EU To Lift Trade Tariffs, Although Doubts Persist Over Lingering US Tax Breaks

by Ulrika Lomas, Tax-News.com, Brussels

27 October 2004

The European Commission’s chief trade negotiator, Pascal Lamy, announced on Monday that the EU is willing to lift the bulk of the $4 billion in tariffs on US goods next year, although question marks remain over tax breaks given to certain US firms.

The move comes after President George W. Bush on Friday signed into a law a bill repealing Extra Territorial Income Exclusion provisions, signalling an end to the long transatlantic dispute.

"I am extremely pleased that this bill now has become law," Lamy announced at his final news conference before handing over to the UK’s Peter Mandelson at the end of the week.

“I am very satisfied that our efforts have been rewarded after five years," he added.

However, Lamy’s approval was qualified, and he expressed concerns over certain provisions buried within the legislation regarding transitional arrangements for the phasing out of tax breaks for companies whose orders require long delivery times.

"There are still a few provisions about which we have our doubts as to their conformity with the WTO decision," Lamy indicated.

"Potentially the tax that was approved might include grandfather clauses - clauses which can give to contracts signed before a certain date advantages that continue beyond the (two year) transition period," he explained.

The EU is likely to ask the WTO for a further ruling clarifying whether these grandfather clauses breach global trade rules, raising the possibility of yet another dispute in the near future.

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