EU announces repeal of penalty sanctions on U.S. import goods

WASHINGTON -- The European Union announced Friday that it was prepared to end penalty sanctions on $4 billion worth of American exports to Europe.

However, EU officials warned they could reimpose some of the tariffs if a dispute is not resolved over a U.S. law that showers $136 billion in new tax breaks on companies.

Anthony Gooch, spokesman for the European Union in Washington, told reporters that a key panel of the European Council, the governing body for the EU, had approved unanimously a measure to withdraw the sanctions.

The panel recommended ending collection of the sanctions on Feb. 1 and also approved returning any penalty fees collected this month in the form of rebates.

The penalty tariffs, which began at 5 percent last March, had been rising by 1 percentage point each month -- a way for Europe to increase pressure on Congress to repeal a $5 billion annual tax break provided to American exporters that had been ruled illegal by the World Trade Organization.

A wide range of U.S. exports -- from jewelry and textiles to steel and various farm goods -- had been hit by the sanctions.

Congress passed the repeal of the illegal tax break and President Bush signed it into law in October. However, the EU complained that the legislation still did not totally conform to the WTO ruling because it allowed too long a transition period for U.S. companies to switch from the old tax break to a package of $136 billion in new tax breaks.

Gooch said the EU had decided to withdraw all of the sanctions but hold open the possibility that it could reimpose penalty tariffs on up to 60 percent of the original $4 billion in targeted products if the dispute over the transition period is not resolved.

The EU has asked the WTO to appoint a compliance panel to issue a ruling on the issue, a process that could take up to eight months to complete.

Reacting to Friday's announcement that the sanctions will be lifted, the Bush administration said the EU should have made the decision in October when the U.S. legislation was signed into law. U.S. officials also complained about the EU effort to challenge the transition rules before the WTO.