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Multi-million dollar tariffs on U.S. goods begins Monday

BRUSSELS, Belgium (AP) -- In the latest trans-Atlantic trade dispute, the European Union will start imposing millions of dollars in sanctions on U.S. goods Monday because of Washington's failure to end export tax breaks ruled illegal by the World Trade Organization.

"We've been waiting for years," European Commission spokesman Diego de Ojeda said Friday in confirming that the sanctions would go ahead as announced months ago. They "are automatic and there's nothing we can do about it."

Although the WTO has authorized a whopping $4 billion in sanctions -- the biggest amount ever -- the EU is taking a graduated approach intended to increase the pressure on Congress while limiting the disruption to European companies and consumers.

Sanctions hurt U.S. producers by making it more expensive for them to sell their products in Europe. But they can also backfire by pushing up prices in Europe or disrupting production if other suppliers can't be found.

"The longer Congress takes to act, the more damage could be done to U.S.-EU trade relations," said Richard Weiner, a trade lawyer with Sidley, Austin, Brown and Wood in Brussels.

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The duty might not be taken seriously at first by U.S. exporters coasting on the weak dollar, he said. "But if that flipped and the dollar reached parity, this would become a major issue."

The WTO initially declared the U.S. law allowing big exporters to benefit from reduced export taxes to be illegal in 2000, and an amended law was rejected again in 2002. Last year the WTO authorized the EU to impose extra duties of up to 100 percent on $4 billion of U.S. trade, which it said was roughly equal to the estimated annual U.S. subsidy.

U.S. Trade Representative Robert Zoellick has warned that levying the full amount would be like a "nuclear bomb" on trade relations. The Bush administration has promised an overhaul but so far Congress has failed to pass a new law.

The dispute was high on the agenda for EU Trade Commissioner Pascal Lamy during his trip to Washington this week for talks with congressional and Bush administration figures.

The EU decided in December to impose tariffs from March 1, starting at 5 percent and increasing monthly up to 17 percent, unless a new law was enacted by then.

That means U.S. companies will have to pay an estimated $16.6 million in March, rising to $46.4 million by December for a total of $315 million in additional duties by the end of the year. The total could be more than twice that in 2005 if Congress fails to act.

U.S. jewelry exports, worth an annual $1.43 billion, will be among those hardest hit. Other items targeted include machinery, paper, fruits and vegetables, meat and dairy products, cotton and textiles, leather, tools, toys and sports equipment.

Boeing -- which saved $195 million in 2002 from the U.S. tax break -- is being spared because of pressure from European subcontractors.

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