THE EUROPEAN Union has welcomed US president Barack Obama’s call for the removal of protectionist provisions from a massive economic recovery plan being debated in Congress.
“I don’t want provisions that are going to be a violation of World Trade Organisation agreements or in other ways signal protectionism. I think that would be a mistake right now. That is a potential source of trade wars that we can’t afford at a time when trade is sinking all across the globe,” the president told ABC News.
“I think we need to make sure that any provisions that are in there are not going to trigger a trade war.”
A Senate version of the Bill includes “Buy American” provisions that requires all manufactured products bought with federal money to be sourced from US companies.
EU ambassador John Bruton warned this week that the provisions could breach a WTO agreement on government procurement to which both the EU and the US are parties.
Mr Bruton told The Irish Timesyesterday that Mr Obama's remarks followed a similar reassurance he received from Steny Hoyer, the leader of the Democrats in the House of Representatives.
“This is a very good approach because it puts President Obama and the United States in a position to give the sort of leadership the world needs in confronting the economic crisis, which is a global crisis,” Mr Bruton said.
“We need global solutions and protectionist measures in any country would inhibit finding a global solution to the economic crisis.”
US trade partners have been further heartened by Mr Obama’s appointment as commerce secretary of New Hampshire Republican Gregg Judd, one of the Senate’s most strident advocates of trade liberalisation.
The Senate has rejected an amendment to the economic recovery package that would allow multinational companies, including pharmaceutical and hi-tech companies with operations in Ireland, to repatriate overseas profits at a cheaper tax rate.
US companies wishing to repatriate overseas earnings must pay the US corporate tax rate of 35 per cent, minus any corporate tax they paid abroad. Under the amendment sponsored by California Democrat Barbara Boxer and Nevada Republican John Ensign, companies would have been given a 12-month window to bring home overseas profits at a reduced tax rate of just 5.25 per cent.
“There’s about $800 billion sitting overseas,” Mr Ensign said.
“The companies are not bringing it back.”
US firms repatriated more than $300 billion in overseas profits in 2004, when a similar tax holiday was introduced, but a Congressional Research Service report found no evidence of increased employment or domestic investment because of the tax cut.
“The corporate lobbying rush to get this tax benefit into the stimulus Bill should raise the hackles of every member of Congress concerned about taxpayers paying their fair share,” said Michigan Democrat Carl Levin, who has started an investigation into what companies did with the tax saving last time.
“I don’t think Congress should repeat the 2004 repatriation until we’ve had a chance to take a closer look at what really happened the last time around.”
Pfizer, Hewlett-Packard, IBM and Eli Lilly are among the multinationals that have lobbied energetically for a tax holiday on overseas earnings, which could save them billions of dollars if they repatriate profits.
