Treasury Says Major Tax Reform Necessary In Order To Avoid WTO Sanctions

by Mike Godfrey, Tax-News.com, Washington

01 March 2002

The Bush administration announced this week that although it recognises that major changes need to be made to its international tax regime in the wake of a World Trade Organisation ruling on tax breaks for exporters, substantial legislative change is unlikely this year, due to the Congressional elections in November.

Speaking to the House of Representatives' Ways and Means Committee on Wednesday, International Tax Counsel for the US Treasury, Barbara Angus told the panel that - having been defeated at the WTO four times by the European Union over the issue - 'We do think a significant change in the (tax) system is necessary', and admitted that legislation which provides similar benefits in a slightly different manner 'is not likely to pass muster at all'.

The WTO has until April 29 to decide upon the level of compensation due to the EU, and the European body has demanded $4 billion, although the US Government estimates that the actual trade damage done is lower - at around $1 billion - and has asked the WTO to limit any sanctions to that level. However, EU Trade Commissioner, Pascal Lamy has indicated that Brussels is willing to hold off on the imposition of sanctions if the US is seen to be moving seriously towards compliance with the WTO ruling.

Ways and Means Committee Chairman, Bill Thomas, has revealed that he is optimistic that a mutually acceptable solution can be found, stating that: 'We will address this issue and we will resolve it.' However, he asked US trade officials to convey the difficulties imposed by the Congressional elections to the EU.

Congressman Thomas also warned that resolution of the issue would require strong leadership from the President and his administration, arguing that: 'You cannot follow and expect Congress to lead on this difficult issue.'

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