Wednesday, February 10, 2010

Discrimination Against Foreign Insurers in the 2011 Budget?

As if the Obama administration's run-of-the-mill protectionism weren't enough to worry (and complain) about, the Heartland Institute's Eli Lehrer finds a hidden nugget in the White House's 2011 Budget:
Most U.S. reinsurance comes from offshore companies. Because these companies often insure against events (like Tokyo earthquakes and U.K. floods) that probably won’t happen simultaneously with disasters in the United States, the process reduces prices by letting companies profit off of one type of coverage when they lose it on another. Right now, these offshore companies pay federal excise taxes roughly equivalent to U.S. corporate income taxes. The administration’s budget would give U.S.-based companies an advantage by imposing a burdensome tax on many offshore companies’ affiliated reinsurance transactions while allowing deductions for the same sort of transactions by U.S.-based companies. This has trading partners worried: When the Senate considered a similar proposal last year, the European commission strongly hinted that a trade war could result.
Read the whole thing here.  I don't know about a "trade war," but a quick glance at the United States' reinsurance services commitments through the WTO appears to show that the type of discrimination against foreign reinsurance that's contemplated in the 2011 budget could violate the United States' services obligations.  Thus, at the very least, a WTO dispute against the US could be on the horizon if the budget provision ever became law.  (Obvious Disclaimer: that's 3 minutes of quick review, not a legal opinion.)

Now, there's no immediate chance that this proposal will become law, but it certainly provides a great example of the White House's inattention to international trade rules and the United States' obligations under those rules.  (Shocking, I know.)

Definitely makes you wonder what other bits of trouble are buried in that budget, huh?

UPDATE: Cato's Sallie James adds some good perspective: "[T]his wouldn't be the first time that the US flaunted its obligations under GATS. US - Gambling was a shocking breach of rules that still is not fully resolved.... Antigua, I believe, is big in reinsurance, so this would be the second time US arrogance hit them hard."  Me: Those poor Antiguans - they give us gambling, reinsurance and sandy beaches, and this is how we show our gratitude?   How embarrassing.

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