Brussels/Washington, 14/01/2002 (Agence Europe) - In Geneva on Monday, the United States administration's attitude to its exporters was once again condemned as illegal. The ruling in mid-afternoon by the World Trade Organisation's appeals tribunal that the new US legislation (challenged by the EU) is indeed illegal since it amounts to illegal export subsidies, also covers the Foreign Sales Corporations scheme (FSC) that it was designed to replace. The EU immediately welcomed the final condemnation of a tax break scheme that has been in existence (in different forms) for decades now. It opens the way for the EU to impose trade sanctions on a record high of more than $4 billion worth of imports from the US every year. EU politicians are openly hoping that the arbitration panel's report will finally put an end to this highly explosive trade issue when the WTO approves it on 28 January, but this cannot be taken as read (see EUROPE of 12 January, p.7).
European Trade Commissioner, Pascal Lamy, said that the EU now had a final legal ruling on the FSC case, adding that he was naturally delighted to receive confirmation of what the EU had always believed - the illegality of the US system (the said verdict had already been issued in August 2001 but was then appealed by the US). The EU Trade Commissioner stressed that the EU had set store by setting the dispute in a perfectly reasonable manner and it was now up to the US to abide by the WTO conclusions in order to settle the matter once and for all. As for how they intended to settle it, Mr Lamy said the EU was impatiently awaiting US proposals in the near future.
A European diplomat in Geneva was quoted by Reuters as saying that the EU had won out on all points. Back in Brussels, in a press release issued on behalf of the European Union, the European Commission said its aim was to settle the dispute and the appeal body's ruling was final, which clearly put the ball back in the US court. Both the arbitration panel and the WTO appeals tribunal had clearly ruled that the US had to put an end to these practices which are incompatible with multilateral trade rules, stressed a Commission spokesperson, adding that the US now had to put its house in order in terms of its international commitments. The spokesperson stressed that the European Commission was prepared to enter wide-ranging discussions over how the US intended to implement the ruling.
On the American side, it is acknowledged that the appellate body has confirmed the conclusions of the arbitration panel, namely that the Act of exclusion of extraterritorial income and replacement of FSC in the year 2000 (ETI) is incompatible with the obligations of the United States in the context of the WTO. "We are disappointed by the result", said Trade Representative Robert Zoellick, promising that these obligations would be respected. He said it was in the interest of the United States, and went on to add that they intended to continue seeking to cooperate with the Union in order to manage and resolve the dispute. The matter is "particularly sensitive", he said, in so far as, fundamentally, it raises questions of a level playing field in tax policy. It is likely that Euro-American talks will start up quite soon. USTR General Adviser Peter Davidson, who is close to Robert Zoellick, is to arrive in Brussels on Tuesday and, two days later, Pascal Lamy is expected in Washington for long-awaited discussions with his American counterpart. The determination to avoid the worse seems real (Ed.: even though there will be considerable temptation to brandish the threat of sanctions against the American threat of overtaxing imports of foreign steel, which could be implemented on 6 March). The undertaking, however, looks as though it will be very complex. On one hand, there is the Congress that could seriously refuse to reword the text that it had already been reticent to revise, and, on the other, the Administration, that could launch a new approach in Geneva. A systemic approach could be sought by Washington, as Mr Zoellick appears to point out in his statement, aiming at specifying, in the multilateral Agreement on subsidies and countervailing measures, the type of tax measures that are like the prohibited subsidies. And, as the United States is convinced that the system is not the only one to have blame pointed at it in Geneva, it cannot be ruled out that the requests of the panel against the practices of certain Member States (mainly Fance), which are pending "for now", find their way to Geneva. For the time being, preference is obviously being given to discussion rather than confrontation, the aim being to come out of the rut to avoid an unprecedented trade war whose impact would be felt not only on American but also on trans-Atlantic and international trade, during this time of slowdown in economic growth, and, while, in Geneva, preparations are underway to begin multilateral negotiations on the Doha Agenda.