US Estimates FSC Damage To EU At Below $1bn

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

18 February 2002

The US has estimated that the EU should be entitled to only an annual $1bn of retaliatory trade sanctions as a result of the WTO's ruling against Foreign Sales Corporation tax breaks, rather than the $4bn claimed by the EU.

Using a methodology which it claims is closer to the WTO's usual approach than that used by the EU, the US says that it should be liable only for actual losses suffered in the market-place by EU companies as a result of competitive pressures resulting from tax-breaks enjoyed by US companies, which it estimates at $956m. The EU bases its figure on the total annual value of the tax breaks, which are agreed to be in excess of $4bn.

Both sides would like to influence the WTO as its arbitration panel attempts to quantify the damage done to EU companies; its ruling is due in April, and the EU would then be entitled to apply sanctions against US traders up to the level of the assessed damage.

The WTO's final ruling (against a US appeal) came last month after a protracted process lasting for years in which the US twice adapted its exports sales tax regime to try to bring it into line with the WTO's trade rules following complaints from the EU.

Although both sides say that they want to manage the dispute in a responsible way so as to avoid inflaming an already tense cross-Atlantic trading situation, much hinges on the willingness of the US Congress to return to an issue it considers 'done and dusted'. The administration is prepared for further changes, but senior members of Congress, including Senator Max Baucus, chairman of the Senate Finance Committee, have warned that it may be extremely difficult to gain congressional approval of any changes.