EU penalties on some U.S. exports apparently ending soon

The European Union has signaled that its trade penalties against selected U.S. exports will end soon. The EU strongly implied that the sanctions would be removed in response a law that the President recently signed repealing two tax provisions for exporters.

The EU had battled against those provisions, and won, in the World Trade Organization (WTO). The WTO permitted the EU to impose duties on selected U.S. exports to Europe when the U.S. Congress was slow to repeal the offending provisions.

The bones of contention, the Foreign Sales Corporation and Extraterrirorial Income provisions of U.S. tax law, were found to be illegal export subsidies by the WTO, though both provisions were designed to parallel the rebates on value added taxes (VAT) that the EU provides to its own exporters. Language in the 1995 Final Act of the Uruguay Round of global trade negotiations had “grandfathered in” the EU’s VAT rebates but neglected to do so for the U.S.’ various tax incentives for exporters.

The new tax law signed by the President now grants broad tax reductions to all U.S. manufacturers and to other types of businesses, whether or not they export.

The EU remains concerned that the FSC and ETI provisions will phase out, rather than ending immediately, but says that it plans to negotiate on that issue.