European Union threatens record sanctions on U.S. products

BRUSSELS, Belgium - The European Union threatened Friday to slap record sanctions on U.S. products, saying a new U.S. export tax system is just as unpalatable as the one struck down earlier this year by the World Trade Organization.

If enforced, the sanctions would set the two economic giants on their biggest trade dispute yet. Earlier conflicts, including ones over beef and banana imports, ''pale into insignificance,'' European Union trade spokesman Anthony Gooch said.

The 15-nation European Union asked the World Trade Organization to review the law, which President Clinton signed on Thursday. The EU said it would impose $4 billion in sanctions on everything from steel to corn flakes if the WTO rules that the new tax system is illegal.

''The EU believes that the new law not only maintains the violations found by the WTO ... but may even aggravate them,'' the EU said in statement.

In response, U.S. officials called on the EU to reconsider its rejection of the new law and held out the hope that further negotiations can resolve the issue.

''We ask the EU to again consider our new legislation to avoid confrontation,'' U.S. Trade Representative Charlene Barshefsky and Deputy Treasury Secretary Stuart Eizenstat said in a joint statement.

Treasury Secretary Lawrence Summers, addressing a Cincinnati conference of chief executives, said the new law is not a subsidy and complies with the previous WTO ruling that struck down the tax system it would replace.

In any case, U.S. officials said that an agreement worked out with the EU on how to handle the dispute will mean that sanctions can't be imposed on American products for at least seven more months.

The EU imports about $160 billion in goods from the United States each year. The imports targeted by any sanctions range from live animals to copper and aluminum to books and newspapers.

The EU successfully protested an earlier law that granted U.S. companies billions of dollars in tax breaks for goods sold internationally. The WTO ruled in February that the U.S. Foreign Sales Corporation law amounted to an illegal trade subsidy.

Thousands of American companies - including Microsoft, Boeing and General Motors - have benefited from that law, which was created in 1984 to offset an EU tax rebate given to European companies for products sold overseas.

The new law, costing $4.5 billion over 10 years above what that law cost, attempts to address the WTO objections by creating new tax breaks that would apply equally to U.S. exports and to products the companies manufacture in their overseas plants.

The European Commission, the EU's executive arm, expects the United States to challenge any sanctions.

The United States previously missed Oct. 1 and Nov. 1 deadlines to enact the replacement law. The EU agreed to hold off on seeking sanctions because the measure was working its way through Congress.