WASHINGTON — The House is expected to take up legislation today intended to end 12 percent tariffs levied by the European Union on $5 billion worth of U.S. exports, including textiles, by canceling an export tax subsidy program deemed illegal by the World Trade Organization.

After months of wrangling, House and Senate negotiators reached a compromise Wednesday on the legislation, which would create $130 billion in new corporate tax breaks over 10 years. Included is a provision lowering the corporate tax rate for all U.S. businesses to 32 percent from 35 percent and costing $76.5 billion. The cut is largely intended to help struggling U.S. manufacturers.

The WTO ruled last year that the subsidy, which accounted for $5 billion in tax breaks for offshore multinational corporations, was illegal based on its fair competition rules. The WTO next gave the EU the authority to retaliate and it began levying 7 percent punitive duties in March that have been increasing monthly by 1 percent, including on $200 million worth of U.S. fabric and yarn exports.

To compensate multinationals for the loss of the export subsidy, the compromise calls for a one-time tax holiday to repatriate income earned abroad. The tax holiday and reduction of the corporate tax rate is similar to that proposed by Democratic presidential candidate Sen. John Kerry.

While the compromise is expected to clear the House, it could hit a snag in the Senate where Senators Ted Kennedy (D., Mass.) and Mike DeWine (R., Ohio) are upset that the measure doesn’t put the Food and Drug Administration in charge of regulating tobacco.

This story first appeared in the October 7, 2004 issue of WWD. Subscribe Today.