- The Washington Times - Monday, March 1, 2004

President Bush yesterday urged Congress to repeal corporate tax breaks that have spurred trade sanctions against U.S. products sold in Europe.

“I urge Congress to take up and pass … legislation that reforms the tax code, removes the underlying reason for the tariffs that have been imposed today on American exports, and further advances the competitiveness of American manufacturers and job creators,” Mr. Bush said in a statement yesterday.

The 15-nation European Union yesterday hit select U.S. industries with World Trade Organization-authorized sanctions. The WTO ruled in January 2002 against a section of the U.S. tax code that gives exporters breaks on overseas sales and leases, calling them an illegal subsidy. The European Union gave Congress and the Bush administration until yesterday to comply.

“Despite waiting for more than two years, the U.S. has not brought its legislation in line with WTO rules. We are therefore left with no choice but to impose countermeasures,” EU Trade Commissioner Pascal Lamy said in a statement.

The WTO authorized $4 billion in sanctions, but the European Union is only slowly phasing in the punitive tariffs against products like leather jackets, roller skates, candles and honey. The levies start at 5 percent on hundreds of U.S. products and would rise to 17 percent over 12 months if the tax breaks are not repealed.

The European Union estimated that duties would hit $315 million for the rest of this year and reach $666 million in 2005 if Congress does not act.

U.S. producers are not pleased with the new trade barriers.

“I don’t think you’re going to see any black and white, where at 12:01 a.m. there is an immediate impact,” said Ron Gaskill, an international trade specialist with the American Farm Bureau. “But any time you add a tariff that adds to the cost of a good … you encourage your customers to look at competitors.”

“As that cost gets higher, buyers are going to look someplace else. That is the threat that we deal with,” Mr. Gaskill said, indicating that fruits, vegetables, dairy and other farm products sold overseaswill face the tariffs.

Stephen Lamar, senior vice president with the American Apparel and Footwear Association, estimated that his members would initially face about $1 million in extra duties per month.

“We’d jut like to see [Congress] get a bill done and get it into conference,” Mr. Lamar said.

Despite the rising pressure on Congress, it is not clear whether legislators will repeal the export subsidy, worth about $50 billion over 10 years to companies like Boeing, Caterpillar and Microsoft.

The Senate is scheduled to start debate midweek on one measure that would end the subsidy and redistribute it as a corporate tax reduction for U.S.-based manufacturers. Majority Leader Bill Frist, Tennessee Republican, is trying to limit amendments so the bill does not become bogged down with unrelated measures.

Senate lawmakers hope to vote on the bill before Easter recess begins April 9, according to a Senate source.

In the House, it is less certain when any measure to head off the trade sanctions would reach the floor. Rep. Bill Thomas, California Republican and chairman of the House Ways and Means Committee, introduced legislation in July that linkeda subsidy repeal with the reform of international tax rules dating to 1962.

The rewrite of international rules added $60 billion to the legislation’s price tag and would help multinational corporations, making it less appealing to some of Mr. Thomas’ colleagues.

Democrats, especially, are looking to turn the subsidy dispute and sanctions into an election-year issue.

“The Bush administration has shown no leadership. They have fiddled while manufacturing jobs burn,” Rep. Charles B. Rangel, New York Democrat, said last week at a press conference promoting an alternative to Mr. Thomas’ bill.

The House Ways and Means Committee has jurisdiction over trade and some revenue-related legislation, so any alternative proposals would have to win Mr. Thomas’s approval or they are unlikely to be considered by the full House.

The subsidy dispute is one of several trade fights between the trans-Atlantic allies, from EU resistance to hormone-treated beef and genetically modified crops from the United States, to more obscure sections of U.S. trade law affecting the distribution of customs duties and the recognition of trademarks.

The WTO allowed the United States to levy $191 million per year in duties against European goods after a dispute over bananas that ran from 1999 to 2001, and since 1999 has allowed $116.8 million in sanctions over an EU ban on hormone-treated beef.

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