(Bloomberg) A lobbying effort from Boeing Co., Microsoft Corp. and Caterpillar Inc. may force Congress to shelve tax law changes designed to avert $4 billion in trade sanctions, House Ways and Means Committee chairman Bill Thomas said.

The legislation, which would replace a popular export tax credit, ?will not go anywhere? because the companies have been ?far more aggressive than those of you who want? the changes, Thomas, a California Republican, told Tax Executives Institute in Washington. Congress probably will halt what would have been the first rewrite of US international tax laws in 40 years.

The Senate resumed debate today on how to replace an export tax break ruled an illegal subsidy by the World Trade Organization, which gave the European Union the right to impose as much as $4 billion in tariffs. The EU this month imposed the first of its duties ? $200 million on products such as gems made by Tiffany & Co. and lumber produced by Weyerhaeuser Co.

?The faster Congress moves, the faster we will remove our sanctions, it?s in their hands,? said Arancha Gonzalez, a spokeswoman for trade at the European Commission.

The EU will increase the 5 percent additional tariffs it began applying March 1 by 1 percent from next month, to a range of US imports. Microsoft is the world?s largest software maker, and Boeing is the second-largest maker of commercial aircraft. They are the US?s second and fourth-largest beneficiaries of the tax break, respectively.

The law at issue allows US companies to exclude from federal income tax 15 percent of net income from the export sale of US-made goods. Repeal would put further strain on industries that have been losing jobs to overseas competitors. Boeing, Microsoft and other US producers say the $5 billion annually that now goes to exporters should be reserved for themselves. Congress has failed to agree on a way to revise the law as lawmakers including Illinois Republican Donald Manzullo press for broader tax incentives to help manufacturers. Thomas said Boeing, Caterpillar, and Microsoft have lobbied against broader changes by linking the bill to an exodus of jobs out of the US.

Thomas, 63, wants to repeal the export tax break and replace it with lower taxes on transactions between foreign subsidiaries of a US parent corporation. That move is favoured by companies like computer chipmaker Intel Corp., financial-services provider Citigroup Inc., and General Electric Co., which are also among the biggest beneficiaries of the export tax break and are better positioned to exploit changes to international tax rules.

Boeing and General Electric each reaped more than $1 billion between 1997 and 2002 as the top beneficiaries of the export tax break, according to a study published in Tax Notes magazine last year by Jose Oyola, assistant director of the General Accounting Office. Boeing?s ratio of the benefit to its net income was 13.2 percent and General Electric?s was 1.5 percent.

Thomas said companies like General Electric, the world?s largest by market value, have backed his plan ?1,000 percent.? That support hasn?t been enough to overcome those opposed to losing their breaks, Thomas said, and he urged his backers to mount a more aggressive lobby effort. Thomas himself has revised his proposals since last year to add breaks for manufacturing.

?This most significant package of international tax reforms in 40 years is probably going to fall by the wayside,? Thomas told the gathering of tax professionals of Fortune 500 companies. ?If you see someone from Microsoft, if you see someone from Caterpillar, if you see someone from Boeing, say `congratulations, you?re the ones.??

He noted the EU avoided imposing penalties for the largest beneficiaries of the export tax break, targeting instead wood, gems, and toys. Boeing and General Electric head a list of 15 companies that claimed $6.2 billion, worth 78 percent of the total benefit offered to US exporters between 1997 and 2002, Oyola found. Other top beneficiaries include Honeywell International Inc., Motorola Inc., and Cisco Systems Inc.

Boeing accepts that the tax break will need to be eliminated because of the WTO decision, company spokeswoman Amanda Landers said. Boeing lobbyists are working with legislators on a solution such as the kind of legislation the Senate is pursuing, she said. The Senate may vote this week on its own version of the legislation, which includes many of the international tax changes Thomas has proposed. The Senate bill also reduces corporate taxes on manufacturers by 3 percentage points, which Thomas says would create a situation where companies would try to define activities such as fish harvesting as manufacturing to pay lower taxes.

?We?re totally for the repeal,? Landers said. ?We?ve been continuing to work with the House and its membership to improve the house bill to keep its focus on US manufacturers and jobs.?

Kent Hollenbeck, a spokesman for Microsoft with the Waggener Edstrom public-relations firm, said Microsoft now backs Thomas?s revised bill, due to its nod to manufacturing.