The U.S. Congress failed in its attempt to repeal an export tax break and bring its laws into line with global trade rules, the World Trade Organization ruled.
The WTO backed a European Union complaint that the United States gives unfair tax breaks to companies, reviving the possibility that the E.U. may reimpose $4 billion in sanctions against American goods, people familiar with the decision said Friday.
The Geneva-based WTO said the United States is not complying with a January 2002 ruling that outlawed tax breaks to exporters, said the people, who declined to be identified. The WTO found that the United States is still in violation because companies such as Microsoft Corp. and Boeing Co. continue to get breaks even after Congress passed new tax legislation in October, according to the sources.
Friday's confidential ruling, set to be published Aug. 12, threatens to escalate tensions between the world's two biggest economies. The $750 billion trans-Atlantic trade relationship is already strained because of dueling WTO complaints over aircraft subsidies, gene-engineered seeds and hormone-treated beef.
Congress voted in October to replace the $50 billion export tax break ruled illegal by the WTO with $145 billion in tax cuts for manufacturers and companies with overseas operations. The vote was part of a two-year effort to repeal the benefit and avoid further E.U. sanctions, which included duties on imports such as wood, paper, jewelry and clothing.
The changes initially satisfied the E.U., which removed the tariffs at the beginning of this year. A month later, trade representatives in Europe asked WTO arbitrators to examine the tax rewrite to make sure U.S. companies were no longer illegally benefiting, zeroing in on a transition period written into the new law.
Claude Veron-Reville, a European Commission spokeswoman, declined to comment, saying only that the ruling is a "supplementary step in the compliance panel." Richard Mills, a spokesman for the U.S. trade representative's office in Washington, also declined to comment.