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European Union

EU-US Trade Dispute Resolution: A Step Forward

Strategic Insights

— 1 min read

European Union officials have expressed optimism that concerns prompting an EU lawsuit in 1997 have been addressed, paving the way for a resolution to the ongoing trade dispute between the two economic giants. US President George W. Bush has signaled his readiness to sign a bill that would gradually phase out tax breaks for corporations and lower domestic manufacturing tax rates. The European Commission has welcomed the congressional passage of the bill but has cautioned that EU sanctions would persist until the legislation takes effect.

Key Takeaways:

  • The EU believes concerns prompting a lawsuit in 1997 have been sufficiently addressed, prompting a shift in stance on the trade dispute.
  • The proposed US legislation would phase out export tax breaks for corporations over two years and introduce staggered tax rate reductions over five years.
  • The European Commission welcomed congressional passage of the bill but emphasized that EU sanctions would continue until the legislation enters into force.
  • A proposed transition period until 2007 and "grandfathering" clauses would allow beneficiaries to continue receiving export subsidies beyond 2007.
  • The European Commission received more than 700 pages of legislation from the US, which include the proposed transition period and clauses.
  • EU Trade Commissioner-designate, Pascal Lamy, met with US Trade Representative Peter Mandelson on October 18 to discuss the trade dispute.

Statistics:

  • 1997: The year the EU brought the trade action against the US.
  • 35%: The normal income tax rate on certain US manufactured goods for export under the current FSC/Extraterritorial Income scheme.
  • 27-32%: The reduced income tax rate on certain US manufactured goods for export under the current FSC/Extraterritorial Income scheme.
  • 2 years: The timeframe for phasing out export tax breaks for corporations under the proposed legislation.
  • 5 years: The period for introducing staggered tax rate reductions on domestic manufacturing under the proposed legislation.
  • 700: The number of pages of legislation received by the European Commission from the US.

Sources:

  • Statement by US Trade Representative Peter Mandelson
  • European Commission press release dated October 14, 2005
  • Statement by EU Trade Commissioner Pascal Lamy

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