< http://economictimes.indiatimes.com > WTO vindicated EDITORIAL [ THURSDAY, JANUARY 17, 2002 12:09:05 AM ]
The ruling of the WTO's appellate body on tax treatment of Foreign Sales Corporations in the United States could well mark a significant milestone in the development of the World Trade Organisation. This not just because of the specifics of this case, though they are undoubtedly interesting in themselves. The distinction the American tax system makes between sales abroad and at home has been found by the WTO to hide export subsidies. The tax benefits offered to those using domestically produced inputs have also been found to go against WTO norms. These findings can cause substantial pain to the US economy, which is already in the midst of a recession. If the US changes its tax laws, several major American companies would be seriously hurt. And if it doesn't, Europe will have an opportunity to impose trade sanctions against the US of a magnitude that will be the largest in the history of the WTO. It is, of course, possible that Europe may opt to make a deal with the United States rather than go in for sanctions. And with India having joined the European Union in the case against the United States, it is also possible that India could claim a share in any compromise. However, the real lessons may well be on the functioning of the WTO itself. The dominance of a few major economic powers in WTO negotiations has often been taken to mean that countries of the South cannot expect to gain from the emerging WTO regime. Indeed, the minimalist strategy that Indian governments have tended to adopt is based on the feeling that there is little to gain from actively working towards strengthening and expanding the WTO. But the Appellate Body's report on Foreign Sales Corporations reiterates the fact that no country is immune to adverse rulings from the WTO. The task before countries like India is to build an effective challenge. This task is, to a considerable extent, dependent on the quality of argumentation. But it is also a matter of gaining prominent and effective allies. And the FSC case once again demonstrates that India's most effective allies need not always be from the South. The sooner we realise that, the better we will be able to defend our case.
