Re: EU vs US and the WTO

From Heather <>
Date Thu, 7 Sep 2000 18:29:12 -0700

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cruised around (links to WTO info
sites) on my site and (eventually) found this
EU, U.S. Slide Toward Conflict
(Published: 05-Sep-00)

BRUSSELS (Reuters) - The European Union and the United States moved closer
to an explosive trade row on Friday when the EU said U.S. proposals to
overhaul a multi-billion- dollar tax break scheme for exporters broke global
trade rules.
The EU's rejection of proposals going through the U.S. Congress raises the
prospect Brussels could seek World Trade Organization (WTO) permission later
this year to impose sanctions on U.S. exports that could run to billions of

EU Trade Commissioner Pascal Lamy told Deputy U.S. Treasury Secretary Stuart
Eizenstat in a letter on Thursday the proposed changes to the Foreign Sales
Corporation (FSC) scheme ``fail to render it compatible with international
trade rules.''

The WTO ruled earlier this year, on a case filed by the Europeans, that the
FSC scheme was an illegal export subsidy. It gave the United States until
October 1 to change it.

The existing scheme covers hundreds of billions of dollars of exports and
provides U.S. companies, including many leading multinationals such as
Boeing and Microsoft, with up to $4 billion a year in tax breaks.

The EU said Lamy had given Eizenstat guidelines on how to solve the dispute
and stressed it wanted to keep the door open for a ``mutually agreed
solution compatible with the WTO.''

If the United States presses ahead with the current proposals, EU sources
said the EU could return to the WTO after October 1 to seek a ruling against
the reformed scheme.

If the WTO agreed with Brussels, the EU could then seek permission to impose
trade sanctions on U.S. goods potentially totaling billions of dollars.

That could spark a damaging confrontation between the world's leading trade
powers around the time that Americans go to the polls to elect a new
president in November.


The sanctions that could potentially be imposed dwarf the $308 million in
sanctions on EU goods imposed by Washington last year after winning WTO
cases against the EU's banana import policies and its ban on the import of
hormone-treated beef.

Eizenstat said in July that the U.S. reform plan, which would exempt some
corporate income generated abroad from U.S. taxation, was consistent with
WTO rules. He urged the EU then to accept Washington's approach, warning
that a ``major trade war'' could break out if the stalemate persisted.

The EU said the main difference between the new U.S. proposals and the
scheme slammed by the WTO in February was the removal of a requirement to
create a ``paper'' company in a tax haven in order to benefit from the tax

``However, the proposed FSC regime continues to be export contingent, in
clear violation of WTO rules,'' the EU's executive Commission said in a

``The only way for a U.S.-based manufacturer to benefit from the new regime
is by exporting. In addition, the new proposals maintain the obligation to
use more than 50 percent of U.S. inputs in order to benefit from the tax
break,'' it added.

The U.S. proposal also included some ``transitional'' provisions that
extended the application of the FSC well beyond the WTO's October 1 deadline
for it to be withdrawn, the Commission said, adding that this was ``a clear
violation of the U.S. international obligations.''

``As long as the U.S. continues to provide a preferential treatment to their
exports, any FSC replacement system would remain incompatible with the
WTO,'' it added.

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