EU split on reimposition of US sanctions in 2006

The EU is sticking with its plan to lift sanctions on $4 billion worth of US goods on Jan. 1, but is divided over whether to assert at this stage that they could be reimposed at a lower level in 2006, diplomats said.

The Financial Times said in a report Thursday that the 25-nation European Union would delay the promised removal of punitive import tariffs despite Washington's repeal of illegal export tax subsidies in October.

But a spokeswoman for the European Commission, the EU's executive arm, said there was no change in plan.

"There is not a new policy... our goal is to lift the sanctions on January 1 in recognition of the fact that the United States has made a step forward by amending its legislation," Claude Veron-Reville said.

Diplomats said the regulation lifting the EU's sanctions at the end of this month many not be agreed by Jan. 1 because of differences over the wording. But when it is, the punitive tariffs would almost certainly be removed retrospectively.

"The Commission wasn't able to push ahead and have this thing cleared before Christmas," a diplomat said.

"But whatever happens it will come into effect some time in January and, according to the Commission, it can be made retrospective to Jan. 1 so in practice there won't be a delay."

Diplomats said a blocking minority of EU member states had rejected a Commission proposal that the regulation lifting the sanctions in January would have automatically reimposed them a year later if the World Trade Organisation (WTO) finds in its favour on remaining subsidies.

"There was some concern by the member states about this automaticity," said a second diplomat, "Some member states were of the view that we should wait until we get the WTO finding... and then decide what to do."

He said the Commission's proposal to reimpose sanctions automatically could send "a bad Signal" at a time of troubled EU-US, trade relations, not least because of the spat over subsidies for aerospace rivals Airbus and Boeing.

The US Foreign Sales Corporation (FSC) legislation, ruled illegal by the WTO, was the trigger for the biggest transatlantic trade dispute in 50 years.

The EU slapped an initial duty of 5 percent on a broad range of goods from steel to textiles and paper last March, ratcheting it up to 14 percent this month.

The bloc announced it would be lifting its sanctions after the law was repealed in October, but at the same time complained to the WTO about remaining subsidies under the regime.

A US trade official said on Wednesday the United States believed it has honoured its obligations. "We've complied with the WTO and we want to see the duties removed," said Richard Mills, a spokesman for the US Trade Representative's office.