U.S. Faces Fines If FSC Tax Breaks Not Scrapped

By Agence France-Presse The European Union warned Oct. 2 it would press ahead with a record $4-billion fine against the United States if illegal tax breaks for U.S. companies are not scrapped by the end of the year. The European Commission -- the EU's executive arm -- expressed alarm at discussions in the U.S. to extend the Foreign Sales Corporation (FSC) law for another three years. The World Trade Organization ruled in January last year that the law flouted its rules by allowing thousands of U.S. firms, operating through subsidiaries in offshore tax havens, to benefit from reduced export taxes. The U.S. Senate's finance committee discussed draft legislation to replace the FSC that would give U.S. companies an extra three years before the tax breaks are completely scrapped, the European Commission said. "We have already waited for three years to get the legislation repealed. An extra three-year period could not be acceptable to us," says Arancha Gonzalez, a spokesperson for EU Trade Commissioner Pascal Lamy. "We have said we would impose sanctions if and when the illegal FSC is not scrapped by the end of 2003," she said. The $4-billion penalty, which would be levied through extra duties on U.S. goods imported to the EU, would be an unprecedented sum and send a shockwave through strained U.S.-EU trade relations. The world's two biggest economies are already at loggerheads over a range of trade spats, with Brussels warning it might appeal to the WTO over "Buy American" provisions in draft U.S. defense procurement legislation. Copyright Agence France-Presse, 2003