WTO backs EU in tax break row

The US has 90 days following a WTO ruling on Monday to repeal Washington tax breaks for American exporters before EU sanctions bite.

A WTO appeals panel has backed EU claims that despite changes to legislation, Washington has failed to abide by earlier demands to amend the US Foreign Sales Corporation (FSC).

The way is clear in May for the EU to levy €4bn in WTO authorised sanctions unless the US ends tax exemptions for corporate giants such as Boeing or Microsoft.

European trade commissioner Peter Mandelson stressed he “stands ready to work closely with the US toward finding a solution to this dispute”.

“But the EU will not accept a system of tax benefits which give US exporters including Boeing an unfair advantage against their European competitors.”

“We are seeking nothing more than the reestablishment of a level playing field,” he said in a statement.

“The US now has three months to act to avoid the re-imposition of retaliatory measures in this case.

The WTO found that the 2004 US Jobs Creation Act contained a “grandfathering clause” that exempted trade before September 17 2003.

And the loophole “applies to both sales and lease contracts (and their options) which typically run for a number of years from the moment they are signed until final delivery of the goods”.

“The aim of the grandfathering clause is to ensure that certain US exporters will continue to obtain WTO-prohibited export subsidies many years into the future on products that have not yet been built or exported, even beyond the expiry of the FSC transitional period in 2006.”

“Some of the biggest beneficiaries of the grandfathered tax-breaks include Boeing and General Electric,” said a commission statement.

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