WASHINGTON (Reuters) - The United States said on Monday it would press ahead with its plans for overhauling a multibillion-dollar U.S. export program despite objections from the European Union, and warned Brussels that the dispute could lead to an escalation in transatlantic trade tension.
The EU rejected a U.S. proposal aimed at bringing the controversial U.S. Foreign Sales Corporation (FSC) program -- which offers tax breaks to U.S. exporters -- into line with global trade rules, saying it "does not meet basic WTO requirements."
Deputy U.S. Treasury Secretary Stuart Eizenstat insisted that the proposal was World Trade Organization compliant, and said Washington could challenge similar EU tax schemes if Brussels dug in.
Eizenstat also warned that the dispute could spark a backlash in the U.S. Congress against the Geneva-based WTO. Lawmakers will vote later this year on renewed U.S. membership in the trade body, which sets global trading rules.
"We regret that the (European) Commission has chosen not to engage in serious negotiations based on our proposal," Eizenstat said in a statement.
"It is our intention to work with the bipartisan leadership of Congress to pass legislation based on our approach, in the time frame set by the WTO ... While we are working with Congress, we hope the European Commission will reconsider its position and demonstrate its willingness to commence serious negotiations," he added.
The WTO ruled in February that the FSC program was an illegal export subsidy and gave the United States until October 1 to revise it. The existing FSC covers hundreds of billions of dollars of exports and provides U.S. companies, including many leading multinationals, with tax breaks which some estimates say could reach $4.1 billion in 2001.
To bring it in line with WTO rules, the Clinton administration said it would repeal the FSC program and replace it with special income tax rates for both export and non-export foreign sales by eligible manufacturers.
But the EU's executive Commission said that, under the proposed reform, U.S.-based companies would still have to export to benefit from the scheme -- the very aspect of the original program that was condemned by the WTO.
Nevertheless, Eizenstat said the Clinton administration would ask Congress to swiftly approve legislation based on the U.S. proposal. He said U.S. congressional leaders favored that approach and that Washington did not have the "luxury" of holding drawn out negotiations with the EU because of Congress' abbreviated schedule, cut short by elections in November.
If Brussels refused to negotiate a settlement, Eizenstat warned of an increase in trade friction between the United States and the EU.
He said Washington could challenge similar EU tax systems at the WTO. "It's very difficult to see the difference between some of their systems, and we would have to leave that open as a possible option," Eizenstat told reporters.
He said the FSC dispute could set back efforts to launch a new global trade round and undermine support in Congress for the WTO.
Lawmakers were expected to vote by August on a resolution that would, if it passed, call for the United States to give up its membership in the WTO. The White House and congressional leaders oppose the resolution and do not expected it to pass.:
