- The Washington Times - Tuesday, July 8, 2003

A key Democratic senator on trade issues yesterday urged the Bush administration to stiffen its spine in trade disputes with the European Union.

The United States and Europe have the world’s largest trade and investment relationship, but are locked in a series of battles over disparate tax and regulatory systems.

Montana Sen. Max Baucus, ranking Democrat on the Senate Finance Committee, yesterday said the United States should not “kowtow” to European demands on trade.

“Stiffen your spine, Mr. Veroneau. Be tough. Be American,” Mr. Baucus told John Veroneau, general counsel for the Office of the U.S. Trade Representative, during a committee hearing.

Mr. Baucus was pushing the administration to negotiate a settlement in one dispute the United States already lost during a series of hearings at the World Trade Organization.

The battle is potentially the costliest of any dispute between the United States and Europe. It is being waged over a section of the U.S. tax code that allows American companies a partial exemption from taxes on some foreign sales and leases.

The WTO ruled the tax break illegal and said the 15-nation European Union could slap $4 billion in sanctions on U.S. products if the United States continues to flout the ruling.

EU officials said they would implement the sanctions starting next year if the United States is not “on the way” to changing the tax code by the fall.

Democrats have urged the administration to push for changes in WTO rules so that the tax break could continue. Barring success in those negotiations, lawmakers have asked for a long phaseout for the benefit.

Mr. Veroneau yesterday said the United States is pursuing negotiations that would allow continuation of the tax break. But he added that such a change is not a top priority and that any talks would not develop quickly enough to stave off sanctions.

“We do not foresee a way to negotiate this as a way to stave off retaliation,” Mr. Veroneau said.

Sen. Charles E. Grassley, Iowa Republican and chairman of the Finance Committee, called yesterday’s committee hearing to consider remedies for the tax dispute. Competing proposals are working their way through the House.

Rep. Philip M. Crane, Illinois Republican, and Rep. Charles B. Rangel, New York Democrat, have offered legislation that would give all U.S.-made products a tax break. That would benefit manufacturers such as Boeing and Caterpillar.

Rep. Bill Thomas, California Republican, plans to introduce a measure that would comply with the ruling, but would favor multinational companies based in the United States.

Mr. Grassley has called another hearing next week on the issue. He plans to offer his own tax legislation as soon as the end of the month.

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