http://straitstimes.asia1.com/world/wrld12_0225.html
US tax breaks violate trade rules,
says WTO
The ruling follows European complaints that the
concessions are illegal subsidies that give US
companies an unfair advantage
WASHINGTON -- In a stinging rebuke to the US, the
World Trade Organisation (WTO) has ruled that billions of
dollars in tax breaks enjoyed by American multinational
corporations violate global trade rules.
The ruling by the WTO, potentially the most financially
significant in its six-year existence, is sweet revenge for
European officials.
They have been miffed at what they view as aggressive
US challenges to their own trade practices, notably
restrictions on the import of beef and bananas.
While details of the decision, which was to be announced
formally at the WTO's Geneva headquarters yesterday,
were sketchy, it was clearly a major embarrassment for
the US.
Although administration officials repeatedly have assailed
Europe for failing to abandon trade barriers ruled illegal
by the WTO, they said they have no intention of
changing the corporate tax breaks. They planned to press
Europe to drop the matter, perhaps as part of a larger
deal.
In a statement on Wednesday, Treasury Secretary
Lawrence Summers said the US tax provision was "widely
viewed as creating a level playing field" for American
companies competing with Europe.
"We'll work closely with the Europeans, the business
community and the Congress to achieve a constructive
solution," he said.
Administration officials said the tax break, held dear by
many major US corporations, would be worth more than
US$4 billion (S$6.8 billion) to corporate America next
year and US$24 billion (S$41 billion) over the next five
years.
Used by companies that operate overseas entities, foreign
competitors had criticised it as a subsidy that gaves US
businesses an unfair advantage over rivals from Europe
and Asia.
Ironically, it was the smaller US victories on beef and
bananas that persuaded European officials to lash out
against the US tax break as an illegal export subsidy.
Europe was irritated by the US challenge to its restrictions
on bananas.
The European Union complained formally in 1998 that the
Foreign Sales Corporation provisions of the US tax code
amounted to an illegal export subsidy.
At issue are separate sales entities established by US
companies mostly in the US Virgin Islands, Barbados and
Guam that take advantage of tax exemptions on much of
export income. Among the major beneficiaries is Boeing
Co.
The EU claims about 50 per cent of all US exports pass
through the shelters, shaving between 15 per cent and 30
per cent off the tax bills of US exporters each year. US
officials couldn't confirm those numbers. -- Los Angeles
Times