Urges Parties to Resolve Differences
Washington DC -The National Foreign Trade Council expressed disappointment and concern today over the World Trade Organization (WTO) Appellate Body’s decision declaring that an important U.S. tax law violates WTO trade rules. The panel found that the Extraterritorial Income Exclusion Act of 2000 (ETI Act), which excludes from U.S. tax income earned in a broad range of international transactions, constitutes a prohibited export subsidy under relevant WTO agreements.
“The Appellate Body’s decision risks placing U.S. companies and workers at a competitive disadvantage. This issue needs negotiations that will lead to a solution acceptable on both sides of the Atlantic,” said William A. Reinsch, President of the NFTC. “We urge the United States and the European Commission to react with great care and restraint and to work together to find common ground. This is not a good time for the world’s two largest economies to allow trade frictions to escalate.”
The current European Commission case against the ETI Act follows an earlier WTO decision holding that the former U.S. Foreign Sales Corporation (FSC) tax provisions provided prohibited export subsidies. The ETI Act was passed by Congress in an attempt to conform U.S. law to that earlier WTO decision.
“While we’re disappointed with the outcome, we were pleased to see that the Appellate Body narrowed the panel’s reasoning in a number of key respects,” said Judy Scarabello, NFTC’s Vice President for Tax Policy. “The risk remains, though, that if the case is not properly managed by the parties, the decision could have far-reaching, unsettling effects on international tax practices for many countries or could even end up favoring one tax system over another.”
The NFTC leads a broad coalition of companies and trade associations that coordinated the business community’s support for enactment of the ETI last year and continues to work with Administration officials on the current WTO case.