WTO Leather Decision Rings Alarm Bells Worldwide
The WTO ruling that Australian leather company, Howe & Co, must fully repay a further $22 million it received in export assistance because it contravened global trade rules is sending a tidal wave of concern around the world. John Howard reports.
Scoop had been aware of the upcoming ruling and broke the news in New Zealand on Friday morning.
By that afternoon an outraged Federal Trade Minister, Mike Vaile, confirmed the defeat saying the retrospective nature of the ruling broke new ground for the global trade body.
From Washington to Wellington, from London to Lisbon, executives of some of the world's largest corporations are considering this new precedent set by the WTO.
Now at risk for the US, who bought the claim to the WTO in the first place, is the billions of dollars of tax exemptions enjoyed by hundreds of America's largest companies for several years. Repayment of those tax exemptions by just the top few US companies could amount to around US$10 billion off their bottom line - and they don't like it.
Alarm about the implications of the case is intensifying around the world by the minute as news of the decision emerges.
"A lot of people are upset," said one Scoop source who is also a lobbyist for one of America's larger corporations.
"This is big stuff, we're talking billions," said another Washington-based Scoop insider.
Under the Foreign Sales Corporations Act, US companies are allowed to shelter a certain part of their export earnings from income tax through the use of foreign subsidiaries that sell products with a specified level of US components.
The EU launched a WTO challenge to the exemption in 1998, claiming that the law provided US exporters with an unfair and illegal advantage on international markets.
For example, the law is estimated to have saved Boeing US$200 million.
If all US companies are now required to repay the subsidies enjoyed since the WTO's 1995 establishment it will run into billions of dollars.
This latest WTO decision has now united political forces in Washington with the Republican and Democrat leaders on the powerful Senate Finance and House Ways and Means Committee urging a speedy settlement to the EU challenge.
But the EU who has been defeated in the WTO by US challenges is in no mood to negotiate and the matter is likely to lead to a highly charged tax and trade environment.
It was US companies who bought this challenge against Howe & Co, it is the US government who allows companies to hide behind tax exemptions and it is the US government who pays out hundreds of millions of subsidies to its agriculture and other sectors.
Considered in that light;- As you sow, so shall you reap.
If US companies have to start repaying some of the subsidies because of this latest WTO ruling, it will no longer be able to wax lyrical about free and fair trade in the international forums while subsidising its companies to the hilt at home.
It's time for our trade officials to get on the phone and start some hard bargaining.