- The Washington Times - Tuesday, February 25, 2003

The European Union is renewing pressure on the Bush administration and Congress to eliminate tax breaks granted to some of the biggest U.S. companies.
The 15-nation bloc's executive commission this week plans to announce a list of potential sanctions reaching several billion dollars in the long-running trade dispute, said a Washington-based EU official who has asked not to be identified.
European officials are encouraged by President Bush's budget, which calls for repeal of the tax break for exporting firms that violates World Trade Organization rules, but will implement retaliatory measures if changes to U.S. law are not made swiftly, the official said.
A formal announcement on a list of potential sanctions and the process for moving forward is expected tomorrow. No time frame or deadline is attached to the European demand.
The WTO case is expected to be one of the issues that EU Trade Commissioner Pascal Lamy will discuss with U.S. trade officials and legislators when he visits Washington next week.
The sanctions threat stems from a January 2002 WTO decision on "extraterritorial income exclusions" (ETIs). The provision allows companies to funnel their earnings from exports through foreign sales corporations into tax havens. The rule saves big U.S. companies like Boeing and General Electric about $4 billion each year, but a WTO panel calls the provision is an illegal exports subsidy.
The WTO has allowed $4 billion in sanctions, but the European Union is not expected to target such a high volume of products.
The EU's executive commission in September named a wide array of products for sanctions, but narrowed the list after meeting with industry groups. EU countries will consult internally to settle on specific products.
"It is a procedural step," the EU official said.
Mr. Bush's 2003 budget calls the export tax break outdated and asks Congress to repeal it.
"Compliance will require repeal of the ETI provisions," the Treasury Department's "blue book" says.
Rep. Bill Thomas, California Republican and chairman of the House Ways and Means Committee, said he will reintroduce legislation to reform the tax code this year; a similar measure died last year. The committee's first priority is the president's economic-growth package, but progress on the export tax situation is likely this spring.
The EU's move toward sanctions comes amid strained trans-Atlantic political relations. Also, the United States has threatened a WTO case against the EU's moratorium on genetically modified food.
"We have not done it probably because of Iraq, but I see a WTO case coming and I think the EU is probably lashing out before that happens," said Sara J. Fitzgerald, a trade-policy analyst at the Heritage Foundation, a Washington think tank.


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