(Aug. 5) Fresh fruit and vegetable exporters fear they will lose a tax advantage if Congress tries to fix what was ruled an illegal subsidy by the World Trade Organization.

The World Trade Organization ruled earlier this year that the U.S. must remove the tax breaks given to U.S. companies on profits from their international sales.

If the U.S. doesn’t eliminate the subsidy — which reduces U.S. taxes on profits on exports by 5% — it could face European Union trade sanctions of up to $4 billion.

Major U.S. companies, including The Boeing Co., Chicago, and Caterpillar, Peoria, Ill., warned Congress that thousands of layoffs and steeply lower stock prices could result from the loss of a trade tax break. They said losing the trade tax break would amount to a sudden $5 billion tax increase on exporting companies that employ 3.5 million people nationwide.

The EU has twice challenged the U.S. tax break for exports before the WTO and won both times. A decision is expected in mid-August on whether the Europeans are entitled to the $4 billion in sanctions or the lower $1.1 billion suggested by U.S. officials. The EU has set no date when it would retaliate, giving Congress some time to fix the problem.

Harvey Labko, senior vice president of finance for the Western Growers Association, Newport Beach, Calif., said legislation being considered in the House of Representatives would do little to replace the benefits of the Foreign Sales Corp. and its successor, the Extra-Territorial Income Exclusion Act of 2000.

Labko said WGA has about 100 companies in the FSC/ETI program, accounting for hundreds of millions in export sales. He suggested that Congress could craft a measure that would exempt up to the first $30 million in export sales. He said no company using WGA to set up its foreign sales corporation has exports more than $30 million.

“If you have a cap like that, it would satisfy the Europeans because it is not a big business benefit,” he said.

Labko said Congress must not overlook small business and agriculture as it tries to appease the WTO. He said he fears Congress may pass legislation that may help big business but would provide little assistance to smaller businesses and agricultural exporters.

“Small guys may be left in the lurch,” he said.