U.S. Feels Crunch to Comply with WTO; Trade-Barrier Retaliation Looms from Overseas

Article excerpt

Byline: Jeffrey Sparshott, THE WASHINGTON TIMES

The United States this year faces economic pressure to repeal tax laws that help exporters, customs rules that support manufacturers and farmers, and other regulations that trade partners say violate international trade rules.

Like steel tariffs imposed by the Bush administration in March 2002, the World Trade Organization has ruled against U.S. policies that foreign competitors say run afoul of international trade rules. As in the steel case - in which the president rolled back the tariffs days before at least $2.2 billion in sanctions were go into effect - retaliation is fast approaching.

Congress, which is back in session Tuesday, this time has to take the initiative on changing U.S. laws affecting trade or watch U.S. companies lose overseas sales.

"We made some progress last year, but obviously we need to make more this year," said a U.S. trade official who asked not to be named.

The first and biggest item on the agenda deals with tax breaks on exports. The WTO in 2000 ruled that the tax breaks are an illegal subsidy, opening the door to $4 billion in sanctions by the European Union.

The 15-nation bloc plans to impose new trade barriers starting March 1 unless the United States repeals the tax rules, a move that would affect U.S. companies that manufacture jewelry, paper and wood products, leather, machinery, toys and other goods by making them more expensive in Europe.

The barriers are much lower than allowed, starting at 5 percent and increasing by another percentage point each month, but still troublesome for some firms.

"That will cause us a major, incredible problem," said Roz Schott, president of Schott Bros., which exports leather jackets to Europe from its factory in Perth-Amboy, N.J.

Congress last year considered legislation to repeal the subsidy, worth about $50 billion over 10 years to U.S. companies, and also to revamp the corporate tax code.

Separate measures, with marked differences, passed the House Ways and Means and the Senate Finance committees. Corporate heavyweights like Caterpillar and Boeing are fighting firms like Exxon Mobil and FedEx over different versions.

"We still hope to bring up the ... bill as early as possible," said a Senate source. The picture is less certain in the House.

While companies and lawmakers hope to dispose of the tax dispute early this year, the second major item on the agenda is less likely to be resolved. The European Union, Japan, Canada, Mexico and seven other nations won a case at the WTO against the so-called Byrd amendment; the United States had until Dec. …