the United States must change a law that allowed companies — including General Motors, Microsoft and Boeing — to avoid paying taxes on some overseas sales by channeling them through offshore subsidiaries. Under the trade forum's rules, Washington has until Oct. 1 to revise the law, which the panel called an illegal export subsidy.
In a letter made public late last week, the European Union trade commissioner, Pascal Lamy, asserted that American changes still retain export subsidies in violation of W.T.O. rules, and enable the subsidies to exist beyond the October deadline. "The only way for a U.S.- based manufacturer to benefit from the new regime is by exporting," said a European summary of the letter to Stuart E. Eizenstat, the deputy secretary of the Treasury.
An attempt in May to reach a compromise failed, and Mr. Eizenstat warned in July that "a major trade war" could follow.
The new system for offshore sales was approved by the House Ways and Means Committee late in July, and awaits approval by the House and Senate. Clinton administration officials indicate they intend to press for Congressional approval of the modified law.
Although the European letter was not made public, Mr. Lamy is understood to have argued that the only real change in the American tax breaks was eliminating a requirement that a paper company be set up offshore. Some 5,000 such offshore tax havens exist, most of them based in the Caribbean region.
European officials in Brussels say they are willing to continue negotiations. "There is one month before the Oct. 1 deadline, and we believe there is still time for a solution," said Hervé Jouanjean of the European Commission, the year-round administrative arm.
Without a compromise, Brussels is expected to seek W.T.O. permission to impose retaliatory sanctions on American exports in amounts that dwarf previous trade disputes. Such sanctions are meant to be based on the amount of harm suffered in the international marketplace. Using that measure, the Europeans are likely to seek 100 percent tariffs on $4 billion in American exports.
If Congress passes the proposed legislation before Oct. 1, trade experts said, the European Union would most likely have to file a new challenge to the law. A ruling, which is delivered by a three-judge panel, could take months.
In the dispute over bananas and beef, the Clinton administration is preparing a list of European products that would be subject to tariffs. Britain is lobbying for the exemption of Scottish cashmere from the list.
The European Union's initial effort to modify its banana-import rules, which gave preferential treatment to former European colonies in Africa and the Caribbean, was rebuffed by the United States as insufficient. Brussels officials are now trying to work out agreement on a new alternative among the European nations and their banana-exporting partners.
The Europeans and the United States also remain at odds over how to replace Brussels' ban on hormone- treated beef, which was struck down at the W.T.O. Currently, the Europeans are banning one hormone and temporarily excluding four others while scientific studies evaluate their effect on human health. The United States maintains that the growth-inducing hormones are safe.
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