EU calls for end of U.S. tax breaks for exporters
The European Union stands ready to impose hundreds of millions of dollars in duties on imports of certain U.S. products, if the United States fails to end the payment of export tax subsidies to certain industries.
The EU based its decision on a World Trade Organization Appellate Body’s ruling on Monday, which backs the EU’s condemnation of the tax subsidies. The subsidies were preserved by the U.S. Congress in the American Jobs Creation Act.
Once the WTO Appellate Body report has been adopted by the WTO in the next 30 days, the United States will have 60 days to bring its legislation in line with its WTO obligations.
“The U.S. now has three months to act to avoid the re-imposition of retaliatory measures in this case,” said EU Trade Commissioner Peter Mandelson in a Feb. 13 statement. “I stand ready to work closely with the U.S. toward finding a solution to this dispute.
“But the EU will not accept a system of tax benefits which give U.S. exporters including Boeing an unfair advantage against their European competitors,” he added. “We are seeking nothing more than the reestablishment of a level playing field.”
The American Jobs Creation Act contains a grandfathering clause, which states that the repeal of the Foreign Sales Corporation and Extra Territorial Income (FSC/ETI) legislation “shall not apply to any transaction in the ordinary course of a trade which occurs pursuant to a binding contract.”
“The aim of the grandfathering clause is to ensure that certain U.S. exporters will continue to obtain WTO-prohibited FSC/ETI export subsidies many years into the future on products that have not yet been built or exported, even beyond the expiry of the FSC/ETI transitional period in 2006,” the EU said. “Some of the biggest beneficiaries of the grandfathered tax-breaks include Boeing and General Electric.”
On May 7, 2003, the WTO authorized the EU to impose trade sanctions at the level of $4 billion (the estimated value of the subsidy in 2000) by increasing the customs duties on certain products up to 100 percent. Countermeasures on certain U.S. products gradually entered into force on March 1, 2004 at the 5 percent level.
On Jan. 31, 2005, the EU Council adopted regulations suspending the sanctions as of Jan. 1, 2005, when the U.S. passed the American Jobs Creation Act. The EU said it wanted time to carefully study the legislation.
According to today’s Wall Street Journal, American products that could be “hardest hit” by the EU’s retaliatory import duties include steel and iron, grain, fruit, footwear, cosmetics, textiles and electric machinery. “Based on current trade flows, U.S. companies would pay about $600 million per year in penalties,” the newspaper reported.