New Bill Would End US Export Subsidy System

by Leroy Baker, Tax-News.com, New York

06 June 2003

A bill that will potentially help to avoid a damaging trade war between the United States and the European Union is gathering support in the House of Representatives.

The bill seeks to modify the current taxation system, which the WTO has ruled allows unfair subsidies for exporters, whilst still retaining tax breaks for US companies.

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. The EU initially drew up a list of some 50,000 companies across many industry sectors that will be targeted by retaliatory tariffs, although it was reported recently that this list has been shortened in the meantime.

The bill aims to reduce taxation on exporting manufacturers from 35% to 31.5% to compensate for the loss of the subsidy.

The proposal is backed by a cross party collection of sponsors, including Rep. Phil Crane (R - Il) Rep. Charles Rangel (D - NY) and Don Manzullo (R - Il), and has been signed by 100 House members according to reports.

However, observers have suggested that the bill will face a tough test in the House Ways and Means Committee, chaired by California Republican Bill Thomas. Mr Thomas is planning to introduce a similar bill which will also repeal the export subsidy system, and replace it with a package of tax breaks for firms with significant overseas sales.

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