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EU Sanctions Hurting Businesses

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April 2004--The European Union (EU) has begun imposing sanctions against the U.S., and manufacturing companies with business overseas are suffering.

At issue is a $5 billion dollar per year national subsidy, called the Foreign Sales Corporation/Extraterritorial Income Exclusion (FSC/ETI) Act, designed to promote exports of U.S.-made products.

Two years ago, the World Trade Organization (WTO) ruled that subsidizing exports was in violation of international tax laws, and gave the U.S. until March 1, 2004, to repeal the subsidy. The U.S. has yet to do so.

On March 1, European countries began imposing a tariff on the U.S.: a 5% surcharge on goods coming into Europe. The EU has said it will raise the tariff one percentage point each month until it reaches 17%. Next month it will reach 7%.

The bill that would repeal the FSC/ETI Act, replacing it with a new set of corporate tax benefits for manufacturers and exporters, is stalled in Congress. The bill, referred to as the "JOBS" (Jump-Start Our Business Strength Act) bill, is the subject of much partisan debate. A main point of contention between Republicans and Democrats is the number of amendments attached to the bill, which at around 1000 pages has become quite complex.

The Senate Finance Committee Chairman, Charles Grassley (R-IA), stated on April 21 that it likely would be sometime in May before Congress could return to the bill.





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