Brussels, 02/09/2002 (Agence Europe) - As announced in Europe on 31 August (p.8), the European Union has been authorised by the World Trade Organisation (WTO) to impose unprecedented sanctions on US trade if the United States refuses to scrap its tax subsidy scheme for companies' exports (a scheme known as FSC), exempting extra-territorial income (ETI). The lever the WTO is holding out to encourage the US to respect international trade rules is of the scale of more than $4.043 billion, but a trade war of this enormity against everything with a "Made in US" label is not the EU's preferred option at a time when Washington is showing a desire to scrap illegal export aid. The powerful lever is also being used for the Bush Administration, which is striving to put pressure on elements in Congress likely to want to string out dissent over the planned change of the US fiscal code.
On the European side, preparations for a potential response will continue. The initial "indicative" list of products on which sanctions might be levied was lodged in Geneva in November 2000. It includes various agri-food products (meat, offal, milk, dairy products, sugar, cereal and cereal products, fruit, etc), leather products, wood, paper, glass, cosmetics, fur, press, publishing and graphics, cotton, wool, clothes, toys, aluminium, tools, nuclear reactors, machinery, electrical equipment and air and space navigation. The Council of Ministers will return to this issue, probably in November, at the same time as the US elections, a key date in the process of adapting US legislation to make it comply with the WTO ruling, since otherwise the whole process would have to begin from scratch with a new Congress, explains the European Commission. But that is as far as the pressure of deadlines goes. In the French newspaper Le Monde on Monday, Commissioner Pascal Lamy explained that he did not want to impose a time limit on the US, preferring to discuss the issue since he had the impression that things were progressing well and President Bush announced in May that he would comply with the WTO, and a draft tax reform bill had been lodged at Congress. He said, however, that the bill now had to be adopted and that if things dragged out too long, and if he felt that the other side of the Atlantic was not playing straight, he would recommend to the Council and European Parliament that sanctions be applied. Alongside the approval of Council and the European Parliament, two other conditions are set in the WTO rules (but without any specific dates), namely the EU must request the final authorisation to suspend the concessions granted to the US and publish the final list of products (after consulting Member States and industry).
On the US side, disappointment clearly reigns, but the US Trade Representative Robert Zoellick prefers to focus on his conviction that the teeth will be drawn from the Geneva verdict in the sense that the US will abide by the WTO decisions and recommendations over this case. The decision should not be a surprise but should remind us that in the US tax code there is a fundamental problem which has to be dealt with now, commented Bill Thomas, President of the mixed Congress tax committee that drafted the fiscal reform bill currently under discussion.
The Director General of the WTO, Mike Moore (who is about to be replaced by Supachai Panichpakdi), called on the two trading giants to continue to cooperate and work together to solve this dispute and other disputes in a friendly, constructive manner. The European Union and the United States, he said, are some of the most important members of the WTO and both have special responsibility in maintaining healthy functioning and balance in the WTO and the world trade system.