EU Seeks Sanctions Against US

A trade dispute between the US and the EU escalated today as Brussels asked the World Trade Organisation for authorisation to retaliate against an illegal US trade measure.

The EU is seeking to impose sanctions that could run to hundreds of millions of dollars of duties on US goods, with the aim of forcing Washington to revoke a scheme that has been ruled illegal by the WTO.

"Given the lack of compliance from the US, the EU has today requested WTO authorisation to impose sanctions," the European commission said in statement.

The row over the US measure, known as the Byrd amendment, is the latest in a series of disputes between the US and the EU, who have trading links amounting to $2.1 trillion (1.150bn) a year.

Last December, President George Bush repealed tariffs imposed by the US government in 2002 on steel imports to head off a potentially damaging trade war with Europe and Asia. Mr Bush scrapped the tariffs 16 months ahead of schedule, just days before the EU planned to hit back with $2.2bn of tariffs on American imports. Japan had threatened duties of $458m on US goods.

The dispute over the Byrd amendment is not on the same scale as the steel tariffs, but it illustrates the underlying trade tension between the two blocs, and it comes at a time when the US and the EU are trying to revive stalled world trade talks.

The Byrd amendment allows the US government to distribute proceeds from anti-dumping tariffs to American firms that complain of damage from foreign imports. The WTO made a final ruling in January 2003 that the provision violates trade rules and set a deadline of December 27 for it to be revised, but Washington has so far failed to comply.

This week marked the expiry of a deadline for 11 complainants, including the EU and Japan, to lodge their requests at the WTO for retaliation over the amendment.

"The Byrd amendment has raised widespread concerns from the outset as evidenced by the large number of complainants in this case," Pascal Lamy, the EU trade commissioner, said. "I hope the US will now take action to remove this measure, thus avoiding the risk of sanctions."

The amendment, approved by Congress in 2000, has strong political backing and Mr Bush will face pressure not to back down, especially in an election year. In the past three years, the Bush administration has doled out about $710m to US ball bearing, steel, seafood, pasta, candle and other companies under the programme.

Some trade groups within the US have criticised the Byrd amendment as "horrible trade and public policy".

The Consuming Industries Trade Action Coalition, a free trade pressure group said of the amendment: "Based on an essentially meaningless condition, companies will be given millions of dollars of public money without condition. It will make it much harder for the US to discourage other governments from subsidising their industries."

The Byrd amendment is the focus of one of a range of spats straining transatlantic trade relations.

Last month the EU gave the green light to multi-million dollar sanctions against the US unless illegal tax breaks for US exporters are repealed by March. The latest trade dispute has come to a head days after the US called for efforts to revive talks to liberalise global trade, after the collapse of negotiations in Cancun, Mexico, last year.