America likes its laws to have a long arm

Click to follow
The Independent Online
The tough action over foreign businesses dealing with Cuba is not the only example of the United States throwing its weight around. Britain, and many other countries, have had a constant battle with US tax and regulatory authorities over their attempts to impose their own rules abroad.

The rows peaked in the 1980s; but the current problems over Helms-Burton indicate that extraterritoriality is returning to the agenda, and perhaps in a more damaging way than ever. The fundamental cause is US unilateralism in its dealings with other states, and that has not changed. But the furore that has resulted from London, Mexico City, Ottawa and Brussels, shows that other nations are less willing to accept United States dominance than they once were.

Ironically, many of the worst problems have been resolved. The most famous recent extra-territorial dispute was the attempt by some US states to impose profits tax on the worldwide earnings of foreign companies. This came to a head with a decision by the US Supreme Court in 1994 backing the state of California's right to levy a so called unitary tax on these earnings, after a long fight with multinational companies headed by Barclays and Colgate Palmolive.

The practical effects were not as expensive as some companies had feared, because California scaled back its demands. and Barclays had only been seeking repayment of a relatively modest $30m (pounds 20m) in past tax, though the total California would have owed was $4bn.

But there is still resentment among British companies that California's right to levy the unitary tax continues in principle. The British government has continued to press for tax reforms in the US to eliminate the problem, and has introduced retaliatory powers which it can use if British-owned companies are damaged in future.

The tax fight has been echoed over the last 16 years by similar pressure from the US Securities and Exchange Commission, which regulates the securities markets, and the Commodity Futures Trading Commission, to be allowed to extend their investigations to foreign countries, including Europe.

This led to constant rows, particularly in investigations of frauds and scandals involving more than one country, but this has now been defused by an international pact to share information.

The US has also been waging an unsuccessful battle to have its laws against money laundering used as the basis for legislation in other countries, most of which believe American methods are wasteful. The US campaign has been strongly resisted by the Bank of England.

But the most damaging disputes over extraterritoriality involved relations with the former Soviet Union in the era of the Cold War. It was in this arena that the nakedly political thrust of the doctrine was clearest. The US, for instance, imposed arms exports controls which hit not just American companies, but also covered re-exports of goods with US components. In theory, this was to prevent the enemies of the West from gaining access to sensitive technologies; but many felt that it was really aimed at ensuring US control of key sectors.

Equally, there was fury when the US intervened to attempt to stop European companies from gaining contracts on a Soviet gas pipeline to Siberia, and again the suspicion was that there was more to this than American national security.

The latest row once again intertwines commerce and high politics, since the explicit US aim is to penalise those who trade with Cuba. There is more to come: similar plans are afoot for those who trade with Iran and Libya. But there is clearly much less willingness on the part of the Europeans, in particular, to accept US unilateralism this time. The Cold War is over; Cuba is not seen by the EU as a terrorist state; and there is growing impatience with Washington's arrogance.

Comments