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Report: EU-US trade war could sink global economy
( 2001-08-26 12:24 ) (7 )

Former US Deputy Treasury Secretary Stuart Eizenstat believes Europe and the United States are on the verge of their biggest ever trade war, with the potential to scupper the recovery of the global economy, The Observer reported Sunday.

Eizenstat's comments followed a ruling by the World Trade Organisation last week that US tax breaks for exports are incompatible with global free trade rules.

US law allows American exporters to set up offshore trading companies -- Foreign Sales Corporations -- through which they can sell goods oversees without paying US taxes.

The European Union has complained to the WTO that these tax breaks represent a de facto subsidy that puts US corporations at an unfair advantage over European rivals.

The WTO ruled on Monday that the FSC Replacement Act, passed by Washington last November, was a prohibited export subsidy, violated the WTO's Agriculture Agreement and discriminated in favour of US goods in breach of WTO rules.

"This could be the biggest trade dispute we have ever had with the EU," the Observer quoted Eizenstat, the architect of the US Foreign Sales Corporation code, as saying.

Eizenstat, now a partner with the legal firm Covington and Burling in Washington, added: "The EU's holding a gun to our head that could explode in their hand.

"It's the last thing that's needed at a time when the world economy is weak."