Top US Official Says Sanctions Unlikely In FSC Dispute

by Mike Godfrey, Tax-News.com, Washington

17 June 2002

Glen Hubbard, Chairman of the White House's Council of Economic Advisors has predicted that the European Union will not impose sanctions on the the United States over a long-running dispute on tax breaks for US exporters.

The World Trade Organisation has ruled four times that the highly preferential tax treatment afforded to 'Foreign Sales Corporations' belonging to US giants such as Boeing and Microsoft is illegal under WTO rules. The multilateral trade body is due to vote today on whether the EU can impose sanctions on US exports worth more than $4 billion per year in retaliation.

However, speaking to reporters last week, Mr Hubbard said that he doesn't feel that the 15 nation bloc will impose sanctions, even if the WTO rules in its favour, arguing that the United States government is now making a concerted effort to comply with the World Trade Organisation's rules, and to find a mutually satisfying solution to the problem.

'I think it is clear to the Europeans that we are taking this seriously,' he said last week.

EU Trade Commissioner, Pascal Lamy has observed in the past that Brussels is more concerned with seeing US compliance with WTO rules than it is with pursuing compensation or imposing sanctions. However, US lawmakers have warned that any change to US tax laws to comply with the WTO ruling will require a long legislative process that could carry well into next year.

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