WASHINGTON — Congress is scrambling to pass corporate tax reform legislation to avoid a trade war by year’s end with the European Union.

Lawmakers are divided over how to make the changes in order to appease the EU and stave off its threatened 100 percent tariffs on $4 billion in annual U.S. exports to Europe, including apparel and textiles. The issue has been brewing for more than three years since the EU first sought and eventually gained a World Trade Organization ruling that $5 billion in yearly U.S. tax breaks afforded multinational corporations was anticompetitive under the global trade body’s rules. The WTO then gave the EU the go-ahead to retaliate.

EU officials have said their patience is wearing thin and they want congressional action before lawmakers adjourn for the year. An initial adjournment date of Friday has been scrapped and a new one hasn’t been set.

“We clearly want the legislation adopted,” not just considered, said an EU spokesman in Washington, before watching a Wednesday hearing before the Senate Finance Committee that offered its roadmap for repealing the offending tax breaks.

In drawing up their proposal, Senate lawmakers faced the same dilemma tackled by their House counterparts in writing two competing bills: how to repeal the tax break without harming its beneficiaries and appearing to promote offshore sales and production, while U.S. manufacturing and the economy is in the doldrums.

Like the House bills, the Senate proposal introduced by Finance Committee chairman Charles Grassley (R., Iowa) and the panel’s ranking Democrat, Max Baucus of Montana, is cast as a job creator. The bill would take most of the $50 billion that would be given the multinationals over 10 years and gives it to all U.S. manufacturers, which would see their 35 percent corporate tax rate lowered to 32 percent.

However, to appease the multinational corporations, the bill also creates a new tax cut for them, since lawmakers are concerned about a study that said the current subsidies support 3.5 million U.S. jobs.

Committee member Gordon Smith (R., Ore.) said J.P. Morgan estimates the repatriated money could create as many as 500,000 jobs. The White House criticized the Grassley-Baucus plan, with Treasury Assistant Secretary Pam Olson telling the panel, “It does favor one sector over another, which would have the effect of distorting investment decisions.”In the House, Ways and Means Committee chairman Bill Thomas (R., Calif.) has a proposal supported by Wal-Mart, but detractors claim the bill’s $130 billion in U.S. manufacturing and multinational tax breaks over 10 years is too costly. A competing bill sponsored by Illinois GOP Reps. Phil Crane and Bill Manzullo, and Democrat Reps. Charles Rangel (N.Y.) and Sander Levin (Mich.) would direct the $50 billion in savings from repealing the export subsidy to U.S. manufacturers tax relief.

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