Nations might take on U.S. after tax ruling

That provision is not generally recognized abroad and although the Supreme Court decision is narrow, international law experts warned it may now be applied by foreign municipalities with the potential for even more punitive measures.

For example, they said, the cash-strapped localities of Baghdad and Kabul could now argue that Washington should pay taxes on the U.S. embassies there, both of which contain housing quarters for hundreds of staff. If the United States objects, they could decide to sue given the Supreme Court ruling.

"The cornerstone of diplomatic relations is reciprocity; without reciprocity the whole system fails," said lawyer Andrew Odell, a former general counsel for New York City's U.N. and Consular Corps Commission. "Any affected country will in some fashion seek retribution. They will do something to mete out reciprocity, it's just the nature of bilateral relations."

In addition to hauling the United States government into court, foreign countries could levy special taxes on U.S.-owned properties, set up new real estate rules or even go beyond the New York case to apply other restrictions on diplomatic conduct, he said.

The United States is currently embroiled in a dispute with the City of London over whether U.S. diplomats must pay a "congestion tax" for using vehicles in the British capital.

The Supreme Court ruling may make it more likely that British authorities will abandon traditional diplomatic negotiations and resort to a lawsuit to settle the matter.

"Will this override Iraq, North Korea or the Middle East as a foreign policy issue? No. But it will create serious problems," Odell said.

A spokesman for the Indian diplomatic mission in New York, Vikram Doraiswami, said that India has not yet decided how it will respond to the ruling and that his government is likely to wait to see how the New York District Court rules in the case before considering reciprocal action.

The Mongolian mission did not return calls seeking comment.

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