U.S. Tax Break Is Illegal, WTO Rules
The World Trade Organization has ruled against a U.S. tax break that saves Boeing Co., Microsoft Corp. and other companies billions of dollars a year, U.S. trade officials said Monday.
The ruling is a victory for the European Union, which challenged the U.S. law, and it moves the EU closer to imposing up to $4 billion in sanctions on U.S. exports. That would be by far the largest penalty in the WTO’s six-year history.
Rep. William M. Thomas (R-Bakersfield), who chairs the House Ways and Means Committee, said U.S. officials should abandon any plans to contest the decision and instead ought to negotiate with the 15-nation EU to gain time to overhaul the tax law.
“America’s tax system is antiquated and needs fundamental reform,” Thomas said in a statement. “Dragging out the process through extensive appeals or cosmetic changes to our tax system will not solve the problem.”
U.S. Trade Representative Robert B. Zoellick said, “We are reviewing our options and are consulting with affected U.S. interests and the Congress.” EU officials declined to comment.
The possibility that the U.S. may not challenge the ruling is alarming some executives, who say they fear that any attempts at negotiation will fail and that the Europeans will go ahead and impose the sanctions.
“There should be an appeal, if for no other reason than to push back the threat of sanctions,” said Willard Berry, president of the European-American Business Council, which lobbies for open transatlantic trade.
An appeal would take five to six months before final resolution.
The ruling will add to tension that has been heightened by a U.S. decision to back away from a global warming treaty and European opposition to President Bush’s planned missile defense shield, among other disputes.
If sanctions are levied, that may provoke retaliation by the U.S. at the WTO, an escalation that Zoellick last month likened to “dropping a nuclear weapon” on U.S.-EU trade relations.
The ruling confirms a June 22 preliminary decision, in which the Geneva-based WTO found the tax to be an illegal export subsidy, according to the U.S. trade officials and other people familiar with the case, who requested anonymity.
This is the second defeat for the U.S. on the issue. A WTO panel ruled last year that a previous U.S. tax break for companies was an export subsidy, which is forbidden by the trade arbiter’s rules.
