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European Union

European Commission Shifts Stance on US Trade Dispute over Corporate Taxation

Strategic Insights

— 2 min read

Facing pressure from European businesses, the European Commission has signalled a more flexible stance in its long-running trade dispute with the US over corporate taxation. The Commission is now willing to accept a transition period allowing the US to phase out the so-called Foreign Sales Corporations provision, which grants tax breaks to exporters such as Microsoft and Boeing. This shift in strategy offers hope that Brussels and Washington can resolve their differences without resorting to damaging trade sanctions.

Key Takeaways:

  • The European Commission is willing to accept a transition period for the US to phase out the Foreign Sales Corporations provision, which grants tax breaks to exporters.
  • The move is in response to pressure from European businesses, including the Union of Industrial and Employers' Confederations of Europe (Unice), which claims to represent 16m companies in the EU.
  • The Commission has insisted that the US make a move by March 1 to avoid punitive tariffs on US exports worth hundreds of millions of dollars.
  • The shift reflects concern among European business leaders that a further escalation of the dispute could harm transatlantic relations and spark a backlash on Capitol Hill.
  • The Commission is seeking a transition period that is "as short as possible", while also allowing the US Congress to repeal the law.
  • The US has until March to revoke the FSC clause or face punitive tariffs on US exports worth hundreds of millions of dollars.
  • The tariffs are designed to rise month by month, gradually increasing the economic pain for US corporations.

Statistics:

  • The EU has chosen to impose tariffs on US exports worth Euros 290m in the first year, which is 6.8% of the total retaliation package worth Dollars 4bn per year.
  • The tariffs are designed to increase month by month, with a projected increase of Euros 10m in the second month, and Euros 20m per month thereafter.
  • The US has refused to repeal the law unless there is a three-year transition period, which the Commission has not ruled out as an option.
  • The FSC provision grants tax breaks to exporters such as Microsoft and Boeing, and has been deemed an illegal export subsidy by the World Trade Organisation.

Sources:

  • "European Commission Shifts Stance on US Trade Dispute over Corporate Taxation" by Tobias Buck (Brussels) for TOBIAS BUCK BRUSSELS
  • A letter from the Union of Industrial and Employers' Confederations of Europe (Unice) to the European Commission
  • A spokesperson for Pascal Lamy, EU trade commissioner
  • The World Trade Organisation (WTO) ruling from 2002, in which Washington was told to scrap the FSC tax break because it constituted an illegal export subsidy.

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