If the border-adjusted corporate tax reform passes in the Senate, it will have a potentially higher hurdle to jump in the form of European appeals to World Trade Organization. The FT reports European officials are gearing up to challenge the change, as the WTO bars border adjustment for corporate taxes, even as they are allowed for sales tax regimes.
What Republicans say: Ways and Means Chair Kevin Brady told the FT that they are designing the tax to be "WTO compatible."
What Europe says: EU officials are confident that this is impossible, but a dispute of this magnitude — which could theoretically lead to the U.S. facing $385 billion in trade retalliation — is many times the size of any case the WTO has previously adjudicated.
What's next: It's unlikely the Trump Administration or the Republican Party would let themselves be cowed by threats from the the EU. But a WTO challenge would still represent a time-consuming obstacle to a policy idea that has generated much opposition in 2017.
