WASHINGTON, Oct 22 (AFP) - US President George W. Bush repealed an internationally disputed export tax subsidy Friday, and replaced it with nearly 140 billion dollars in new breaks for Corporate America.
Bush signed the "American Jobs Creation Act of 2004", which repeals an export tax break for US corporations, ruled illegal by the World Trade Organization (WTO) in January 2003, his spokesman said.
The new law, aimed at bringing an end to European Union trade sanctions, extends massive new assistance for American companies valued at nearly 140 billion dollars over the next decade.
"This legislation will end the European sanctions on American exports, and it will help promote the competitiveness of American manufacturers and other job creators, and help create jobs here in America," Bush spokesman Scott McClellan said in Wilkes-Barre, Pennsylvania.
The old law flouted global trade rules by allowing US firms, operating through subsidiaries in offshore tax havens, to benefit from reduced export taxes.
The new law represents a bigger boost for business, but the money is ploughed into domestic programs.
"This tips the scales of global competitiveness more in favor of American businesses. Itll do more to help to maintain and create jobs in the United States than any law in decades," said Senate finance committee chairman Charles Grassley, a Republican.
"The new law contains the biggest business tax reform package since 1986, the most comprehensive agricultural, small business and rural community tax incentive package ever written by a Congress, and the strongest crackdown on tax shelters since 1986."
In the biggest break of the new package, manufacturers get 76 billion dollars in the form of a three-percentage point tax cut.
But it is riddled with other giveaways, including a one-year tax holiday allowing US firms to repatriate foreign profit at a 5.25 percent rate instead of 35 percent and, to the Democrats' professed dismay, an item suspending 4.7 percent duties on all imports of ceiling fans, many of which come from China.
The law is aimed at painlessly resolving a six-year dispute with the European Union over tax breaks for US companies with foreign operations such as Microsoft, IBM, Boeing and Caterpillar.
Grassley denied the new measures would inflate the budget deficit.
"The legislation provides all of these benefits, nearly 140 billion dollars worth, but doesn't add one dime to the federal deficit. It's all paid for by shutting down corporate expatriations to Bermuda, tax shelter leasing abuses, and ending all the Enron tax shelter deals," he said.
The EU first challenged the US export tax breaks at the Geneva-based WTO in 1997 on the grounds that they provided a de facto subsidy that gives US companies an unfair advantage over European rivals.
In March this year, after efforts to solve the dispute proved unsuccessful, the EU slapped an additional five-percent tariff on some US exports, including meat, nuclear reactor parts, toys and wood products. The punitive tariffs have been ratcheted up by one percentage point a month.
If continued until the end of the year, the duties would amount to more than 300 million dollars, well short of the four billion dollars in countermeasures the WTO had allowed.
EU officials have said they will lift the punitive tariffs as soon as Washington complies with WTO rules.
In Brussels, European Trade Commissioner Pascal Lamy was not expected to comment before Monday.
10/22/2004 18:36 GMT - AFP