The U.S. Senate recently passed a bill that would end $4 billion in retaliatory
tariffs the European Union has placed on a variety of U.S. exports. The bill
revises the Extraterritorial Income tax program Congress put in place, which
was deemed illegal by the World Trade Organization, and the tariff would be
lifted when the tax subsidy is repealed.
“The European Union really did not want to impose those tariffs and gave the U.S plenty of time to change” the tax program, said Maureen Mezei, international trade director for the Rhode Island Economic Development Corporation. “The situation would be reverted to the status quo” if the bill passes.
The deadline for compliance was Jan. 1, but was pushed back to March 1. After Congress failed to repeal the program, the tariffs went into effect and the European Union doubled the previous 5 percent tariff rate. The Union will continue to increase the rate 1 percent every month if the subsidy is not repealed, until March 2005, when the total tariff would be 22 percent. It is currently at 7 percent.
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“This is a good positive first step, but it’s half the battle,” said Tim Grilo, marketing and public relations coordinator for the Manufacturing Jewelers & Suppliers of America, which had encouraged Congress to repeal the tax subsidy. “We’re most likely going to refocus our efforts on lobbying the House.”
The ETI, which replaced the Foreign Sales Corporation program in 2000, gives tax relief to U.S. companies for certain sales including foreign-based transactions. The tariffs serve to obtain lost revenue because of the ETI, Grilo said.
The United States and European Union have been embroiled in this debate since the 1970s, Mezei said. The United States claimed its companies were at a disadvantage because they paid domestic and export taxes, she said. The ETI was a way of balancing the scales, Congress claimed.
“This was a last resort – it was meant to get our attention,” Mezei said of the tariffs. “It’s obviously not in the interest of U.S. exporters to have these tariffs imposed on them. The sooner we can get back to where we were before, the better. The Union really didn’t want to start a trade war.”
According to the Providence-based national jewelry trade association, the tariffs could have a devastating impact on the jewelry industry and work force. A WTO arbitrator approved the tariffs on Aug. 30, 2002, affecting more than 1,600 U.S. products, the trade association said.
Of those products, jewelry and precious stones account for 36 percent, higher than any other targeted sector, although jewelry exports account for only 2.1 percent of total goods exported to European Union nations.
Despite the bill passing the Senate, Grilo said it’s “not the end of the problem for the jewelry industry.” With the tariff increasing 1 percent every month, if the bill does not pass this session, companies of all sizes will have to take counteractive measures.
“Larger companies are even starting to pay attention to this, with the tariff going up,” he said. “This affects almost all of those who export to the European Union. They’re realizing they’re going to have to take serious measures to stay competitive in the EU and in general.”
But an EDC spokesman said the tariffs are only part of an industry-wide problem.
“Policies that improve or maintain price competitiveness are good for our manufacturers,” said Townsend Goddard, an EDC spokesman. “(However) the future vitality of our manufacturing sector is a function of not only price competitiveness, but high value add – competitive advantage gained through superior design, work force, innovation and management. We will never win on price alone in the long term.”
The U.S. House of Representatives must now adopt the bill or pass its own version. Grilo said the House would likely draft a similar version that would slow the approval process.
When asked of the probability of the bill passing this session, he said, “Since
there was an overwhelming vote in the Senate, we’d hope that the House would
quickly pass it. All we can do is keep piling up the bodies at their door and
show them this is having an impact on the industry and (could cause) a loss
of jobs.”
