Tuesday, February 14, 2006

US, Europe Again at Odds Over Trade

Despite the largest trade deficit in US history - $725.8 billion - Europe continues to complain that US legislation unfairly provides subsidies to American exporters. (USA Today: U.S. still gives illegal aid to exporters, Europeans say). European trade Commissioner Peter Mandelson is threatening to impose additional sanctions against US exports unless Washington enacts legislation to curb the subsidies.

At issue with the Europeans is the Foreign Sales Corp (FSC) law that allows the federal government to grant tax exemptions to over 6000 American exporters. That law has since been repealed, but some of the measures to which Europe objected were incorporated into the 2004 American Jobs Creation Act. The WTO is threatening to reimpose sanctions unless Congress repeals portions of the Act.

This latest squabble with the WTO is another skirmish in Europe's attempt to assert European law over American law. Europe has yet to learn that US law, like US foreign policy, is made in Washington, DC, not in Paris, Brussels, or even New York City.

Senator Charles Grassley (R-IA), chairman of the Senate Finance Committee, correctly stated, "If sanctions are resumed, they'll only disrupt our bilateral economic relations. I doubt Congress will revisit this legislation." In fact, Congress should not revisit this legislation. It is Congress' responsibility to safeguard American jobs and American exports. The goal of Congress should be in reducing that $725.8 billion trade deficit, a goal that would not be fostered by adhering to WTO rules intended to give Europe an undue trade advantage.

The steps Congress needs to take would be even less popular than current legislation. Foreign imports should be tariffed at a higher rate so as to improve the sales of American made products. American companies engaging in foreign outsourcing should be penalized via the tax code for every job sent overseas. American exporters should receive significant tax breaks, allowing their products to compete favorably with foreign priced products. No, the WTO would not like those measures whatsoever. But then, the WTO is structured to serve Europe, not the US.


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