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STRIKE FOUR!

February 14, 2006

Congress has addressed export subsidies in the tax code four times over the past 22 years. They have a perfect record: they've botched it each time.

Yesterday the World Trade Organization ruled that the latest attempt, passed in 2004, violates international trade rules, just like the first three did. In this case, the violations relate to "grandfathering" of the breaks repealed in the 2004 bill, which let the subsidies linger during a phase-out period.

The European Union is threatening to reimpose trade sanctions if Congress fails to take action in three months.

The EU and Congress will now commence a game of chicken, with the EU threatening to reimpose the sanctions, and Congress daring the EU to start a trade war over tax breaks that have already been repealed, if not as fast as the EU would like. If the sanctions are reimposed, it may create pressure for new tax legislation. As the last attempt to comply with the WTO rules resulted in the execrable Section 199, let's hope they aren't serious about the sanctions.

The TaxProf has a roundup of WTO documents and coverage.

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