US Trade Official Sees End Of FSC Dispute By Year's End

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

26 June 2003

According to a recent report from Reuters, a high ranking US trade official has expressed optimism that Congress will approve new legislation ending the long-standing dispute with the EU over export subsidies by the end of the year.

Against the backdrop of President Bush's meetings with European leaders this week, Commerce Undersecretary Grant Aldonas told reporters: "It strikes me that progress is being made" by US lawmakers in respect of an overhaul of the tax system, which will hopefully prevent the EU imposing $4 billion worth of retaliatory subsidies with the WTO's blessing.

However, at present, there is by no means consensus amongst legislators on exactly what form the new laws should take. One proposal that has gained at least 100 congressional sponsors and has bi-partisan backing, would reduce the tax rate for US exporting manufacturers from 35% to 31.5%. This would offset the impact of abolishing the 'extraterritorial income exclusion' which allows large firms such as Boeing and Microsoft partial tax exemption on foreign sales and leasing arrangements.

House Ways and Means Committee chairman Bill Thomas, meanwhile, favors a system aimed at lessening the tax burden on US firms with substantial overseas operations.

Despite this lack of unity within Congress, Aldonas appears reasonably confident that a bill will emerge which combines elements of both proposals. "I expect the confluence...of those two interests will let us get to a bill that can pass," the trade official predicted.

The EU has yet to impose its retaliatory tariffs on US exports, although it has prepared a list containing some 50,000 US companies across a variety of industry sectors that will be hit by the tariffs. EU Trade Commissioner Pascal Lamy has indicated that the tariffs may be imposed if Congress has failed to enact fresh legislation by the fall.

Talks between Lamy, Bill Thomas and leading members of the Senate Finance Committee on the issue commenced yesterday and are due to resume today.

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