U.S. Firms to be Hit by EU Sanctions

The move is retaliatory, counteracting tax breaks for U.S. companies which the World Trade Organization (WTO) has ruled illegal. "I think the picture is now clear: countermeasures will come into force by Monday", Trade Commissioner Pascal Lamy said after talks with his U.S. counterparts Thursday. A 5 percent levy will be placed on all U.S. exports to the EU, with that figure rising each month that the U.S. tax break stays in place. "Our countermeasures will start in a relatively modest way but the system has been devised so that it increases every month, the notion being that this will focus minds on the necessity to comply, which is the real name of the game," Lamy said. The figure is expected to rise by over €30 million ($37 million) a month. With the U.S. in an election year, any pressure from the sanctions will be made all the greater, with voters calling for politicians to protect U.S. jobs and interests. The Foreign Sale Corporation (FSC) - as the tax break is known - creates a loophole allowing U.S. companies to benefit from decreased export tax. The EU, backed by the WTO, says the FSC gives U.S. companies an unfair market advantage. Coupled with the strong euro, the FSC has led to very cheap U.S. imports. Similarly, the strong euro may also mean that the U.S. companies hit by the sanctions will not feel the pinch quite as much as they otherwise would, with their products still being competitively priced. The WTO has ruled that the EU may impose sanctions of up to €3.4 billion. It is up to the U.S. Congress to repeal the law. (EUObserver.com)