February 14, 2004

Why EU Imposed a Tariff on American Goods

As if the world war on terrorism is not enough aggravation, now comes the 15-nation European Union with the first salvo of what could turn into a global trade war.

The gnomes of Brussels – with World Trade Organization approval – have imposed a penalty tariff on American goods coming into EU countries.

Our European trading partners want the United States to return to WTO rules bypassed by Congress and President Clinton in the final weeks of his term.

As American manufacturers back then began to falter under repressive taxes and regulation, the nation’s lawmakers repealed the "foreign sales" provisions of the IRS tax code.

Well remembered is Clinton’s rueful, public admission: "I agree that I raised taxes too much."

The objective was well intentioned – to eliminate U.S. corporate taxes on goods made and sold abroad – in effect, a subsidy.

Heavily taxed EU manufacturers cried uncle – as in Sam.

WTO authorized retaliatory sanctions. Nevertheless, the European Union held off as a new Congress and President Bush sought to restructure $5 billion in corporate tax breaks in a manner meeting WTO mutually approved trade policies.  

Congress and Bush dragged out a return to WTO guidelines – remember the short-lived steel tariff – so bob-tailed short-term tax cuts could take effect.

Inasmuch as there has been considerable economic recovery, the nearly gridlocked Congress seems ready to act. But this matter has been pending for three and a half years. EU avers enough is enough, hence the sanctions.

Targeted American products will be subject to the penalty tariff starting this month totaling $300 million. This will ratchet higher by 1 percentage point each month until the 5-percent WTO-authorized penalty of $4 billion is reached.

One can speculate that the President would like to keep the recession rebound perking at least during the election campaign. And/or that the Democratic National Committee would like to stall economic recovery until after the election.

What makes you so suspicious?

Everybody here and abroad has walked to the edge of economic abyss, but no one is going to jump. Nevertheless, a good case of shivers might make everyone acknowledge the economic facts of life.

The combination of representative democracy and private capitalism – though less than perfect -- is the best political system ever invented.

Eternal problem is temptation of the poor to vote themselves an equal part of the earnings of those who work harder, save and invest. Bummer. Take away reward, and society collapses.

A capitalist-democracy can allocate resources to grow efficiently, but it can’t confiscate and remain viable.

Corporations are not cash cows with Dr. Frankenstein power to make the dead walk. They are consortiums of individuals who create jobs by risking their personal assets to a risky venture.

Sure, the top management of corporations often make outrageous salaries. But so do entertainers and sports stars. No one forces us to buy stock shares or admission tickets. It’s the American Way.

Businesses – farms, factories, distributors, services -- perform essential tasks for a successful society.

To keep these vital elements working there must be the incentive of reward. Make that "profit." Human nature may be self-centered, but there it is.

Sharing profit is the key to prosperity. Technology has made the whole world inter-dependent on sharing.  

Government performs important services but is inherently unable to micro-manage macro-enterprises. Trying to do so leads inevitably to repressive regulations and burdensome taxes. These are serious "disincentives."

The keys to jobs, production, peace and prosperity are policies that to minimize disincentives and maximize incentives. That is, minimize taxes and regulations while maximizing personal opportunities. Provide a safety net for personal hardships, but avoid trying to equalize individuals.

Just as private enterprises need a modicum of regulation, so do governments in the new age of globalization.

There is a place for nations, unions of nations and inter-national (note hyphen) organizations of conduct – but not first place.

PARTING SHOTS

John Kerry says there are two Americas, one for the rich and one for everyone else. Let’s figure this out. He is worth $700 million and wants everyone else to vote for him.

 * * *

A California state senator proposes an amendment allowing 14-year-olds to cast votes worth one-fourth an adult vote. Now we know where Florida’s butterfly ballot machines went.

Lindsey Williams is a Sun columnist who can be reached at linwms@lindseywilliams.org