WTO Rules US Tax Breaks for Boeing, EU Vows Retaliation

The World Trade Organization has ruled that the US continues to break global trade rules with tax breaks benefiting Boeing Co., General Electric, and other major exporters. The EU, which first challenged US tax laws at the WTO in 1998, can now punish US firms with trade sanctions unless Congress repeals the illegal tax provisions. The US has two years to comply with the WTO ruling, but lawmakers are likely to appeal the decision.

Key Takeaways:

• The WTO has ruled that the US continues to break global trade rules with tax breaks benefiting Boeing Co., General Electric, and other major exporters, despite Congress's effort to repeal an export subsidy.
• The EU can now punish US firms with trade sanctions unless Congress repeals the illegal tax provisions, which could add up to over $903 million for Boeing alone.
• The WTO has faulted the US for failing to fully implement its recommendations to withdraw the prohibited subsidies and bring its measures into conformity with its obligations under the relevant covered agreements.
• The US has two years to comply with the WTO ruling, but lawmakers are likely to appeal the decision.
• Congress passed the American Jobs Creation Act in 2004, which repealed the subsidy and replaced it with measures to cut taxes on overseas operations of American firms.
• The transition measures that grandfathered existing contracts are at the center of the WTO's criticism.

Statistics:

• The EU can punish US firms with up to $4 billion in duties on American exports.
• The tax breaks, known as Foreign Sales Corporation and Extraterritorial Income provisions, are estimated to add up to over $903 million for Boeing alone.
• The US subsidy, worth about $50 billion over 10 years, was repealed and replaced with $76.5 billion in cuts for US-based "production" and $42 billion to reduce taxes on overseas operations of American firms.

Sources:

• The Washington Times
• World Trade Organization, report dated July 2022 (confidential decision released in July, made public yesterday)
• Peter Mandelson, EU trade commissioner
• Christin Baker, spokeswoman for the US trade representative's office
• Sen. Max Baucus, Montana Democrat