EU Trade Chief Visits As Heavy Sanctions Loom On US Goods

London, Feb 26: | Updated: Feb 27 2004, 05:30am hrs
European Union trade commissioner Pascal Lamy arrives in Washington on Thursday to take a fresh stab at ending a trade dispute that could pose problems for a vast array of US companies.

Congress appears unlikely to meet a Monday deadline for repealing US tax breaks for exporters worth about $5 billion a year that were deemed illegal by the World Trade Organization in 2000.

The EU, which believes the tax breaks give the United States an unfair advantage in the global marketplace, is prepared to impose up to $4 billion in punitive tariffs on US goods ranging from paper to heavy equipment.

Although no one could say on Wednesday what US products might be targeted first, European officials have said that likely candidates were products such as orange juice and textiles in states key to President Bushs re-election bid in order to increase the pressure on Washington to act.

Asked whether the EU would stick with Mondays deadline, Lamys spokeswoman, Arancha Gonzalez, replied in an e-mail that the law imposing sanctions is already published in the EUs Official Journal with a date of entry into force of March 1, 2004! So it is true.

She added that Lamy who plans to meet with members of Congress as well as US Trade Representative Robert Zoellick during his two-day visit is eager to hear from the horses mouth how Congress plans to advance legislation repealing the tax break.

But Congress isnt likely to act quickly even with sanctions looming.

The House Ways and Means Committee and the Senate Finance Committee have passed different versions of legislation to comply with the WTO ruling, but its unlikely Congress send President Bush a final bill before the deadline.

The reason is that theres simply so much at stake.

To be considered are the fortunes of about 1,800 US companies, including giants such as Intel Corp., Boeing Co., Motorola Inc. and Microsoft Corp. The tax credits allow US companies to put off paying taxes on foreign sales as long as the earnings are held offshore.

At the same time, other US multinationals such as Coca-Cola Co. are angling for more favorable tax rules as Congress tries to decide what might replace the current tax scheme.

To soften the blow on US companies, some legislators have pushed a reduction in the corporate tax rate from 35 per cent to 32 per cent.

NY Times