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WTO upholds ruling against US

The WTO upheld a ruling condemning tax breaks for some US companies operating overseas, saying on Monday that Washington has about three months to bring its legislation into line.

A WTO panel rejected a US appeal, affirming previous judgments that the so-called Foreign Sales Corporation, or FSC, law breached global trade rules by giving illegal subsidies to some US businesses.

The law gave tax exemptions on part of the income of more than 6,000 US exporters, including corporate giants such as Microsoft Corp, Boeing Co and General Electric Co.

Washington has since repealed the FSC law, but the WTO panel upheld previous rulings that transitional provisions under the 2004 American Jobs Creation Act were not compliant with the previous ruling.

"The US now has three months to act to avoid the re-imposition of retaliatory measures in this case," said European Union Trade Commissioner Peter Mandelson. "The tax benefits preserved by the Jobs Act have been repeatedly declared in violation of WTO rules."

The appeal body's report will be officially adopted by the WTO in 30 days' time and the US will have 60 days from then to bring its legislation into line.

If the US does not comply by then, Brussels will re-impose retaliatory measures, which were suspended after the passing of the Jobs Creation Act, Mandelson's office said in a statement.

"The responsibility now lies squarely with the US," Mandelson said. "But the EU will not accept a system of tax benefits which give US exporters including Boeing an unfair advantage against their European competitors."

The US claims it has fallen into line by repealing the FSC law. But the WTO appeal body said that Washington's new rules were still against the commerce body's rules because they allow tax exemptions to continue for a transition period through the end of this year and potentially longer.

Neena Moorjani, spokeswoman for US Trade Representative Rob Portman, said the US will continue to urge the EU not to re-impose sanctions.

"Prolonging this dispute will not serve to foster harmonious trans-Atlantic relations," Moorjani said. "The reimposition of sanctions will cause the EC to be perceived by Congress as not recognizing the tremendous efforts made to comply with our WTO obligations."

In 2002, the WTO authorized US$4 billion in sanctions by the EU, although Brussels decided to impose only US$300 million and suspended them as of Jan. 1 last year.

The EU estimates that the tax advantages from the jobs creation act total more than US$903 million for Boeing alone over the next 10 years, Mandelson said. Last year alone, Boeing is estimated by the EU to have benefited by about US$180 million.

But Moorjani said any new sanctions will reinforce the perception that the EU "is primarily acting in response to the US filing of a WTO complaint against Airbus subsidies."
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