Congress must act now to stop trade war, says MJSA

The Manufacturing Jewelers and Suppliers of America (MJSA) is urging the U.S. Congress to quickly repeal tax breaks for U.S. companies, opposed by the World Trade Organization (WTO). The European Union (EU) has imposed stiff sanctions, effective today, March 1, on U.S. jewelry if they’re are not eliminated. MJSA officials were scheduled to issue their plea at a Mar. 1 press conference at the MJSA Expo New York, the country’s largest trade show for jewelry manufacturing.

The EU’s retaliatory tariffs cover several U.S. industries (including toys, textiles, and paper), but jewelry would be the hardest hit. Though jewelry represents only 2.1% of all U.S. exports to Europe, it’s targeted with 30% of the tariffs, and could pay up to $1.43 billion of the annual $4 billion the EU can ultimately impose, estimates the CNN news service.

EU Trade Commissioner Pascal Lamy is phasing in the sanctions gradually. They start at 5% (on top of any currently import duties or costs) and unless and until Congress acts, they’ll increase 1% a month until they reach 13%.

The sanctions are intended to spur Congress to replace the disputed tax breaks with measures in line with WTO rules, a Lamy spokesman told CNN. “The name of the game is not ‘retaliation,’ it is ‘compliance,’” she said. “The day the new measures are passed by Congress, we will stop the sanctions.”

This is the first time the EU has imposed retaliatory tariffs on the United States. It caps an ongoing dispute between the two over tax breaks that U.S. companies doing business aboard get from the government.

At issue are the U.S. “Foreign Sales Corporations” (FSC) and “Extraterritorial Income” (ETI) programs. The FSC program, which let the U.S. government provide tax relief to U.S. companies to offset foreign taxation, was challenged by the EU a few years ago as a violation of WTO rules against illegal subsidies. The WTO agreed in 1999. In 2000, Congress passed the ETI program to do the same thing without violating WTO rules. The EU challenged that, too. The WTO agreed this also was an illegal subsidy, and authorized the EU to impose up to $4 billion annually in trade sanctions on the United States until the programs are repealed. The EU gave the Untied States until the end of 2003 to act.

Some Washington officials downplayed down the situation, saying this wasn’t the start of a trade war but part of an ongoing process. The weak dollar might also lessen the impact of the sanctions.

However, the Bush administration has pushed Congress to change the questionable provisions. In a February letter to Congress, Treasury Secretary John Snow, Commerce Secretary Don Evans, and U.S. Trade Representative Robert Zoellick warned that the retaliatory tariffs on U.S. exports “pose a threat to … growth and may retard the creation of jobs in certain sectors of the economy.”

The Senate was expected to begin debate this month on a bill to repeal the subsidies, but quick action in the Houses of Representatives was “less certain” reported CNN. Election-year campaigning may help, suggested some industry and government sources: With the spotlight this year on the loss (or “outsourcing”) of American jobs to other countries, Congress and the Administration probably want to avoid anything that can hurt U.S. businesses and cause even more job losses.

The MJSA originally contacted its 16,000 members in mid-February with an “Urgent Alert” fax from MJSA president James Marquart. The fax asked members to “call or e-mail your representatives in Congress today” to urge repeal of the programs. (Contact information for members of Congress can be found by entering a constituent’s zip code at www.house.gov or www.senate.gov.)

MJSA spokesman and marketing coordinator Tim Grilo said MJSA took action because—despite months of assurances by the Senate Finance Committee, the House Ways and Means Committee, and the Bush administration that the problem was a top priority—”nothing has happened, and the issue is coming down to the wire.” For more information, contact MJSA at (800) 444-6572, ext. 3022.