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Europeans Risk Wrath of U.S. With Tax Plan

From Reuters

The European Community Commission on Monday braved the wrath of the United States and EC member states by proposing a tax on vegetable oils and fats in a tough package designed at ending unwanted food surpluses.

The tax, which forms the centerpiece of the commission’s annual review of fixed prices paid to Community farmers, would at current world prices result in a levy of 330 European currency units, or $375 per ton, on all oils and fats.

Diplomats said it was a thinly disguised means of hitting exports of U.S. soybeans and would make EC butter manufacturers more competitive.

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At the same time, the commission announced it would take action against Japan, alleging that the Japanese had breached international trade rules by signing an anti-dumping agreement with Washington on the export of computer microchips.

A spokesman for the commission said the 12-nation bloc would ask the General Agreement on Tariffs and Trade to set up a panel to rule on whether the five-year U.S.-Japan accord signed last July was compatible with GATT practices. GATT is the umbrella organization to foster international trade.

Commenting on the oil and fats tax as he arrived in San Diego for talks with world grain exporters, Thomas Kay, head of the U.S. Department of Agriculture’s Foreign Agricultural Service, said the proposal may violate the GATT and could ultimately prompt retaliation by the United States.

“This is like waving a red flag at a bull. It is one area of extreme sensitivity, as far as we are concerned,” a U.S. diplomat in Europe said. He predicted a bitter transatlantic trade conflict if the ministers adopt the tax.

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He said the tax was clearly discriminatory in that it would favor butter and olive oil manufacturers and penalize manufacturers of currently low-priced margarines.

Brussels-based farm experts said it would also attract the ire of consumers’ groups and health lobbies anxious over the dietary ill-effects of increased butter consumption.

British Foreign Secretary Sir Geoffrey Howe denounced the proposed tax as likely to create more problems than it solves, adding that Britain had consistently opposed past pressures for such a tax.

Howe said the idea of an oils and fats tax was first proposed in 1964 and had been dusted off the shelves so many times since that “it has grown whiskers.”

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He said it was a means of passing costs on to consumers rather than curtailing the surplus and would not only anger the United States but also create problems for developing countries that export to the EC.

EC Agriculture Commissioner Frans Andriessen said the entire package, which follows a decision in December to cut beef and dairy price supports, would save the community $3.4 billion to $4.5 billion over two years.

Spending on soaring farm surpluses has left the European Community facing a budget shortfall this year of around $5.7 billion and prompted a full-scale review of its policies.

The package must go to European Community agriculture ministers for formal approval.

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