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25th Nov 2017

EU ready to challenge US border tax

  • A US border tax may trigger a global trade war (Photo: dawvon)

The European Commission says it is prepared to take legal action against US plans to impose a border tax.

“If somebody is behaving against our interests or against international rules in trade then we have our own mechanisms to react,” Jyrki Katainen, the EU commission vice-president for jobs and growth policy, told the Financial Times in an article published on Monday (13 February).

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The US move to subject imports to tax and exempt export revenues is seen as one possible way, according to the White House, to finance Donald Trump's wall on the border with Mexico.

Any such border tax is also likely to face stiff resistance at the World Trade Organisation (WTO) and possibly trigger a global trade war.

Katainen said he wanted to avoid any such scenario with the US but was prepared to take action.

“We have all the legal arrangements within EU, but we are also part of global arrangements like the WTO and we want to respect the global rule base when it comes to trade," Katainen told the FT.

European businesses could see an up 20 percent increase on import tariffs should the US follow through with the proposal.

The Republicans in Congress say the "border adjustability" in the plan does not break WTO rules. They say it is needed to boost investments in the country.

Critics say the tax amounts to an unlawful subsidy on domestic goods in breach of the WTO.

"It has manifest violations which could even justify the use of the expedited procedure for dispute settlement in the WTO," a Brussels-based lawyer Van Bael & Bellis told Reuters earlier this month.

Trump has yet to endorse the proposed reforms, which are still in the early stages.

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The Italian government must demonstrate it is making an effort, or the EU will consider launching a procedure. France and Romania are also under scrutiny.

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After the Paradise Papers brought new revelations about tax dodging across the globe, including in the EU, the European Parliament wonders how to step up the fight.

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