Tax Systems and International Trade

International Tax Policy Forum / Brookings Conference

December 9, 2002

8:00 AM to 4:00 PM
Brookings Institution
1775 Massachusetts Ave NW

World Trade Organization (WTO) panels have four times concluded that the Foreign Sales Corporation (FSC) and replacement tax rules in the U.S. Code violate the Subsidies and Countervailing Measures (SCM) Agreement. In addition, the WTO earlier this year authorized the European Union to impose up to $4 billion per year of retaliatory tariffs against U.S. exporters. President Bush has determined that the United States will comply with the WTO ruling by repealing the FSC and replacement tax regimes. However, critics of the WTO tax subsidy rules argue that the distinction drawn between direct and indirect taxes in the SCM Agreement is economically without justification. Moreover, many U.S. policymakers have expressed frustration that the U.S. income tax system should be subject to WTO review and WTO-authorized retaliatory measures.

This conference, co-sponsored by the International Tax Policy Forum (ITPF) and the Brookings Institution, examined the interaction between income tax systems and international trade from an economic and a legal perspective (see attached agenda). The conference began with an historical overview of the WTO tax subsidy rules followed by an assessment of what we have learned about these rules as a result of the FSC case. A roundtable discussion among tax and trade experts considered a variety of issues and options regarding the WTO subsidy rules and dispute settlement process. Following the keynote luncheon address by Council of Economic Advisers Chairman Glenn Hubbard, two original economics papers were presented. The first paper examined the empirical evidence regarding whether border-adjustable taxes affect international trade. The second paper was an empirical analysis of how trade barriers affect the organization of U.S. multinational companies.

The keynote speaker was Hon. Glenn Hubbard (Chairman, Council of Economic Advisers).

For further information about this conference, click here.