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News Releases
Peter Mandelson
No. 14/06
February 13, 2006
WTO CONDEMNS US TAX SUBSIDIES; EU CALLS ON US TO END ILLEGAL TAX BREAKS FOR BOEING, OTHERS
The WTO Appellate Body has today backed EU condemnation
of US federal tax subsidies for exporters in the
FSC (Foreign Sales Corporations)
dispute. A WTO Panel had previously found in favor of
the EU by concluding that, despite some changes to its
domestic legislation, the US has yet to abide by
earlier
rulings and recommendations of the WTO Dispute
Settlement Body on its payments of export tax subsidies
preserved in the "transition" and "grand-fathering"
provisions of the revised Jobs Act that have been judged
to violate WTO rules. Once the Appellate Body report has
been adopted by the WTO in 30 days' time the US will
have 60 days to bring its legislation into line with its WTO obligations. After that time EU retaliatory measures
will be re-imposed, unless the US has complied in the
meantime.
EU
Trade Commissioner
Peter Mandelson said,
"The US now
has 3 months to act to avoid the re-imposition of
retaliatory measures in this case. The tax benefits
preserved by the Jobs Act have been repeatedly declared
in violation of WTO rules. The responsibility now lies
squarely with the US. I stand 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."
Biggest beneficiaries of illegal tax subsidies
include Boeing and GE…
The American Jobs Creation Act ("Jobs Act") contains a
"Grandfathering Clause" that says that the repeal of the
Foreign Sales Corporation and Extra-Territorial Income
legislation "shall not apply to any transaction in the
ordinary course of a trade which occurs pursuant to a
binding contract" entered into before 17 September 2003
and contains the following clarification: "A binding
contract shall include a purchase option, renewal
option, or replacement option which is included in such
contract and which is enforceable against the seller or lessor."
Consequently, in practice all standard commercial
contracts are covered as all such contracts bind their
signatories and are enforceable. It should also be noted
that the clause 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
FSC/ETI export subsidies many years into the future on
products that have not yet been built or exported, even
beyond the expiry of the FSC/ETI transitional period in
2006. Some of the biggest beneficiaries of the
grandfathered tax-breaks include Boeing and General
Electric.
The WTO has repeatedly condemned the measures…
The US FSC/ETI tax subsidies have been declared in
violation of WTO rules by a WTO panel, the two WTO
Appellate Body reports and two WTO compliance panels. On
7 May 2003, the WTO authorized the EU to impose trade
sanctions at the level of US $4 billion (the estimated
value of the subsidy in 2000) by increasing the customs
duties on certain selected products up to 100%.
Countermeasures on certain US products gradually started
entering into force on 1 March 2004 from a much lower
level (5%).
On 31 January 2005 the EU Council adopted a regulation
suspending sanctions as from 1 January 2005 when the EU
initiated a second compliance panel following the
passing of the American Jobs Creation Act. That panel
found that the Jobs Act continued to breach WTO rules: a
finding that the Appellate Body has now endorsed.
That
2005 Council Regulation provides for the
reintroduction of customs duties at a 14% level 60 days
following a final WTO ruling that the Jobs Act is WTO
incompatible. Those 60 days will begin when the WTO
Dispute Settlement Body adopts the Appellate Body report
in about one month from now.
Foreign Sales FAQs can be located at this
link.
Further Contact Information
Press and Public Diplomacy
Delegation of the European Commission
2300 M Street, NW
Washington, DC 20037
http://www.eurunion.org/PressRoom
Tel: 202-862-9552
Fax: 202-429-1766
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