FOREIGN SALES CORPORATIONS are an illegal export subsidy, the World Trade Organization said again on February 24.

The US is expected to negotiate a settlement in the case but not by the October 1 deadline the World Trade Organization set to avert trade sanctions. European officials seem prepared to agree to another 12 to 15 months to work out a compromise.

US companies that run their exports of US-made goods through offshore companies called “foreign sales corporations” are able to reduce US taxes on their export earnings by 15% to 30%. FSCs have been incorporated into lease structures where US-made equipment — like airplanes and turbines — are used overseas. This reduces the US taxes on rents paid to the US lessor of the equipment.

Approximately one in every four US export dollars is run through a FSC.

Keith Martin