EU Threatens Trade Sanctions Against US Over $4B Tax Break

Pascal Lamy, the European Union trade commissioner, has arrived in Washington to push for an end to a $4 billion annual tax break for large US exporters, a move that could lead to trade sanctions if Congressional action is not taken. The EU has set a March 1 deadline to impose tariffs on US exports, a first since the creation of the World Trade Organisation in 1994. Congress, already divided, is unlikely to meet this deadline, and legislation to repeal the Foreign Sales Corporation tax scheme has stalled in the House.

Key Takeaways:

• The EU is threatening to impose tariffs on US exports, starting at 5% and increasing by 1% each month, if the $4 billion annual tax break for large US exporters is not repealed by March 1.
• The EU has proposed a three-year transition period before the FSC tax benefits are completely repealed, which may help to ease Congressional concerns.
• Both the House and Senate have agreed to repeal the FSC tax scheme, but large differences remain over what to give US companies in return, including a proposal to cut taxes on domestic operations of US manufacturing companies.
• The latest version of the House bill, sponsored by Bill Thomas, would add about $60 billion in additional tax breaks for US companies over the next decade, a move opposed by Democrats.
• The EU's Pascal Lamy has courted Congress more carefully on this issue, emphasizing the need for US compliance rather than trade sanctions.

Statistics:

• The EU proposes to impose tariffs on US exports starting at $16 million (€12.6m, £8.46m) in the first month, increasing to $666 million a year in 2005.
• The FSC tax scheme provides an annual tax break of $4 billion for large US exporters.
• The EU has proposed a three-year transition period before the FSC tax benefits are completely repealed.

Sources:

• "EU Threatens Trade Sanctions Against US Over $4B Tax Break" by [No byline provided], [No publication name provided], [No date provided].