EU To Lift U.S. Sanctions Once Tax Law Repealed

By Agence France-Presse The European Union said May 12 it would lift hefty trade sanctions against the United States once the U.S. Foreign Sales Corporation (FSC) tax law is fully repealed. EU Trade Commissioner Pascal Lamy said the repeal of the U.S. FSC tax law, which has been deemed illegal by the World Trade Organization, must still be approved by the House of Representatives. "It goes without saying that the moment WTO-compliant legislation becomes law, the EU will immediately repeal the countermeasures," Lamy said in a statement. The EU slapped multi-million-dollar sanctions on the U.S. at the start of March over tax breaks given to U.S. exporters under the FSC and the Extra Territorial Income Act, which have both been ruled illegal by the WTO. The sanctions took the form of import duties starting at 5%, rising by one percentage point each month, on goods ranging from American meat to nuclear reactor parts. If continued until the end of the year, the duties would amount to more than $300 million, well short of the $4 billion in countermeasures that the WTO had granted the EU the right to impose. The Senate late May 11 voted by 92-5 to eliminate $5 billion in tax breaks given to companies including Microsoft, IBM, Boeing and Caterpillar, which the WTO considered a direct subsidy to exporters. But the Senate measure offers $170 billion in different tax breaks for U.S. businesses, including lower tax rates for manufacturers such as Boeing and $14 billion in tax incentives for the energy sector. The Senate bill also allows U.S. companies to defer more tax payments on profits made abroad, and grants them a one-year grace period to transfer back home their overseas profits, 85% of which are tax exempt. Copyright Agence France-Presse, 2004