The European Union took the first step Tuesday to getting the World Trade Organization to outlaw a tax rule designed to encourage U.S. exports.
Sir Leon Brittan, the EU's trade commissioner, said he is seeking formal consultations in the WTO to put an end to the U.S. policy of encouraging exports through Foreign Sales Corporations.''FSCs are usually subsidiaries of U.S. corporations located in tax havens such as the Virgin Islands. Mr. Brittan said the tax treatment of FSCs subsidize U.S. exports in the form of tax exemptions. The tax benefits are only available if a large part of the exported item has been manufactured.
The commission claims that export subsidies which favor exports compared with the treatment of similar products when sold for domestic consumption are prohibited under the WTO Agreement on Subsidies and Countervailing Measures.
''The FSC scheme clearly breaks the WTO rules and distorts international trade by giving U.S. companies an unfair advantage over their European competitors,'' Mr. Brittan said.
Mr. Brittan claimed his action enjoys wide support from EU governments and industry.