USTR Official Warns Over Exporter Tax Breaks

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

10 July 2003

Despite EU Trade Negotiator, Pascal Lamy's observation at the weekend that the imposition of $4 billion worth of sanctions on the United States as a result of its 'extraterritorial income exclusion' regime 'is a hypothesis which I do not see as the most probable', a top US trade official has warned that European retaliation may be on the cards if the Bush administration does not act quickly to phase out tax breaks for exporters.

Speaking before the Senate Finance Committee on Tuesday, general counsel in the Office of the US Trade Representative (USTR), John Veroneau suggested that:

'I suspect that if by the end of the session we have not shown serious progress in passing legislation to replace [the tax breaks for foreign sales corporations], I think next January we face a very high likelihood of retaliation.'

According to reports, the Senate Finance Committee's senior Democrat, Max Baucus urged the USTR to push for a five year phase-out period for the tax perks. However, the trade official explained that although the EU would probably accept a short period of transition 'my crystal ball is hazy beyond two years'.

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