Avi-Yonah & Vallespinos: U.S. Tax Reform And The WTO

Reuven S. Avi-Yonah (Michigan) & Martin Vallespinos (S.J.D. 2018, Michigan), The Elephant Always Forgets: US Tax Reform and the WTO:

The “Tax Cuts and Jobs Act” (TCJA) enacted on December 22, 2017 includes several provisions that raise WTO compliance issues. At least one such provision, the Foreign-Derived Intangible Income (FDII) rule, is almost certain to draw a challenge in the WTO and is likely to lead to another US loss and resulting sanctions. This outcome would be another addition to the repeated losses suffered by the US for export subsidies from the 1970s to 2004, which led to the imposition of sanctions and the ultimate repeal of the offending regime. The important question for 2018 and beyond is whether the Trump administration and its Congressional allies will react to such a loss in a similar fashion as the Bush administration did in 2004, or whether it will defy the WTO, with potential far-reaching consequences for the world trade order.

If the GOP lobbyist is to be believed, a WTO challenge to the FDII could result in a major clash between the US and the WTO, with potentially disastrous consequences. Even if he is exaggerating, the willingness of the GOP Congressional majorities to defy the WTO stands in stark opposition to the way the GOP behaved in 2004. This relatively obscure tax issue could have very troubling long-term implications.