End of Sanctions Is at Hand

INTERNATIONAL TRADE

Following president George W. Bush's signing of corporate tax legislation, the European Union (EU) indicated last week that it plans to lift millions of dollars in sanctions on U.S. imports.

The new law is most noted for giving $137 billion in tax cuts to business over a decade, with about $77 billion aimed at manufacturers, including chemical makers. But the original impetus for the law was to rescind a corporate tax break that the World Trade Organization (WTO) ruled was an unfair subsidy for U.S. exporters. That tax break, which will be phased out over two years beginning in 2005, allows U.S. companies to exclude a portion of their foreign sales income from federal taxes.

After agreeing with the EU's argument against the tax exclusion, WTO allowed the EU to impose up to $4 billion a year in trade sanctions against U.S. goods. The EU began phasing in those retaliatory duties in March; they did not affect chemicals (C&EN, March 8, page 8).

EU Trade Commissioner Pascal Lamy says he is proposing to lift the sanctions as of Jan. 1, 2005, the day the new tax law takes effect. But, Lamy warned, the EU plans to file a WTO challenge over a provision in the new law. This disputed section allows makers of some large goods, such as aircraft, which have long lead times before delivery, to continue using the tax exclusion for foreign sales income.

The tax break was worth about $500 million a year to basic chemical makers. The new law offers chemical producers other tax benefits (C&EN, Oct. 18, page 9).