You just don't get it: EU Gives U.S. Deadline in Tax Dispute
Wed May 7, 2003 02:20 PM ET
By Patrick Lannin and Doug Palmer
reuters.com
BRUSSELS/WASHINGTON (Reuters) - The European Commission on Wednesday gave the United States an autumn deadline to change disputed tax break laws for major corporations or face the threat of up to $4 billion in sanctions.
The long-running dispute over the tax benefits for major U.S. exporting companies such as Boeing and Microsoft is one of a series of European Union-U.S. trade spats. It re-emerged days after the two pledged to work together to boost stalled global trade talks.
"The commission will review the situation in the autumn," said European Trade Commissioner Pascal Lamy after the Geneva-based World Trade Organization (WTO) gave the EU the final green light to impose the sanctions.
"If there is no sign that compliance is on the way at that time, it (the Commission) would then start the legislative procedure for the adoption of countermeasures by Jan. 1, 2004," he added in a statement.
The United States has been discussing ways it can comply with the WTO rulings against the system of tax breaks, known as the foreign sales corporation program.
Although here is general agreement on the need to repeal the tax breaks to comply with the WTO, key lawmakers have different ideas how to use the $50 billion in expected tax revenue over ten years to help U.S. companies.
Progress also has been delayed by a fight in Congress over the final size of a $750 billion tax cut sought by President Bush to help boost the U.S. economy.
Lamy said the EU was encouraged by the determination of Congress and the U.S. administration to change the law and hoped that any solution would be fully in line with WTO rules. But he has also said in the past that EU patience is not infinite.
Richard Mills, a spokesman for the U.S. Trade Representative's office, said he could not comment on whether the United States would meet the EU's autumn deadline for action.
But Mills said, "as we've made clear, the United States intends to comply with our international obligations."
He added that Congress is "increasingly focused" on the issue, with key lawmakers in both the House of Representatives and the Senate working on legislative solutions.
Mills also warned that retaliation was a "double-edged sword" that could hurt EU consumers and European firms with operations in the United States as much as it would U.S. companies.
"The EC has indicated that they would prefer compliance over retaliation. We prefer this as well," he said.
The dispute goes back to 1998 and the level of the punitive duties was set according to the annual loss in earnings claimed by European Union companies. The sum of $4.04 billion set by the WTO was a record for retaliation allowed by the trade body.
The ruling means the EU can set duties up to 100 percent on hundreds of U.S. imports, including live animals, aluminum and copper goods, cereals and nuclear reactor parts.
The tax dispute is one of a number involving the United States and the European economic bloc. Brussels and Washington are anxious not to aggravate tensions, particularly because WTO talks to free up global commerce have run into trouble.
Lamy and his U.S. counterpart Robert Zoellick pledged last week to try to give the global trade talks, the Doha Round, a push by focusing on where they agree rather than disputes. |
