European Union Swats U.S. Corporation Subsidies
BRUSSELS, 20 August—After reviewing the multi-billion-dollar tax breaks the U.S. grants to hundreds of exporting companies, including such giants as Microsoft and Boeing, a World Trade Organization WTO panel concluded that such subsidies are illegal because such benefits put rival companies from other countries at a competitive disadvantage.
In response to the WTOs finding, the European Union (EU) has announced it will seek $4–$5 billion in trade sanctions against the U.S.—unless the U.S. changes its offending tax-credit program. The ruling said the U.S. is free to choose any kind of tax system it wishes—so long as that system is consistent with WTO obligations.
William Drozdiak, Washington Post foreign correspondent, reported on August 21 that U.S. Special Trade Representative Robert B. Zoellick equated the $4 billion sanction, if implemented, to dropping a nuclear bomb on international trade.
The U.S. has generally gone along with WTO trade dispute decisions, but the sanctions involved, until now, have been relatively small. Now the U.S. has warned that if the EU pursues these sanctions, Congress may retaliate by passing laws that could disrupt global trade, possibly bringing on a world-wide economic crisis.
The Bush administration has 60 days to file an appeal of the WTO ruling. One EU trade representative, Stephen Gospage, said the EU would hold off on applying sanctions as long as the U.S. made serious efforts to change its offending laws that favor U.S. exporting companies. If the U.S. decides to appeal the WTO decision, he warned, the EU would go forward with requesting WTO permission to impose the sanctions.
Overall, the federal government spends about $65 billion annually on over 125 programs that provide direct taxpayer assistance to American businesses operating overseas, according to the General Accounting Office and other research organizations, such as the Progressive Policy Institute and the Cato Institute. Examples of U.S. international trade subsidies include:
General corporate subsidies: $billions and $billions
° The International Trade Administration (ITA), which conducts export promotion programs directed toward specific industry sectors through its Trade Development Program. ITA's U.S. and Foreign Commercial Service counsels U.S. businesses on exporting and facilitates participation of U.S. firms in trade shows. It also provides marketing services, develops regional and multilateral trade strategies, and conducts investigations of trade policies. The ITAs budget in 1997 (the last figures available) was $270 million.
The Military Connection: $500 million total
Military export sales subsidies cost U.S. taxpayers $500 million. Prices assessed foreign purchasers of U.S. weapons don't cover government research and development costs. The U.S. also arranges foreign military financing, to the tune of $3.3 billion. It also provides grants and subsidized loans to foreign countries for purchase of military goods and materials.
Agricultural Subsidies: $790 Million total
°Export Enhancement Program—Subsidizes foreign purchasers of U.S. agricultural products by paying bonuses to U.S. exporters, which allows them to decrease foreign prices.
Fishing Subsidies: $14.4 Million
°International Fisheries Commission—Promotes fishery trade and exports.
Other Subsidies for Exporters, Importers, and International Investors: $1,113 Million
In addition to the ITA and OPIC, this category includes:
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This story was published on September 5, 2001.