Analysis says GOP border adjustment tax proposal would pass WTO test

June 08, 2017

A new analysis commissioned by manufacturing and export giant Caterpillar attempts to dismantle arguments that the border adjustment tax contained in the House Republican tax reform “blueprint” would violate U.S. commitments under World Trade Organization rules.

[Charlie Mitchell] June 7th, 2017 [Inside Trade

Critics on Capitol Hill, in industry and academia have cited incompatibility with WTO rules, along with the prospect of higher prices for U.S. consumers, as two of the main complaints against the BAT, which is a key component of a tax reform “blueprint” advanced by House GOP leaders.

But the memo drafted by attorneys at the Mayer Brown law firm in Washington, DC, argues that the so-called BAT would not qualify as a subsidy under WTO rules -- and they also contend it would not violate the “national treatment” test because “[w]here imports and domestic products are directly competitive the Blueprint meets the test that they are taxed similarly.”

The memo says “the border adjustment mechanism does not constitute a subsidy, as Article 1 of the [Agreement on Subsidies and Countervailing Measures] and relevant jurisprudence require that revenue 'otherwise due' is 'foregone' for a subsidy to exist."

It adds: “With respect to U.S. obligations under the General Agreement on Tariffs and Trade (GATT) and General Agreement on Trade in Services (GATS), the border adjustment mechanism should not constitute a national treatment violation because both the domestic and imported like products are taxed under the Blueprint, taking into account the entire U.S. tax system.”

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