EU Imposes Tariffs to Offset U.S. Tax Break

The European Union last week began boosting tariffs on imports of some U.S. goods to offset a corporate tax break that is favorable to many chemical companies. The EU plans to increase those extra customs duties each month this year, unless Congress repeals that tax break.

The tax break allows companies to exclude a portion of their foreign sales income from federal taxes.

Chemicals aren't on the EU's list of products that are subject to the special tariffs that began on March 1. But basic chemical manufacturers reap an estimated $500 million a year from the contested tax exemption, which the World Trade Organization says is an illegal subsidy for U.S. exporters. WTO gave permission to the EU to impose up to $4 billion annually in tariffs on U.S. goods as long as the tax break remains in place.

EU Trade Commissioner Pascal Lamy says the tariffs will be lifted as soon as Congress repeals the contested corporate tax break. "The name of the game is not retaliation but compliance," he says.

Congress plans to eliminate the tax break as part an overhaul of the corporate tax code (C&EN, Jan. 5, page 19). Lawmakers are deeply divided over the legislation, and passage of a bill faces an uphill battle in an election year.