Brussels/Geneva, 11/01/2002 (Agence Europe) - The World Trade Organisation (WTO)'s appeal body will be ruling on Monday afternoon on the legality of the tax exemptions for US exporting companies - a longer and revised version of the "Foreign Sales Corporations" system (FSC) that has twice already been ruled illegal by the WTO following challenges from the EU. This latest verdict in a case dating back more than two decades is awaited with a certain amount of trepidation on either side of the Atlantic for good reason - if the new report confirms the findings of the arbitration panel that slammed the US legislation last August, the EU will have carte blanche before long to impose penalties that are more likely to hit the billion dollar mark than the million dollar mark (as was the case for bananas and hormones). Given the explosive nature of this case, however (considering the sheer size of the sums involved and the impact such a huge case could have on EU/US and international relations), it is likely that both sides will make a last ditch attempt to avoid a worst case scenario.
Assuming that the EU arguments hold sway at the WTO, the two sides would have two months or more to find an emergency compromise as from the date when the report of the appeals body is published on 28 January 2002. In other words, they will have until 28 March when another panel will be passing judgement on the actual volume of the illegal export subsidies and hence the scale of the penalties the EU would be able to impose. The EU is banking on penalties in the order of $4.043 billion. Europe would have both a weapon and ammunition to use at any time, should that prove necessary, stress close diplomatic sources. It remains to be seen whether Washington will decide to abandon practices that go back to the Nixon epoch (under the then DISC regime which had been slammed under the GATT agreements and which became the FSC in 1984) and have provided substantial tax relief for such a long period of time. The FSC system grants leading US companies (like Microsoft, Boeing, General Electric and Caterpillar) with a hefty competitive advantage. The avowed aim of the EU is above all to settle the dispute with the priority being placed on compensation rather than penalties. EU sources stress that their aim is for the FSC to be brought in line with WTO legislation.
Either way, nobody intends horsetrading over the FSC scheme and steel (where the ball is in the White House's court, Ed), stressed a European Commission spokesperson on Friday, explaining that the EU would be taking each case on its own merits and that the former (FSC) was a formal dispute that was in the process of being settled by the WTO, but the steel issue was not being ruled on by Geneva. Steel has not yet become a trade dispute, the spokesperson pointed out, stressing that he was not aware of any approach by European steel manufacturers to press the Commission to take the moves mooted in the Wall Street Journal (citing industrial sources in Brussels) of using any sanctions that may be imposed as a way of pressurising the US administration to stop levying hefty duties on EU steel imports. Responding to a question by a journalist, the spokesperson sarcastically commented if such an approach had been made, it was through the press.