Brussels, 01/09/2000 (Agence Europe) - The European Commissioner with responsibility for trade policy, Pascal Lamy, has informed the United States administration that, according to the Commission, the proposal for modification of the tax scheme known as "Foreign Sales Corporations", currently being examined by the United States Congress, is not compatible with rules of the World Trade Organisation (WTO). The changes foreseen would not do away with the incompatibilities already condemned by the WTO. In a telephone meeting with the Deputy Secretary of the US Treasury Stuart Eizenstat, Mr Lamy reiterated that the Commission's objective is still to reach agreement with the United States on the system; the door is therefore still open to dialogue. A written communication from the Commission to the US administration sets out guidelines on the possible content of a satisfactory solution. Mr Jouanjean, Head of Unit responsible for this sector, explained that the communication was obviously not sent for the purpose of dictating what the United States should do, but to demonstrate the "constructive" attitude of the Commission, which does not want to limit its action to criticising Washington's proposal, but also intends to contribute to development of a solution satisfactory to both parties.
EUROPE would point out that the US system in question, introduced in 1984 in the wake of Geneva's condemnation of the DISC system, was brought before the WTO by the EU because it includes elements of export aid. A WTO panel gave its backing to the European position last February and the appeals body gave the United States until 1 October next to render the system compatible with international trade rules. The US administration submitted on 2 May a revised preliminary proposal, which the Commission nonetheless found did not eliminate incompatibilities with WTO rules. Congress then decided to submit its own proposal for modifications, which was approved by the Ways and Means Committee on 31 July (in a vote of 34 to 1) and will be put before the entire Congress in the coming days. Mr Jouanjean said the new proposal still has serious shortcomings, from the EU's point of view, in particular the following:
a) tax advantages are still export contingent and the system maintains the requirement that American content of goods correspond to at least 50% of total value. These two provisions are clearly incompatible with WTO rules;
b) the scheme condemned by the WTO would not be done away with on 1 October but would remain in force during a transitional period lasting until 2002 and even beyond.
The time available for finding a solution acceptable to both parties is now very limited, just one month, but the Commission believes it is still possible to meet the deadline. In the event of failure to do so, the Commission would be obliged to observe at the start of October that the United States has failed to comply with its obligations and would then have to take steps to defend the interests of the EU (as the Americans do in similar cases). Mr Jouanjean asserted that it is not advisable at this time to start discussing possible European retaliation measures, but he hinted that, if necessary, the Commission would be prepared to do so, while denying that lists of targeted US goods and services have already been drawn up. According to WTO procedures, the EU would have 30 days to introduce "withdrawals of trade concessions" to the United States.
EUROPE would recall that the economic scope of this case is tremendous. According to calculations in Brussels, US goods worth more than USD 4 billion a year are exported solely because of the existence of subsidies under the FSC scheme. The main beneficiaries are General Electric, Boeing, Motorola and Caterpillar. The Americans assert that the new system being prepared no longer constitutes export aid and that it is in conformity with WTO rules. According to US officials, it is limited to providing American companies with advantages similar to those enjoyed by European companies as a result of the VAT system. The case is extremely complex both legally and fiscally.