EU Sanctions On US Goods Unlikely Says Lamy

by Ulrika Lomas, Tax-News.com, Brussels

08 July 2003

Speaking after a meeting of European Union trade ministers on Sunday, Pascal Lamy, the EU's trade negotiator, has indicated that it is unlikely that retaliatory tariffs will be imposed on the United States as a result of the long running trade dispute between the two blocs.

The EU has the blessing of the WTO to impose $4 billion worth of retaliatory tariffs if the US does not take action to end 'extraterritorial income exclusion' - a partial tax exemption on certain foreign sales and leasing transactions. The EU has been arguing for some time that many US firms, such as Boeing, Microsoft and Caterpillar benefit unfairly from this tax break to the tune of around $6bn. However, Lamy told reporters that the imposition of sanctions "is a hypothesis which I do not see as the most probable."

The EU's stance seems to have softened as a result of recent meetings between Lamy and President Bush, with the EU negotiator seemingly satisfied that the US is committed to amending its tax legislation.

Although a consensus has yet to emerge amongst Congressional lawmakers as to how to replace the existing legislative framework, one proposal put forward by Rep. Phil Crane (R - Il) and Rep. Charles Rangel (D - NY) that has the support of at least 100 House members aims to reduce taxation on exporting manufacturers from 35% to 31.5% to compensate for the loss of the subsidy.

Lamy also commented on Sunday that the action brought by the US in the WTO against the European union's ban on genetically modified products is unlikely to succeed.

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