To punish EC with taxes

FIRST SALVO OF A TRADE WAR U.S.

November 05, 1992|By New York Times News Service

WASHINGTON -- The United States plans to announce punitive taxes on European imports this morning, taking another step toward a trans-Atlantic trade war after the breakdown Tuesday night of talks on farm subsidies, U.S. officials said yesterday.

Carla A. Hills, the U.S. trade representative, will announce taxes of 100 percent or more on up to $350 million worth of luxury European exports, mainly white wines from France, said two U.S. officials who insisted on anonymity.

Rufus Yerxa, a deputy U.S. trade representative, said the Customs Service would begin collecting the taxes 30 days after an announcement was made.

The delay is needed to instruct customs officials on the new taxes, to allow time for the arrival of goods already paid for by American importers and to permit further negotiations.

Bureaucratic and legal details were worked out nearly two weeks ago, and the retaliation is now proceeding with relatively little high-level involvement in the wake of President Bush's loss in Tuesday's election.

Ray MacSharry, the European Community's agriculture commissioner, and U.S. Agriculture Secretary Edward R. Madigan said Tuesday night that they were willing to talk further on the issue of agricultural supports but had not scheduled any more meetings.

U.S. officials were not optimistic about the prospects for further talks, having tried for six years to persuade the European Community to reduce its production subsidies for soybeans, rapeseed and sunflower seed, which are used in cooking oil, animal feed and paint.

The European Community issued a thinly veiled threat yesterday to respond with taxes on U.S. exports. A U.S. official said that while the Bush administration had not reached a decision, it was likely that European retaliation would provoke another round of punitive taxes by the United States, covering a broader range of goods.

"It's kind of like World War I," said Harold Malmgren, who was a deputy U.S. trade representative in the Nixon and Ford administrations. "Everyone is digging in."

The United States has singled out white wine and possibly truffles for four reasons: They are luxury goods that Americans do not really need. They are high-prestige exports that are sources of national pride in France. They are consumer goods rather than intermediate products like ball bearings, whose loss might shut down an American factory. And wine importers tend not to be large donors to political campaigns, so they have few friends in Congress.

The wine varieties chosen by Mrs. Hills are produced mainly in France, but smaller quantities from Italy and elsewhere in the European Community will also be hit by the taxes.

Higher taxes on French wine are unlikely to affect American consumers immediately, because wine importers have built up huge inventories. But if the duties become permanent, prices for affected wines could eventually double.

U.S. officials have become worried in recent weeks that punishing European farm exports may not be enough to secure a deal on soybean subsidies. So they are drafting a supplemental list of industrial products that can also be taxed if necessary.

The United States asked the governing council of the General Agreement on Tariffs and Trade yesterday to endorse the first stage of the planned U.S. retaliation: the wines and truffles. But Washington was rebuffed when the European Community refused to debate the issue. The council reaches decisions only by consensus, according to a legal tradition that has paralyzed GATT, a world trade body in Geneva that drafts and enforces international free-trade rules.

The current dispute puts renewed pressure on the current round of GATT talks aimed at reducing world trade barriers. The election of Gov. Bill Clinton on Tuesday further jeopardizes the future of the talks by undermining the authority of Bush administration officials to negotiate for the next two months.

Mr. Clinton has said he would like to finish the GATT negotiations. Gary C. Hufbauer, a senior fellow at the Institute for International Economics, said that a key signal of whether Mr. Clinton wanted a quick conclusion to the talks would be whether he retained Mr. Yerxa and his aides.

Mr. Yerxa is a Democrat and a former aide to Rep. Dan Rostenkowski of Illinois, the Democratic chairman of the House Ways and Means Committee. The committee has jurisdiction over trade issues and would review a new GATT accord. The Bush administration chose Mr. Yerxa to head the U.S. negotiating team to build congressional support for an eventual deal.

If Mr. Clinton replaces Mr. Yerxa and his aides, the new officials probably will not be able to finish the talks before March 2, the deadline for fast track approval, Mr. Hufbauer said. Mr. Clinton would then have to persuade Congress to extend the negotiations, he said.

Once imposed, punitive taxes often become permanent. The United States imposed a 25 percent tax on truck imports in the 1960s to retaliate for European restrictions on American poultry shipments. The truck tax is still in effect, and American automakers want it extended to cover Japanese minivans.

Punitive taxes usually come with short grace periods before they are actually collected, but Washington trade lawyers could recall only one case that had been settled during a grace period. The United States announced 200 percent duties on imports of European pork and cheeses on Jan. 26, 1987, in retaliation for higher Spanish taxes on American corn and sorghum, but the two sides settled the case within days, said Alan F. Holmer, who was the White House's chief trade lawyer then.

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