US And EU Begin Negotiations Over WTO Exports Tax Ruling

by Mike Godfrey, Tax-News.com, New York

28 January 2002

EU and US trade representatives met in Washington on Friday to discuss a way forward after the WTO struck out the US appeal against its ruling on tax breaks for exporters. After the meeting both Robert Zoellick, the US trade representative, and Pascal Lamy, the European Union trade commissioner, made emollient statements - but they must know better than anyone just how difficult it will be for the US administration to get any kind of a deal through the Congress that will be acceptable to the Europeans.

Mr Zoellick said that the US was ready to comply with the WTO ruling against the US Extraterritorial Income Exclusion Act, which replaced the original Foreign Sales Corporation legislation. He said that the US wanted to solve what he called "a very difficult and complex issue" through talks with the EU "in good faith and seriousness".

Mr Lamy said the EU was prepared to be realistic about the efforts to alter US tax laws, saying: "We have enough knowledge of how this happens in this country."

Under WTO rules the EU would be entitled at this moment to prepare a list of trade sanctions worth up to $4bn annually for approval by the WTO; but it is likely to hold off as long as it seems that there is progress towards a resolution.

Mr Zoellick said US negotiators would rely heavily on consultations with members of Congress, tax officials at the US Treasury, and US business groups. He indicated that he had begun preliminary conversations with members of Congress, including Bill Thomas, the chairman of the House Ways and Means Committee, which has considerable influence over tax legislation in Congress.

"This is obviously a very difficult and complex issue. Domestic tax systems are particularly sensitive," Mr Zoellick told reporters at a press briefing.

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