- The Washington Times - Monday, February 13, 2006

From combined dispatches

GENEVA — The World Trade Organization upheld a ruling that found the United States failed to end an illegal tax rebate for U.S. companies operating overseas, saying yesterday that the U.S. has about three months to fix its legislation.

A three-judge panel rejected a U.S. appeal of a Sept. 30 ruling, saying Congress ignored the WTO’s order to scrap the tax credit immediately. Congress instead voted to phase out the measure over a two-year period ending in 2006.

The Foreign Sales Corporation, or FSC, law gave tax exemptions on part of the income of more than 6,000 U.S. exporters, including corporate giants such as Microsoft Corp., Boeing Co., Caterpillar Inc. and General Electric Co.

The U.S. has repealed the FSC law, but the WTO panel upheld previous rulings that the transitional provisions under the 2004 American Jobs Creation Act did not comply with the previous ruling.

“The U.S. now has three months to act to avoid the reimposition 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 officially will be adopted by the WTO in 30 days and the United States will have 60 days from then to bring its legislation into line.

If the United States does not comply by then, Brussels will reimpose retaliatory measures, which were suspended after the passing of the Jobs Creation Act, Mr. Mandelson’s office said.

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

The United States says it has fallen into line by repealing the FSC law. But the WTO appeal body said the 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.

“I doubt Congress will revisit this legislation,” said U.S. Senate Finance Committee Chairman Charles E. Grassley, Iowa Republican. “That’s especially so since the two-year transition is over at the end of this year.”

Neena Moorjani, spokeswoman for U.S. Trade Representative Rob Portman, said the United States will continue to urge the 25-nation European Union not to reimpose sanctions.

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

In 2002, the WTO authorized $4 billion in sanctions by the European Union, although the bloc decided to impose $300 million and suspended them as of Jan. 1, 2005.

Europe estimates that the tax advantages from the jobs creation act total more than $903 million for Boeing alone over the next 10 years, Mr. Mandelson said. In 2005, Boeing is estimated by Europe to have benefited by about $180 million.

But Ms. Moorjani said any new sanctions will reinforce the perception that the European Union “is primarily acting in response to the U.S. filing of a WTO complaint against Airbus subsidies.”

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