Vanderbilt Journal of Transnational Law

First Page



The largest sanctions in the history of the World Trade Organization, the need to stabilize an ailing economy, and the need to maintain strong alliances in the face of a new global war on terrorism are all issues the United States currently faces in deciding how to resolve its dispute with the European Union regarding U.S. tax policy. In 1997, the European Union filed a complaint with the WTO claiming that the then-current U.S. tax regime violated U.S. international trade agreements. The European Union contended that the U.S. tax system gave rise to export-contingent subsidies, in violation of U.S. trade obligations.

Ultimately, the WTO found that the U.S. tax regime provided export-contingent subsidies and thus violated U.S. trade agreements. Although the United States appealed the decision, the European Union prevailed on appeal. This Note examines these WTO opinions and the bases for their findings.

After the U.S. tax framework was found to be in violation of international trade obligations, the United States drafted the Extraterritorial Income Exclusion Act of 2000, which replaced the U.S. tax laws found to be in violation of U.S. trade obligations. This Note describes the replacement law and how it differs from the past tax system.

Although Congress hoped the replacement law would resolve the tax dispute, the European Union was not satisfied that the replacement law remedied the trade violations. The European Union filed a claim with the WTO alleging that the replacement law continued to violate U.S. trade obligations. The WTO ultimately decided that the replacement law violated U.S. trade obligations. This Note examines the latest decision.

The United States filed a notification of appeal in response to the latest WTO decision. This Note concludes by addressing issues that the United States must consider in deciding how to resolve this dispute and possible solutions to the problem.