Posted on 29-1-2002
EU
v USA
From Associated Press, January 14, 2002, by Paul Geitner
BRUSSELS, Belgium-A World Trade Organization appeals panel ruled
Monday
against a U.S. law granting multibillion-dollar tax breaks to
businesses
operating overseas.
The case, brought by the European Union, is by far the largest
the United
States has ever lost before the WTO.
As the ruling was announced, the EU called on the United States
to quickly
bring itself into compliance with WTO rules. But the union signaled
it
would hold off on imposing penalties, which could reach $4 billion
a year.
U.S. Trade Representative Robert Zoellick said the United States
intended
to cooperate with the European Union "to manage and resolve
this dispute,"
which dates back to at least November 1997. However, Zoellick
stopped short
of saying whether the Bush administration would pursue new legislation
in
Congress to come into compliance with WTO rules. The law at
the center of
the case allows a company paying U.S. taxes to exclude income
that is
considered to be "extraterritorial" because it comes from goods
or services
primarily for sale or use outside the United States.
Thousands of American companies, ranging from Microsoft and
Boeing to
smaller firms, benefit from the tax break, which was originally
created in
1984. Washington claims that this is a measure to avoid the
double taxation
of income from foreign sources, but the WTO found it to be a
prohibited
export subsidy. It had ruled against the law three times already.
"This is
an especially sensitive dispute that, at its core, raises questions
of a
level playing field with regard to tax policy," Zoellick said
in a
statement. "We will be consulting closely with Congress and
affected U.S.
interests regarding next steps." Monday's ruling, released by
the WTO in
Geneva, opens the way for Brussels to impose up to $4 billion
of punitive
tariffs annually on U.S. imports.
But under an EU-U.S. agreement reached in September 2000, the
dispute now
will go back to a WTO arbitrator to decide on the exact amount
of possible
countermeasures. The arbitrator's report is expected by the
end of March,
according to an EU statement. "Of course I am pleased that the
WTO has
confirmed what we have always believed," said EU Trade Commissioner
Pascal
Lamy. "Now it is up to the United States to comply with the
WTO's findings
to settle this matter once and for all." He added he hoped to
see "rapid
proposals" from Washington.
When the WTO first ruled against the law, in 2000, Congress
passed a
replacement that tried to address EU objections, but Brussels
said the new
legislation still contravened trade rules and the WTO agreed.
U.S. officials had threatened to challenge the tax codes of
other countries
if the law was ruled illegal this time. Monday's is a final
ruling that
cannot be appealed.
Although the European Union could have asked the WTO for permission
to
start imposing sanctions almost immediately, trade experts believe
the two
sides will find another solution. "No one wants to start a major
trade
conflict. I'm pretty sure that they'll do a deal," said Keith
Hendry,
director of the trade law department of Clifford Chance Puender
in
Brussels. Lamy said his office "stands ready to engage in meaningful
discussions with the United States on how it intends to comply
with these
rulings."
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