NCPA - National Center for Policy Analysis


May 25, 2004

Several years ago, the World Trade Organization (WTO) ruled that certain tax breaks the U.S. government gives to export subsidiaries of American companies were illegal. The WTO ruling gave European countries permission to impose tariffs against many popular American exports, including paper, cotton and agricultural products.

Congress, however, has yet to repeal or amend the offending tax laws. A bill before the Senate would replace the existing law with one that only gives targeted tax breaks to certain manufacturers. But as a result of the delays in Washington, sanctions are piling up, with average Americans paying the price:

  • In March 2004, the EU began imposing tariffs of 5 percent on U.S. imports with plans to increase them by 1 percentage point per month of noncompliance up to 17 percent.
  • The sanctions could increase the cost of American exports by up to $4 billion a year, creating a competitive disadvantage for U.S. producers.
  • Tariffs invite trade retaliation and depress worldwide competition, thus U.S. consumers end up paying higher prices for goods and services in the long-run.

Ed Feulner of the Heritage Foundation says America's best response is just to repeal the offending tax laws instead of trying to devise a more complicated system. At the same time, U.S. corporate tax rates -- the second highest rate in the world, higher than even those in socialist welfare states such as France and Sweden -- should be slimmed in order to help American exporters maintain market share.

Source: Ed Feulner (Heritage Foundation), "Trade Sanctions Pile Up While Congress Fiddles," Investor's Business Daily, May 10, 2004.


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