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WTO Accuses U.S. Tax Breaks Of Skirting Trade Regulations

By Jonathan Peterson

In a stinging rebuke to the United States, the World Trade Organization has ruled that billions of dollars in tax breaks enjoyed by U.S. multinational corporations violate global trade rules.

The ruling by the WTO, potentially the most financially significant in its six-year existence, is sweet revenge for European officials. They have been miffed at what they view as aggressive U.S. challenges to their own trade practices, notably restrictions on the import of beef and bananas.

While details of the decision, which is to be formally announced at the WTO’s Geneva headquarters Thursday, were sketchy late Wednesday, it clearly represented a major embarrassment for the United States.

Although administration officials repeatedly have assailed Europe for failing to abandon trade barriers ruled illegal by the WTO, they say they have no intention of changing the corporate tax breaks. They plan to press Europe to drop the matter, perhaps as part of a larger deal.

In a statement Wednesday, Treasury Secretary Lawrence Summers said the U.S. tax provision was “widely viewed as creating a level playing field” for U.S. companies competing with Europe. “We’ll work closely with the Europeans, the business community and the Congress to achieve a constructive solution,” he said.

Administration officials say the tax break, which is held dear by many major U.S. corporations, will be worth more than $4 billion to corporate America next year and $24 billion over the next five years. Used by companies that operate overseas entities, it is criticized by foreign competitors as a subsidy that gives U.S. businesses an unfair advantage over rivals from Europe and Asia.

Ironically, it was the smaller U.S. victories on beef and bananas that persuaded European officials to lash out against the American tax provision as an illegal export subsidy. Europe was irritated by the determined American challenge to its restrictions on bananas, a product of little economic consequence in the United States except to the Chiquita Corp.