Election 2025: WTO case the key to deal hope, says US lawyer

A top Washington trade lawyer says Donald Trump and Scott Bessent wanted to resuscitate a WTO dispute where Australia, the EU and Canada attacked US tax treatment of exporters.

US President Donald Trump, right, with US Treasury Secretary Scott Bessent. Picture: AFP

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A top Washington-based trade lawyer close to the Trump administration says if Canberra flipped its decision on a disputed World Trade Organisation case the White House would lift its newly imposed tariff, in a deal that could be behind US Treasury Secretary Scott Bessent declaring Australia a priority in negotiations.

K&L Gates partner Nate Bolin – who has worked with senior members of the Trump administration – told The Australian the President and Mr Bessent wanted to resuscitate a WTO dispute in which Australia, the European Union and Canada attacked US tax treatment of exporters.

The dispute involved American exporters using a scheme involving foreign sales corporations, which helped them gain US tax exemptions.

“The easiest path to solving this tariff issue is to support the US effort to reinstate something like the foreign sales corporation system it used to have before it was attacked by Australia, the EU and others in WTO dispute settlement,” Mr Bolin said.

“We may see a proposal to reinstate the FSC system, or something like it, in what Trump has called the ‘big beautiful’ US tax bill.”

The long-running dispute involved countries such as Australia challenging the US foreign sales corporation tax provisions, which allowed a US company to sell goods to one of its foreign subsidiaries at a reduced price.

The subsidiary would then sell the goods into, for example, the Australian market, but have its export income partially exempt from US taxes. If the parent company had exported directly, it would not have qualified for the special US tax treatment.

The WTO found that the US was violating the rules because the tax exemption was effectively a prohibited export subsidy.

The US has since ditched the scheme but Mr Bolin thinks there will now be a push to enact a similar one, and if countries such as Australia don’t challenge it then they would be exempt from the 10 per cent tariff Mr Trump imposed on them.

The Wall Street Journal reported on Wednesday that Mr Bessent was prioritising the UK, Australia, South Korea, India and Japan as among his top targets for new trade deals, and had been in touch with officials from those nations.

Australian Trade Minister Don Farrell and Mr Bessent’s counterpart, Jim Chalmers, declined to comment on whether they had been in contact with the US.

The Trump administration has particular grievances around Australia’s Goods and Services Tax as well as the Value-Added taxes on US imports from the EU and Canada.

But those grievances have been rejected by Australian trade negotiators because domestic businesses have to pay GST too, leaving a level playing field.

Australian importers are also more likely to pay the GST on America imports as they can claim a tax credit.

Australia’s Board of Taxation in 2021 conducted a review of the so-called Amazon tax that imposes GST on low-value imports, finding that it raised $400m.

That revenue was far in excess of the government’s initial estimate of $100m for the same period.

In Mr Trump’s executive order on tariffs early this month, the administration claimed US companies were paying more than $US200bn ($315.3bn) per year in VAT to foreign governments while foreign companies did not pay tax to the US.

This is again disputed by tax experts given US states have their own individual sales taxes.

K&L Gates’s Matthew Cridland said a solution to the angst around GST could be the government introducing a GST exemption for businesses.

When goods are sold to an Australian GST-registered business they could quote their ABN and there would be no GST on US imports. The tax would, however, still be in place for US imports purchased by a retail customer.

“This shouldn’t have a revenue impact as those same GST-registered businesses presently claim a credit for the GST on their importations,” Mr Cridland said.