US And EU Move Closer To The Brink Over Export Subsidies

by Leroy James, Tax-News.com, New York

28 February 2003

As the US Congress was being warned on Wednesday of the sanctions US business will face if it fails to comply with World Trade Organisation taxation rules, Pascal Lamy, European Trade Commissioner was announcing a broad range of US goods that will face punitive taxes, which had been circulated to the 15 member states of the EU for internal scrutiny and 'last minute amendments' before being submitted to the WTO. This procedure is expected to take 'just a few weeks', said a spokesman.

The definitive list of companies, targeting almost 50,000 products in undisclosed industry sectors but likely to include Boeing, Microsoft and Caterpillar, collectively receive tax breaks amounting to an estimated $4bn under a US export subsidy programme which has been banned by the WTO.

US Trade Representative Robert B. Zoellick told Congress in testimony that he believed the EU unlikely to immediately implement its sanctions but that it would if Congress did not act. A number of Congressmen have already indicated a desire to introduce measures which would satisfy EU requirements, but the legislators are concerned that changes to the tax code would harm US exporters.

In what the US authorities have dubbed the 'nuclear option', the EU has given no time limit for applying its sanctions, preferring to wait for the US authorities to decide how they will proceed. President Bush has signalled his willingness to overhaul the arrangements that currently permit 'extraterritorial income exclusion' - partial tax exemption on certain foreign sales and leasing transactions. The WTO considers this to be an illegal export subsidy.

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