WASHINGTON — As a result of legislation that cleared Congress Monday, a trade dispute between the European Union and the U.S. could soon be over, lifting 12 percent punitive EU tariffs on a long list of American exports, including apparel and textiles.
However, the measure has to pass muster with the EU and World Trade Organization before the tariffs are lifted. Twice before the two bodies rejected similar legislation because Congress didn’t address their concern: the need to repeal a U.S. export subsidy deemed by the global trade body to be against its fair competition rules.
EU trade officials couldn’t be reached for comment Monday, but earlier they indicated that the third legislative attempt by Congress looked like a winner.
Steve Lamar, vice president of the American Apparel & Footwear Association, said he expected the punitive tariffs to be lifted within a month.
“The European Union has been signaling this is the kind of thing they’ve been looking for,” Lamar said.
U.S. exports covered by the steep tariffs included $100 million worth of annual apparel shipments, $103 million of leather handbags and luggage, $16 million in cosmetics, $19 million in footwear and $500,000 in man-made filaments and cotton.
While the latest legislation repeals the subsidy, it is also packed with almost $137 billion in corporate tax breaks, the cost of which are slated to be paid by closing an equal value of questionable tax write-offs. The legislation, which passed its final hurdle in the Senate on a 69-17 vote and is expected to be signed soon by President Bush, amounts to the largest business tax code overhaul since 1986.
More than half the value of the tax breaks goes toward lowering the corporate tax rate to 32 percent from 35 percent for U.S.-based manufacturers, including apparel and textile makers, as well as construction, film and music companies, and energy producers. A perk for the flagging manufacturing sector was essential in getting the measure through Congress this election year.
The measure also contains some $42.6 billion in tax breaks for multinational companies operating abroad, including Wal-Mart, Nike and Reebok, which supported the measure. It makes it simpler for overseas earnings to qualify for U.S. tax breaks and to avoid foreign earnings from being taxed by the U.S. and foreign countries. The bill would also lower taxes on repatriated income for one year as a means of encouraging corporate investment in the U.S.
It was the need to repeal $4 billion in export tax breaks enjoyed by multinationals that triggered the legislation. Last year, the WTO, under pressure from the EU, again deemed the tax break to be an illegal subsidy. In response, the EU in March began levying 5 percent tariffs on $5 billion worth of U.S. exports and the duties have increased 1 percent monthly.
Pressure to address the mounting EU tariffs increased last week as Congress angled to adjourn Friday for the year. House and Senate lawmakers bridged differences and the lower chamber rushed to approve the measure 280-141 last week.
However, several Democratic senators, angry that certain provisions were left out of the bill, kept the Senate in session over the weekend and into Monday’s Columbus Day holiday. They dropped their opposition after their colleagues agreed to vote on their issues, such as giving companies a 50 percent tax break for continuing to pay National Reservist salaries, at another date.
The expected end of the export subsidy trade dispute between the EU and U.S. may put to bed a longstanding fight, but trade tensions between the trading partners are still high. Several EU-U.S. trade spats are wending their way through the WTO, including last week’s tit-for-tat claims that the EU is wrongfully subsidizing Airbus aircraft development and production and the U.S. is doing the same for Boeing.