Resolution
Of The EU's Complaint
In
December 2004, the European Union asked
the World Trade Organisation to examine
the ‘grandfather’ clauses of the newly signed
AJCA. "The EU today took the first step
in this process by formally requesting consultations
with the US in the WTO," EU spokesman Anthony
Gooch confirmed. Nonetheless,
Gooch assured the American government that
this action would not impede the process
of repealing legislation and lifting the
EU’s retaliatory tariffs, which were in
place on about $4 billion worth of American
exports.
The tariffs were indeed lifted on January
1 2005, coinciding with the commencement
of the Jobs Creation Act. However, the EU
persisted with its complaint at the WTO,
and in October, 2005, a WTO disputes panel
confirmed a ruling against the US AJCA legislation.
Senate Finance Chairman Charles Grassley
issued a defiant statement attacking the
EU's handling of the dispute.
The
ruling stated that Section 101 of the American
Jobs Creation Act (AJCA) of 2004 did not
comply with WTO trade rules. The EU had
claimed that companies like Boeing, Caterpillar,
and Microsoft would continue to benefit
from illegal export tax-breaks amounting
to more than $4 billion in 2005 and more
than $3 billion in 2006.
The AJCA of 2004 repealed the Foreign Sales
Corporation (FSC) and Extraterritorial Income
(ETI) Regime Acts, which the WTO had previously
ruled were illegal export subsidies. Section
101 of the AJCA, however, enabled US companies
to claim 100% of their FSC/ETI benefits
in 2004, 80% in 2005, 60% in 2006, and zero
thereafter.
Senator Grassley (R-Iowa) accused the European
Union of perpetuating the dispute as a tactic
in the continuing squabble over subsidies
to the civil aviation industry. "Their blatant
linkage of WTO disputes serves as a dangerous
precedent," Grassley said in a statement.
United
States Trade Representative at the time,
Rob Portman let it be known that the US
government would appeal against the WTO's
ruling.
Mr
Portman said that the triggering of an appeal
process by the United States would help
delay by a few months the probable imposition
of trade sanctions by the European Union
on goods imported from the US. The reports
were later confirmed by a spokeswoman from
the trade office, who stated that the government
would indeed appeal the ruling by the WTO
disputes panel.
In
the event, Congress backed down, and repealed
the grandfathered benefits in the The Tax
Increase Prevention and Reconciliation Act,
signed by President Bush earlier in May,
2006.
Inserted
into the tax reconciliation legislation
which passed the Senate by 54 votes to 44,
having previously passed in the House, the
repeal of the remaining benefits under the
now-defunct Foreign Sales Corporation and
Extraterritorial Income Exclusion Act regimes
was welcomed by the European Union.
Speaking
to the AFP news service following the vote
on the wider tax bill, Peter Mandelson announced
that: "The EU, which had been authorized
by the WTO to enforce retaliatory measures
if the tax benefits were not removed, will
now withdraw the reintroduction of sanctions
foreseen for May 16."
A
coalition of US service companies however
then immediately lobbied Congress to reinstate
the deleted benefits. According to the group
of US financial services companies under
the banner of the Coalition of Services
Industries, which includes Bank of America,
State Street, New York Life, Verizon and
the US Chamber of Commerce, the US Congress
went too far by eliminating the tax break
for leasing contracts as well as for sales
contracts.
The
coalition argued that the European Union
was prepared to waive its threat of sanctions
on the US as long as lawmakers ensured that
the legislation repealed the grandfather
clauses on sales contracts.
"The
US companies built these benefits into the
leases they signed and passed on the benefit
to their customers through lower rates,"
stated Bob Vastine, president of the Coalition
for Service Industries, according to the
Financial Times.
"The
deals companies signed are still in existence
but under the new law the tax break has
disappeared. They could lose a lot of money,"
he warned.
Defending
the legislation, Bill Thomas, House Ways
and Means Committee Chairman, told Dow Jones
Newswires that a total repeal of the FSC-ETI
legislation would give the EU no grounds
for future retaliation.
"That
is the last vestige that they hold on to,
and once that is removed, there is absolutely
nothing else left" that they can challenge,
he stated.
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