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Germany Considers WTO Suit Against US for Border Tax

Relations between the U.S. and Germany aren’t coming up roses this week.

Ahead of what became an awkward meeting between President Trump and German chancellor Angela Merkel Friday when Trump didn’t shake her hand, Germany’s economic minister said it could take up issue with the World Trade Organization regarding the U.S.-proposed border tax.

The border adjustment tax, now more familiarly known as the BAT tax, would lower the corporate tax rate from 35 percent to 20 percent, while at the same time changing the tax structure so that companies can no longer deduct the cost of imports from their taxable income. Essentially, any company selling imported product would be paying taxes on the full proceeds of the sale, rather than just on the profit.

Trump has already said the U.S. would impose a 35 percent border tax on the cars BMW makes at its Mexico plant for export to the U.S., and Germany’s response may not be an amiable one.

“The other option is that we file a suit against him at the WTO—there are procedures laid out there because in the WTO agreements it is clearly laid out that you’re not allowed to take more than 2.5% taxes on imports of cars,” German economy minister Brigitte Zypries told Deutschlandfunk radio, as reported by Reuters. “The Americans need our machines and our plants.”

Border adjustment has been the biggest hot button issue for trade this year, and reactions to the proposed tax have come out on both sides of the aisle.

In a new television ad launched by pro-BAT supporters, the angle was all about creating jobs.

“For years, lights have been turned out in American factories. Lights that won’t likely be turned on again. Because of old tax policies, our country has lost millions of American jobs. Stop favoring foreign-made imports over American-made goods. Support tax reform and create 1.7 million new American jobs,” the ad, sponsored by the American-Made Coalition, says.

In an article on “Why the Border Adjustment Tax Should be Killed,” Barron’s said the whole tax is simply too complicated—a notion Trump had agreed with in the past.

“The BAT would bring uncertainty and disruption to the U.S. economy, making it hard to predict whether it really would raise $100 billion annually in revenue. The basic idea is that, because the U.S. imports more than it exports, the export exemption would be more than offset by hitting imports hard,” according to Barron’s. “Regardless of how it shakes out, the value of the transaction affected by the BAT is huge.”