EconomyInCrisis.org - The world trade organization and the vat tax: killing america’s exports

The World Trade Organization and the VAT Tax: Killing America’s Exports

Author: Economy In Crisis

Published On: 06/24/08

Source: www.EconomyInCrisis.Org

Editor's Note: The following is the second in a three part series about the debilitating effects of the VAT tax. Many of the statistics and examples are from “Dangerous Business,” a forthcoming book by economist Pat Choate, to be released on Aug. 12, 2008.

Part II: The World Trade Organization and the VAT Tax: Killing America’s Exports

Americans are losing their ability to compete in global trade because of the value-added tax (VAT). Foreign governments use this tax against U.S. producers as a means to prevent the importation and consumption of U.S. goods, while providing incentives for other countries to export their goods to the U.S. The tax was created to rebuild a war-torn Europe after WWII, but now Europe is rebuilt and no longer needs to enact this unfair tax, burdening Americans. In 1968, three countries used the VAT, but by 2001, 25 nations enacted this tax to gain a leg-up on American trade. Because of this tax, America cannot compete in global trade.

In 2001, European countries had a VAT rate of 19.2 percent. By 2005, 94 percent of U.S. exports received a VAT tax. In the same year, foreign governments received rebates of $239 billion from the tax while collecting $131 billion from U.S. producers of goods and services.(Click here to learn more about the VAT Tax in part 1 of the VAT Tax Series).

The WTO refuses to amend or lift this burden from the U.S. Numerous attempts have been made by Congress to repeal the tax – in 1974 the Nixon administration was urged to negotiate the tax during the Tokyo Round of global trade talks – only to be ignored by the other countries.

In 1972 and 1984, Congress changed the tax system to exempt between 15 and 30 percent of an exporter’s income from U.S. taxes to offset the disadvantage of the VAT. The European Union (EU) in 1998 complained to the World Trade Organization WTO saying the U.S. tax exemption, acting as a tax subsidy, was a direct violation of the WTO agreement. In 1999 the WTO ruled in favor of the EU, giving the U.S. one year to change its tax exemption law or face penalties from the WTO.

Again in 2000, Americans enacted new tax legislation to offset the VAT, which resulted in yet more EU complaints and another WTO case. The WTO decided in favor of the EU, leading to a ruling in 2002 allowing the EU to impose retaliatory tariffs of $4 billion each year on U.S. imports. By this time 25 European nations enacted the VAT to usurp America’s ability to trade.

In 2004 Pres. Bush created new legislation again to offset the VAT. This again led to complaints from the EU – again filing a case with the WTO – arguing export subsidies were provided by the new legislation. It was in 2006 that Mr. Bush and Congress stopped enacting the tax provisions to U.S. exporters, demonstrating how the EU and WTO had successfully usurped the U.S. of its power to promote fair and free trade.

During the battle between the WTO and the U.S., all nations were provided full VAT privileges, usurping the U.S. of fair trade. The WTO and EU do not serve in the best interest of the U.S. They are acting to support and promote continuance of this debilitating tax.