(March 8) After waiting for years with no success for the U.S. to repeal its tax break for exporters, the European Union picked an election year to wait no longer.

On March 1, the EU imposed a 5% tariff on a targeted list of U.S. exports, including fruits and vegetables. Among produce targeted, California tree fruits were hit particularly hard.

“(The Europeans) extended their deadline on a number of occasions, and they believed if they extended it again they would never be taken seriously,” said Bill Bryant, chairman of Bryant Christie Inc., Seattle.

“The story is that the clock is ticking, and we need to come into compliance with the WTO.”

The Extraterritorial Income Exclusion Act of 2000, the U.S. law that gives tax benefits to exporters — particularly to large corporations like Boeing and Microsoft — was ruled illegal by the World Trade Organization in 2000.

Previous versions of the law also had been challenged by Europe — the Foreign Sales Corp. was a 1984 version of the law that the WTO also ruled illegal.

In the latest judgment, the WTO said the exclusion act provides an illegal tax break worth $4 billion a year and authorized the European Union to penalize U.S. exports up to that amount.

Chris Schlect, president of the Northwest Horticultural Council, Yakima, Wash., said it was important that Congress move quickly to get agriculture out of the crossfire of another trade dispute.

“The U.S. lost the case, and we should abide by international law,” he said.

The additional 5% tariff was applied to a list of U.S. exports, including jewelry, textiles and agricultural exports worth $300 million in annual sales to Europe. The EU said it would increase the tariff by 1% every month that Congress fails to act, to a maximum of 17%.

The March 1 action by the EU sparked pleas from industry, farm organizations and even President Bush for congressional action to bring U.S. laws into compliance with WTO rules.

“I think the European Union releasing the list puts more pressure on Congress to figure out how they are going to resolve this issue,” said Chris Garza, trade specialist with the American Farm Bureau Federation, Washington, D.C.

“Our ultimate goal is to get Congress moving on this, so we can get the sanctions removed.”


The list of fruit, nut and vegetable commodities slapped with the EU sanctions is perhaps most notable for what commodities it didn’t include.

Thanks to lobbying by importers and exporters and perhaps sheer chance, the EU sanctions spared major U.S. export items such as grapefruit, apples, almonds, orange juice and pears.

However, there are several important California commodities that were hurt. Nectarines, peaches, plums and asparagus were among the commodities hit by the March 1 sanctions.

Onions, carrots, peppers, papayas, peas, beans, celery, tomatoes, oranges, lemons, limes, pineapples, avocados and sweet oranges are other commodities on the list. Among processed items, frozen strawberries and frozen raspberries were hit with EU sanctions March 1.

California tree fruit was not yet in season in early March, but any delay in finding a solution could hurt the industry, said David Miller, international programs director for the California Tree Fruit Agreement, Reedley.

“We don’t want to be part of a trade war,” he said. “Leave us alone.”

Miller said California shippers enjoyed record shipments of tree fruit to Europe last year.

U.S. trade statistics rate U.S. peach, plum and nectarine sales to Europe at nearly $12 million last year.


A stronger Euro compared to the U.S. dollar has increased buying power in Europe significantly in the past year, but Miller said the EU sanctions would bite into that trade advantage.

The WTO let the U.S. levy $191 million per year in duties against European goods after a dispute over bananas that ran from 1999 to 2001, and since 1999, the body has allowed $116.8 million in sanctions over an EU ban on hormone-treated beef.

One Washington lobbyist said that although the House of Representatives typically moves first to rewrite tax law, it appears the Senate was prepared to advance the bill in early March.

Lawmakers will attempt to take away the export tax break but replace it with another type of tax break. The Associated Press said Capitol Hill lawmakers hope to pass legislation by mid-April.