EU ministers oppose punishment proposal

Is this protectionism taken to higher levels?

Last Saturday, France proposed that the European Union (EU) not accept fresh entrants unless they agree not to lure in investment from Western companies through low tax rates.

The issue was put forth by French Finance Minister Nicolas Sarkozy. Notably, Sarkozy is expected to step down soon to prepare to run for the French presidency in 2007.

The proposal was not received well by the EU.

Outsourcing has become a hot issue in France, Germany and other western European countries, as big companies transfer more production to their low-wage, low-tax eastern neighbors - or threaten to do so to extract concession from unions at home.

But EU officials have warned against linking the sensitive issues of taxation and the billions of euros (billions of dollars) in development funds the EU disburses to its poorer regions each year.

They fear an uproar in the 10 new member states, most of them from the former communist bloc, that joined in May with promises of benefiting from EU largesse.

Dermot Ryan, spokesman for Irish Finance Minister Charlie McCreevy, said "Now is the time for other countries to reap the benefits we have." Ireland is strongly opposed to raising taxes and to linking tax levels to development funds.

Britain's Treasury chief, Gordon Brown, announced that Britain is against any move to harmonize corporate tax. He also says the proposal for a common tax base is an "unnecessary diversion," since "Economic reform is a priority."

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