Congress is expected this month to debate bills that will lower the corporate tax rate in the US ? making it less attractive for companies to move offshore to places like Bermuda to lower their tax bills.

Bermuda has been under fire from the US for its low tax regime for years ? but the debate has heated up over the past few months with Democratic Presidential front-runner John Kerry slamming companies that move to Bermuda in most of his electioneering speeches.

The impetus behind the debate is a decision by the European Union to impose taxes on a range of US products in retaliation for a tax break for US exporters which could amount to more than $4 billion.

The World Trade Organisation has ruled that the tax break is illegal, and the EU has said it will keep up the punishment until the tariffs are changed.

The WTO ruled in January 2002 against a section of the US tax code that gives exporters breaks on overseas sales and leases, calling them an illegal subsidy.

The European Union started the sanctions, aimed at hundreds of products, at 5 percent and plans to raise them one percentage point a month for a year, unless the subsidies are repealed.

While companies affected by the sanctions are pressuring Congress to act, election-year politics are complicating efforts to pass legislation.

The debate has become especially intense since a top economic adviser for President Bush last month said ?outsourcing is just a new way of doing international trade. More things are tradable than were tradable in the past and that?s a good thing.?

The remarks angered lawmakers from both parties worried about the 2.2 million payroll jobs lost since Mr. Bush took office.

And Senator Kerry has been fast to use the out-sourcing of jobs issue and and tax evasion as two key election issues during his campaign.

White-collar positions moving away from the US, such as call-centre operators and software engineers, and factory job losses have become especially sensitive issues as lawmakers try to comply with the WTO ruling on taxes.

There are three separate solutions before US lawmakers to change the Foreign Sales Corporation and Extraterritorial Income Exclusion (FSC) (the tax break?s official title).

These are: a corporate tax rate reduction, a two percent reduction in corporate income tax, international tax reform, which would look at the double taxation faced by US corporations with operations overseas, and manufacturing tax preference, which would replace the existing tax break for export-oriented income with a preference for income derived from manufacturing.

This week the Ways and Means Committee will debate President George Bush?s ?Trade Agenda? on Thursday, which includes the WTO dispute settlement agreement. And the Senate Finance Committee will meet today to discuss the administration?s international trade agenda.

Also later this month a bill called S1637, proposed by the Chair of the Senate Finance Committee, Senator Charles Grassley, is expected to come up for vote. Last week the Senate approved a measure that would stop federal contractors from using taxpayer funds to move jobs overseas as a tag-on to this piece of legislation.

The issue of US jobs being shipped overseas seems to have taken over the issue of tax reform in an election year where jobs have become a prime issue. Senator Christopher J. Dodd, (Connecticut Democrat), attached the legislation the bill meant to restructure corporate taxes and end rising trade sanctions on US goods sold in Europe. The amendment passed 70-26. Republicans and Democrats in Congress are using the corporate tax bill to highlight different approaches to stemming a steady loss of factory jobs and a trend toward outsourcing some service-sector jobs to foreign countries.

?Our nation?s chief export shouldn?t be jobs for foreign workers,? Mr. Dodd said.

Some Republicans said the measure could hurt US companies competing overseas and damage trade relations. Critics won a concession that requires the Commerce Department to determine if the ban would cost more jobs than it saves.

Defence, homeland security and intelligence contracts won exemptions.

The ban, if signed into law, would prevent government contractors from moving offshore work that had been done by federal employees, stop federal procurement of some goods and services from overseas, and require state governments to certify that federal funds they receive will not go offshore.

Senator Grassley, an Iowa Republican and sponsor of the corporate tax bill that was amended, said measures like Mr. Dodd?s treated a ?legitimate issue,? but were stalling a bill that provides immediate relief for manufacturers from European trade sanctions.