DAVID KNIBB / SEATTLE
Tax breaks for US exporters continue to face a hostile reception from the World Trade Organisation (WTO). In the latest round of talks, a WTO panel has agreed with the European Union that a US tax law that saved Boeing $291 million last year amounts to an illegal subsidy.
The law in question is a rewrite of an earlier version that the WTO also found illegal. Under a threat of European sanctions Congress revised that law last November, discarding foreign sales corporations and extending tax benefits to US firms. Boeing and other US exporters thought that fixed the problem; European trade officials claimed it only made it worse.
Unless the US government appeals the WTO's latest decision or revises this law again, it faces a renewed threat of European sanctions that could reach $4 billion, the highest in the WTO's history. This comes at a sensitive time in US-European relations on a number of issues, including transatlantic aviation.
Congressman Bill Thomas, who chairs the US House of Representatives committee in charge of tax legislation, argues against an appeal. He concedes the law is "antiquated and needs fundamental reform". He argues: "Dragging out the process through extensive appeals and cosmetic changes to our tax system will not solve the problem."
An appeal nonetheless seems likely, if for no other reason than to buy time while Congress considers how to change the law in a way that encourages US exports without provoking another subsidy fight before the WTO.
Source: Airline Business
