The European Union implements sanctions against the United States for the first time today as a dispute over tax breaks for US firms turns into a trade war that could cost American exporters $300 million (€240.8 million) this year.
The lower tax rates for exports for firms, including Boeing and Microsoft, were judged an illegal subsidy by the World Trade Organisation, which ruled the EU could impose $4 billion in sanctions a year on US goods.
But EU Trade Commissioner Mr Pascal Lamy decided to apply gradual pressure by phasing in the measures, which will hit a range of goods, including textiles and jewellery. The sanctions are intended to prod the US Congress quickly to replace the tax breaks with measures in line with WTO rules.
Officials have tried to play down the impact of the trade row, the first time since the WTO was created in 1995 that the EU has retaliated on US goods.
"This is not the beginning of a trade war. WTO disputes are all part of the system," one Washington official told reporters ahead of the March 1st deadline for the sanctions to apply.
But EU firms have expressed worries over the escalation of a dispute that could lead to extra costs as the economy splutters back to life. The sanctions start at $16 million as an extra 5 per cent duty on selected US products in March and rise by 1 per cent a month to $315 million in 2004 and $666 million if they apply throughout 2005.
Mr Lamy has said sanctions should be seen in the light of daily transatlantic trade of $1.0 billion, and the EU has coped since 1999 with more than $100 million of imposed US sanctions a year in a fight over beef.
