- The Washington Times - Thursday, October 2, 2003

A European Union official yesterday threatened up to $4 billion in trade sanctions on U.S. products starting next year if the United States does not move faster to end tax breaks for exporters.

Congress is working to repeal a tax law ruled an illegal subsidy by the World Trade Organization — the Senate Finance Committee Wednesday approved one measure — but competing plans offer two- to five-year transition periods to phase out the break.

“We have already waited for three years to get the legislation repealed,” said Arancha Gonzalez, spokeswoman for EU Trade Commissioner Pascal Lamy, referring to one WTO ruling from 2000. “An extra three-year period could not be acceptable to us.”

The WTO said the 15-nation European Union could impose the $4 billion in trade sanctions against the United States to counter the export subsidy. That would be the heftiest ruling ever by the global trade body and would severely hurt U.S. exporters and European consumers.

“I’m surprised the European Union would threaten sanctions now,” said Sen. Charles E. Grassley, Iowa Republican and chairman of the Finance Committee.

“I’m also surprised by the failure to appreciate the monumental task that confronts us,” he added.

The Bush administration and Congress have agreed to undo the measure but there is no consensus on a plan.

The Senate Finance Committee Wednesday approved a broad tax package to phase out the offending tax breaks over three years while also cutting taxes for manufacturers, simplifying rules for U.S. companies operating overseas and offering a tax holiday for companies that repatriate profits earned overseas.

“Inaction probably would cost a lot of American workers their jobs,” said Mr. Grassley, who with Sen. Max Baucus, Montana Democrat, sponsored the bill.

Rep. Bill Thomas, California Republican, has offered a different measure in the House that would repeal the tax break over two years. He also would rewrite of international tax rules and grant a new $120 billion, 10-year corporate-tax cut. He is revising the bill to give more help to manufacturers.

Rep. Philip M. Crane, Illinois Republican, and Rep. Charles B. Rangel, New York Democrat, are pressing a different bill that focuses on tax breaks for manufacturers while remaining revenue neutral. Their phaseout is five years.

Mr. Thomas is chairman of the House Ways and Means Committee, which has jurisdiction over trade and tax issues. House Republican leaders support Mr. Thomas’ bill and have asked him to move it to the House floor in the coming weeks.

“[Mr. Thomas] bill uses the opportunity provided by the WTO-mandated decision to terminate current … benefits to create a better tax structure for U.S. manufacturers competing against foreign companies,” House Speaker J. Dennis Hastert said.

The European Union has steadily increased pressure on the United States. In May Mr. Lamy said he would review the situation in the fall, and if there were no sign that compliance is “on the way,” he would start the legislative procedure for the adoption of countermeasures by Jan. 1, 2004.

Last month Europe clarified progress as both houses of Congress approved a bill. Yesterday they added that a three-year transition would be unacceptable; previously Mr. Lamy had said five years would be too long but was not more specific.

“We have said we would impose sanctions if and when the illegal [law] is not scrapped by the end of 2003,” Ms. Gonzalez said yesterday.

The $4 billion in sanctions would hit as many as 1,866 U.S. products, including consumer goods such as precious stones and metals, agricultural products, processed foods, toys, textiles and steel, according to a Ways and Means Committee analysis.

cThis article is based in part on wire service reports.

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