- The Washington Times - Thursday, February 27, 2003

The Bush administration's top trade official yesterday warned members of Congress that U.S. firms will face sanctions from the European Union if lawmakers fail to comply with a World Trade Organization ruling on taxation.
"If we don't come up with a solution, some of your industries are going to start seeing some of the $4 billion in retaliation," U.S. Trade Representative Robert B. Zoellick told members of the House Ways and Means Committee during testimony yesterday.
The comments came as the European Union issued a draft list of $4 billion in products that could be blocked from the 15-nation market, increasing pressure on the administration and Congress to act.
The EU list, which the 15 member states will discuss internally before determining a final plan, follows last year's WTO decision against the United States' tax rules for exporters.
The U.S. tax code allows companies a so-called extraterritorial income exclusion, a measure that provides partial exemption from taxes on certain foreign sales and leasing transactions. The rule saves U.S. companies about $4 billion each year, but a WTO panel said the provision is an illegal export subsidy.
EU Trade Commissioner Pascal Lamy yesterday said "the EU is following the necessary procedural steps to launch countermeasures if the compliance process does not deliver swift results."
No particular time frame was attached to the word "swift," but the European Union has made clear that a wide range of products are being targeted.
Mr. Zoellick said that the European Union is not likely to implement the sanctions immediately but would if Congress does not act.
Republican leaders in Congress are focusing on the president's economic package, but staff sources in the House and Senate said proposals would be ready this spring.
Legislators widely recognize that they need to act but have not reached a consensus and are worried that changes to the tax code would hurt American exporters.
Ways and Means Chairman Rep. Bill Thomas, California Republican, offered legislation last year to solve the problem but the measure died when it failed to attract sufficient support.
New York Rep. Charles B. Rangel, the ranking Democrat on the Ways and means Committee, yesterday said he would submit his own proposal.
Iowa Republican Charles E. Grassley, chairman of the Senate Finance Committee, said his committee would tackle the issue after addressing the economic slowdown.
"We're giving this issue a high priority, and we'll comply with the ruling," he said yesterday in a statement.
Big business, a key political constituency for both parties, recognizes the need to comply with the WTO.
"The fight is not over that, it's over how to do it," said Bill Reinsch, president of the National Foreign Trade Council, a Washington-based business group. Compliance could end up costing some big exporters their tax breaks, though a new international tax bill could also lead to breaks that benefit many of the companies.
During his testimony yesterday, Mr. Zoellick discussed a number of other issues with legislators, including:
Progress on trade agreements. The administration is engaged in talks at the WTO with 33 other nations in the hemisphere for a Free Trade Area of the Americas, and in bilateral talks with Australia, Morocco, five countries in southern Africa and five countries in Central America.
Regarding WTO talks, Mr. Zoellick said that the European Union and Japan are holding up agriculture talks at the WTO, and that without agriculture, negotiations would be stuck.
Negotiations with Russia to join the WTO. The Bush administration wants to move beyond Cold War "strictures and stereotypes" but says Russia must make a serious commitment to opening its market.
The EU's moratorium on genetically modified food.
The administration believes the moratorium, which effectively blocks some U.S. agricultural exports to Western Europe, is a violation of WTO rules and is "working with others to determine the most expeditious way" to remove the barrier.
Steel tariffs raised by the administration in March 2002. The protective measures have given the U.S. steel industry a chance to adjust to import competition, Mr. Zoellick said.


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