September 4, 2002	Wednesday	Jamadi-us-Saani25,1423

BRUSSELS, Sept 3: The EU hopes to avoid a high-risk trade war with the US, notably by using WTO-authorized huge sanctions to make Washington back down on tax rules, officials said Tuesday.

The 15-member bloc appears set to use the World Trade Organization (WTO) ruling, handed down at the end of last week, to press US authorities to change their laws.

The United States is scrambling to escape the threat of a record 4.04 billion dollars (4.06 billion euros) in European Union trade sanctions against its illegal export tax breaks.

“We will only claim this amount if the United States do not change their tax legislation,” EU Trade Commissioner Pascal Lamy told the French daily Le Monde.

The United States allows an estimated 4,000 to 5,000 US companies carrying out business through subsidiaries in offshore tax havens to benefit from reduced export taxes.

About half of annual US exports of 250 billion dollars (252 billion euros) benefit from the regime, according to diplomats in Geneva, the headquarters of the WTO.

WTO arbitrators ruled in line with the EU’s assessment of the amount of retaliation it could take against US imports every year until the subsidy for foreign service corporations (FSC) is eliminated.

The FSC system gives enormous tax advantages to huge US exporters such as Boeing and Microsoft.

Europe’s reluctance to launch an all-out war comes amid already-tense relations between the US and Europeans on several issues, notably Iraq and the International Criminal Court (ICC).

The EU’s reticence also has economic motives: imposing huge tariffs on American products would have a significant impact on trans-Atlantic trade.

European consumers could also suffer, as prices of certain imported products rise, while entire sectors of international trade could be destabilized.

The British and American press repeatedly notes that Lamy’s US counterpart, Robert Zoellick, compared these kind of reprisals to a commercial atomic bomb.

EU external relations commissioner Chris Patten sought to head off any sense of crisis. “It’s our concern to have everybody playing by the rules and it’s our concern to minimize the fallout from problems with our biggest trading partner.

And he added: “I’m sure that my colleague Pascal Lamy will be following this up with his opposite number Bob Zoellick. They’ve got a good personal relationship and I’m sure they will find a way through.”

Some analysts said Lamy could revive the strategy he has used in the steel dispute with the United States: by threatening sanctions on a list of US products after Washington slapped heavy duties on steel imports last March.

That strategy appears to have worked: some 50 per cent of the European steel exports to the United States are now free from the tax.

In the dispute with the FSC, the EU plans to publish this month a list of US products which could attract bigger taxes, without specifying when such measures could be imposed.

“I don’t want to set a deadline on the United States, and I would prefer to talk to people,” said Lamy, adding that proposals had already been tabled by an influential Congressman William Thomas, to modify the tax code.—AFP