Newspaper article The Evening Standard (London, England)

Heady Mixture of Trade and Tax Must Be Sorted Out

Newspaper article The Evening Standard (London, England)

Heady Mixture of Trade and Tax Must Be Sorted Out

Article excerpt


ALTHOUGH opponents of globalisation do not like it, there has been a direct link in the past 50 years between the rate of increase in world trade and world economic growth. The faster trade has grown, the more prosperous the world as a whole has become.

The benefits have not been evenly shared. There have been costs and there have been losers hence the protests. But even with its downside, we in the developed world have a clear interest in the expansion and freeing up of the trading system and the avoidance of trade wars.

That is why a little-appreciated decision yesterday by the World Trade Organisation is so important.

It ruled that an American scheme that gives billions of dollars of tax concessions to exporters is illegal.

The next move, due by the end of March, will be a decision, again by the WTO, on the amount of countermeasures the European Union, which lodged the complaint, can introduce against American exports. What is alarming is the scale of these sanctions and the disruption and acrimony that they could provoke, given the $4 billion ([pound]2.8 billion) estimate of their worth.

If not carefully handled, relations between America and the EU could take a marked turn for the worse in the wake of this judgment. America has a 30-year history of giving tax breaks to exporters that have infuriated its trading partners. Indeed it was when an earlier scheme, known as the Domestic International Sales Corporation (Disc), was declared an illegal export subsidy that the US Congress rewrote the rules to create the Foreign Sales Corporation and achieve a similar effect by different means. That is what has now finally been sunk by the WTO. The danger is posturing.

Having flouted a judgment once, Congress, if not properly handled by the US Administration, is quite capable of legislating to circumvent it again. …

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