Beginning March 1, the European Union (EU) will impose stiff sanctions on all jewelry items imported from the United States unless the U.S. Congress acts to repeal alleged subsidy programs that provide tax relief to U.S. companies selling overseas.

This warning from the Manufacturing Jewelers & Suppliers Association (MJSA) came in a Feb. 18 “Urgent Alert” fax from James F. Marquart, MJSA president and chief executive officer, to MJSA’s 16,000 members. Marquart asked members to “call or e-mail your representatives in Congress today” and urge repeal of the programs. (Contact information for members of Congress can be found by going to www.house.gov or to www.senate.gov and entering a constituent’s zip code.)

If Congress doesn’t revoke the “Foreign Sales Corporations” (FSC) and “Extraterritorial Income” (ETI) programs, he warns, the U.S. jewelry industry—which exported $2.4 billion worth of jewelry to Europe in 2002—will suffer serious competitive disadvantages and “stands to lose hundreds of millions of dollars” from the EU’s retaliatory tariffs.

Other segments of the jewelry industry, such as gem suppliers who sell to jewelry manufacturers, would be indirectly affected. U.S. retail jewelers aren’t affected, but the Jewelers of America “applauds [MJSA’s] efforts to maintain a level playing field for U.S. jewelry manufacturers,” said Fred Michmershuizen, JA Director of Marketing and Communications.

According to some sources, the EU sanctions could double the cost of U.S. jewelry in Europe, which—unlike Asia or other regions—until now hasn’t put high tariffs and costs on U.S. jewelry imports.

The FSC program, which let the U.S. government provide tax relief to U.S. companies to offset excessive foreign taxation—was challenged by the EU a few years ago as a violation of World Trade Organization (WTO) rules against illegal subsidies. The WTO agreed in 1999. In 2000, Congress passed the ETI program to accomplish the same thing without violating WTO rules. The EU challenged that, too, and the WTO agreed that this also was an illegal subsidy. The United States appealed, but the WTO appeal body upheld the ruling and said the EU can impose trade sanctions on the United States unless the programs are repealed.

The EU sanctions target a number of U.S. industries in addition to jewelry. MJSA is working with the National Association of Manufacturers (NAM) to get Congress to repeal the programs.

MJSA sent out the fax alert now because—despite months of assurances by the Senate Finance Committee, the House Ways and Means Committee, and the Bush administration that solving this problem is a top priority–“nothing has happened, and the issue is coming down to the wire,” says Tim Grilo, MJSA spokesman and marketing coordinator.

There are bills pending in both houses of Congress to repeal the questionable programs. (MJSA favors Senate Bill S1637.) But with March 1 less than two weeks away, there may not enough time for a bill to pass both Houses, go to conference committee for reconciliation, and then go to the President to be signed. However, European sources say EU commissioner of trade Pascal Lemay may postpone sanctions if “Congress demonstrates meaningful movement to repeal this,” says Marquart. “Any activity by Congress will be a sign to Europe to delay the sanctions. If it doesn’t act, though, Europe will imposes the sanctions, and there’ll be trade warfare between the United States and Europe.”

Election year campaigning may help the effort, suggest some industry and government sources: With the focus on the loss (or “outsourcing”) of American jobs to other countries, Congress and the Administration probably want to avoid anything that could hurt U.S. businesses and cause even more job losses.

For more information, contact MJSA at (800) 444-6572, ext. 3022.

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