WASHINGTON — The House Ways and Means Committee passed Republican-backed tax-break legislation Tuesday designed to keep the European Union from slapping $4 billion in punitive tariffs on U.S. exports, including apparel and textiles, by year’s end.

However, the bill, sponsored by Ways and Means chairman Bill Thomas (R., Calif.), and supported by 240 companies, including Wal-Mart, Sara Lee Corp. and The Limited, continues to prove controversial. At the center of the dispute dividing Republicans in the GOP-controlled House is whether the measure should benefit U.S. companies operating abroad, as well as domestic manufacturers.

“Chairman Thomas’ proposal continues to include a substantial foreign tax reform package that lowers the cost of doing business overseas for American companies. This necessarily will encourage American companies to move more American jobs offshore to China and other locations,” wrote 11 breakaway Republican members Tuesday to House colleagues.

The signatories included Small Business Committee chairman Donald Manzullo (R., Ill.), a sponsor of competing legislation, as well as lawmakers from textile-producing states.

The Thomas measure, intended to replace a U.S. export tax break successfully challenged by the EU at the World Trade Organization as an illegal subsidy, also isn’t likely to be the last word.

The Thomas bill, containing $120 billion in tax breaks over 10 years, could be tempered on the House floor, since the chamber is narrowly divided between the parties, and there might be enough GOP opponents to fuel a rout. Whatever version passes the House would also have to be reconciled with a Senate bill sponsored by Senate Finance Committee chairman Charles Grassley (R., Iowa).

But time is running out for lawmakers to meet the EU’s end-of-year deadline to repeal the export tax or face $4 billion in punitive tariffs on U.S. exports. Congressional leaders hope to adjourn for the year sometime next month, leaving little time to work out their differences on one of several must-resolve controversies fueling Capitol Hill politics.

The tax bill is also swept up in the broader concern among lawmakers from both parties about the persistent decline in U.S. manufacturing. However, Thomas said at Tuesday’s committee meeting that multinationals and domestic producers must share in the new tax breaks.“We deal in a world that if we don’t make changes, we will be left behind,” he said, noting that two-thirds of U.S. exports are created by multinationals.

Countering that was Rep. Charles Rangel (N.Y.), the top Democrat on the panel, who said: “We should not replace a law that promotes the export of American goods with one that will lead to the export of American jobs. But that’s exactly what chairman Thomas proposes.”

The Thomas plan would shift the current $57 billion in export subsidies (calculated over 10 years) now enjoyed by multinationals to new foreign tax credits. At the same time, his bill would close some tax shelters and discourage companies from creating paper headquarters overseas.

For domestic producers, the Thomas bill, like the Grassley measures, would lower the top corporate tax rate to 32 percent from 35 percent. The Manzullo bill, also sponsored by Reps. Phil Crane (R., Ill.) and Rangel, would lower the top rate to 31.5 percent.

As for apparel importers, only the American Apparel & Footwear Association has weighed in to support the Thomas measure.

“It helps American firms that are manufacturing here and American firms that are selling abroad,” said AAFA vice president Steve Lamar.

U.S. textile producers are taking a “neutral” position on the issue, since they’re keen on finding a remedy to keep the Europeans from retaliating.

“We hope they’ll come up with something that is good for U.S. manufacturing,” said an American Textile Manufacturers Institute spokesman.

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