EU Opposes US Tax Breaks

The World Trade Organization (WTO) appellate court sided with the European Union (EU) in giving Washington 90 days to bring its tax break legislation into line. The WTO’s highest court affirmed previous judgments in denying this appeal by the United States, according to the Chicago Tribune. The Los Angeles Times reported that the high court gave the EU permission to reimpose sanctions on some $4 billion in U.S. exports.

Peter Mandelson, European Union (EU) trade commissioner, told the Chicago Tribune, “The U.S. now has three months to act to avoid the reimposition of retaliatory measures in this case. The tax benefits preserved by the Jobs Act have been repeatedly declared in violation of WTO rules.” The Los Angeles Times reports that if the United States does not comply with the WTO ruling, it would reapply a 14 percent export duty.

These sanctions were lifted after the American Jobs Creation Act of 2004 became law and that included a two-year phaseout of the tax breaks provided under the Foreign Sales Corporation arrangement. Exporters with sales contracts dated before September 17, 2003 were also grandfathered into the act, according to the New York Times. The WTO subsequently raised previous issues with the Jobs Act, also.

The sticky issue is the so-called foreign sales corporation law that violates global trade rules by providing illegal subsidies to large U.S. corporations such as the Boeing Company, the General Electric Company, and Microsoft Corporation, according to the Chicago Tribune. Washington has already repealed the law, but transitional provisions in the 2004 American Jobs Creation Act remain not compliant with past rulings.

Although repealing the initial law, the transitional period for allowing tax exemptions runs through 2006 and potentially longer. Estimates from the EU have Jobs Act tax advantages totaling more than $903 million for the Boeing Company over the next 10 years, according to the Chicago Tribune.

Mandelson continued in the Chicago Tribune, “The responsibility now lies squarely with the U.S. but the EU will not accept a system of tax benefits that give U.S. exporters, including Boeing, an unfair advantage against their European competitors.” The Los Angeles Times reported that Mandelson also said, “We are seeking nothing more than the reestablishment of a level playing field.”

In response to the WTO ruling, Charles E. Grassley (R-Iowa), the Senate Finance Committee Chairman, said in a statement, “If sanctions are resumed, they’ll only disrupt our bilateral economic relations. I doubt Congress will revisit this legislation,” according to the Los Angeles Times.

Christin Baker, U.S. Trade Representative spokeswoman, told USA Today, “Prolonging this dispute won’t serve to foster harmonious transnational relationships.” Grassley said that the EU appeared to accept Congress’ solution to the tax dispute until the U.S. raised the issue of Airbus subsidies under the WTO.

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