November 17, 2000
The European Union on Friday asked the World Trade Organization (WTO) for authorization to impose up to $4.04 billion of sanctions on the United States in a disagreement over a U.S. tax break scheme for businesses. The EU's request for sanctions is the highest ever made to the WTO, the global regulator for trade disputes, EU officials said. However, it would be the middle of next year, if at all, before the EU could actually impose sanctions on U.S. goods.
The WTO ruled in February that the U.S. Foreign Sales Corporation (FSC) programme, which granted around $4 billion a year in tax breaks to major U.S. exporters such as aircraft maker Boeing Co (BA.N) and software giant Microsoft Corp (MSFT.O), was an illegal export subsidy. U.S. President Bill Clinton this week signed legislation repealing the FSC programme, which doled out tax breaks to exporters through offshore subsidiaries, and replacing it with a new tax relief system for U.S. companies. Washington says the new law, which excludes some types of foreign source income from U.S. taxes, brings it into line with the WTO ruling, but the EU contests this. ``It's as bad as its predecessor,'' Anthony Gooch, spokesman for European Trade Commissioner Pascal Lamy, told reporters in Brussels, adding that the EU would ask the WTO to rule on the amended U.S. law. The EU said it had to file its sanctions authorisation request by Friday or it could lose the right to seek sanctions.
WTO ARBITRATION
Under a September agreement between the EU and the United States to lower the heat in the dispute, the United States will, by November 30, ask for WTO arbitration on the EU's sanctions request. ``This request is designed to protect our rights in the WTO, fully in line with the procedural agreement reached with the U.S. in September,'' Lamy said in a statement. Both sides will then ask the arbitrators to suspend work until a WTO disputes panel has decided whether or not the new U.S. law complies with global trade rules.
Only if the WTO panel finds in the EU's favour would the arbitrators resume their work and decide on a value of U.S. exports on which the EU could legally impose sanctions, probably in the form of punitive duties. That would take until the middle of next year, giving both sides more time to seek solutions to the potentially explosive dispute, one of a series of trade issues over which the world's biggest trade powers have locked horns. The United States imposed punitive duties on $308 million of European goods last year after winning WTO cases against the EU's banana import rules and its ban on hormone-treated beef.
Requests for sanctions are often sharply scaled back by WTO arbitrators. In the banana case, the United States initially requested $520 million of sanctions but the figure was cut to $191 million by WTO arbitrators. Both Washington and Brussels are acutely aware of the huge implications of the tax case and are managing it gingerly. U.S. officials have warned it could spark all-out trade war if the EU actually imposed billions of dollars of sanctions on U.S. goods.
More Information on WTO
FAIR USE NOTICE: This page contains copyrighted material the use of which has not been specifically authorized by the copyright owner. Global Policy Forum distributes this material without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes. We believe this constitutes a fair use of any such copyrighted material as provided for in 17 U.S.C íŸ 107. If you wish to use copyrighted material from this site for purposes of your own that go beyond fair use, you must obtain permission from the copyright owner.
