The EU is planning to fight a tax change proposed by the US
EU lawyers, as well as those from US trading partners, are preparing to challenge the proposal which would tax US companies' domestic sales and imports while exempting their exports.
The challenge would mark the biggest case in the World Trade Organisation's (WTO) history, with a potential £309billion annual cost.
The plan has been put forward by Texas Republican Kevin Brady and is supported by House Speaker Paul Ryan, with Donald Trump being pushed to support it.
We expect other countries to challenge this provision. Because they have a pretty sweet deal right now
Advisers have praised it as a way of addressing what they see as the WTO's unfair treatment of income-based tax systems such as the US.
US retailers, oil refiners and other industries which rely on imported goods or materials have put up stiff resistance to the plans.
Tax experts have said if the plan was adopted it would be the biggest shake-up of the global corporate tax system for almost 100 years.
House Speaker Paul Ryan has proposed a tax change which will be the first of its kind in the world
WTO rules for border adjustments state they are permitted for consumption-based taxes but not income taxes, making the US proposal the first of its kind globally.
Jyrki Katainen, the European Commission vice-president, said the EU would not be afraid of taking action against the US over the border tax proposal or the implementation of any other arbitrary trade barriers.
He added Europe ideally wanted to avoid a trade war with the US because it would be "disastrous" for the global economy.
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Mr Katainen, told the Financial Times: "If somebody is behaving against our interests or against international rules in trade then we have our own mechanisms to react.
"We have all the legal arrangements within the 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."
Head of the WTO Roberto Azevêdo will have to deal with the plans which could result in fining the US
Mr Brady has responded to a potential EU legal challenge against the US with open arms.
He said: "We expect other countries to challenge this provision.
"Because they have a pretty sweet deal right now."
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He said him and Mr Ryan believe the US is at a disadvantage because of its current corporate income tax which means it cannot make border adjustments like other countries can.
He added: "As a result, today made-in American products are at a tax disadvantage her in American and abroad as well."
Chad Bown, an expert on WTO trade disputes at the Peterson Institute for International Economics, said if the US lost a challenge against it, the country would be forced to pay £309bn.
He said: "All US trading partners could retaliate to the tune of $385bn, according to prior WTO calculations.
"The biggest WTO dispute on record is $4bn (£3.2bn). This case is potentially 100 times bigger."
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Mr Brady said he wanted to make sure the reforms abided by global trading rules.
He said: "This will be written in a way that's WTO-consistent and compliant.
"And we will prevail in any challenge that they bring."
However, doubts have been raised over whether that is possible with the proposals put forward.
A senior trade official in Geneva, said: "Our first assessment is that it is definitely not going to be compatible with the WTO."
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