U.S. Hopes EU Delays Sanctions In FSC Dispute

After a WTO ruling that Washington failed to comply with a decision in 2001 on corporate tax breaks 2006, the U. S. urged the EU Feb.13 to delay imposition of economic sanctions. "In the past, we have urged the EC (European Commission) to refrain from re-imposing sanctions, and we will continue those efforts," said Neena Moorjani, a spokesman for the office of the U.S. Trade Representative (USTR).

The case stems from a U.S. law that allowed U.S. multinationals to create so-called Foreign Sales Corporations (FSCs) to get certain export tax breaks. The U.S. repealed this after the World Trade Organization ruled the law in violation of global trading rules.

A WTO panel upheld an earlier finding, however, that changes to U.S. legislation in 2004 had failed properly to repeal the FSC system.

Moorjani said new sanctions "will not serve to foster harmonious transatlantic relations." She noted that nearly all the tax breaks would expire at the end of this year and that a move by the EU could give the impression that Brussels is retaliating for a U.S. complaint of EU subsidies for aviation manufacturer Airbus.

U.S. Senator Chuck Grassley said the EU appeared to be acting in retaliation. "I've said many times how disappointed I am by the European Commission's insistence on perpetuating this dispute," he said. "The Europeans seemed to have appreciated and accepted our compliance efforts ... until we raised the issue of Airbus subsidies in the WTO. Their blatant linkage of WTO disputes is a dangerous precedent."

EU Trade Commissioner Peter Mandelson said the EU would impose trade sanctions in the form of raised customs duties if Washington failed to act before the deadline. "The responsibility now lies squarely with the U.S.," he said in a statement.

In October 2004, President George W. Bush signed legislation that ended the FSC system of export tax breaks for U.S. corporations operating in offshore tax havens. But the EU, which charged that the original tax breaks constituted illegal subsidies for U.S. business, filed another WTO complaint. It said that Washington's new legislation appeared to allow some U.S. exporters to benefit from tax breaks in 2005 and 2006 and for an indefinite period on certain binding contracts.

The reference in the law to binding contracts concerned long-term sales options signed by companies such as Boeing, General Electric, Motorola and Microsoft.

After Brussels won the first round of the trade tussle, in May 2003, the WTO granted the EU the right to impose up to four billion dollars (3.4 billion euros) in punitive duties to U.S. imports. The EU started levying them in March 2004, but put them on ice in January 2005 pending the WTO compliance panel ruling.

Copyright Agence France-Presse, 2006

Hide comments


  • Allowed HTML tags: <em> <strong> <blockquote> <br> <p>

Plain text

  • No HTML tags allowed.
  • Web page addresses and e-mail addresses turn into links automatically.
  • Lines and paragraphs break automatically.