Trade War or Tax Reform?
The WTO Ruling on Tax Breaks for U.S. Exporters
POLICY FORUMWednesday, February 13, 2002
11:00 a.m.
Featuring Rep. Phil Crane, Committee on Ways and Means; William Reinsch, National Foreign Trade Council; John Meagher, PricewaterhouseCoopers; and Chris Edwards, Cato Institute.
The Cato Institute
1000 Massachusetts Avenue, NW
Washington, DC 20001
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The World Trade Organization recently ruled that a $4 billion tax break designed to help U.S. exporters compete in foreign markets is an illegal export subsidy. The WTO sided with the European Union against the legality of the U.S. Extraterritorial Income Exclusion Act (ETI), which Congress enacted in 2000, after prior WTO rulings against U.S. Foreign Sales Corporation tax rules. The United States could respond by simply eliminating the tax break, but that would impose a $4 billion tax hike on American exporting companies. Or the United States could ignore the WTO ruling, but that could provoke EU trade sanctions. A third option would be to repeal the ETI tax provisions as part of a broader corporate tax reform that would include lowering the high U.S. corporate tax rate and adopting a "territorial" tax system. Four experts discuss policy options and implications.