Trading blows

["Michael Keaney" <Michael.Keaney@xxxxxx>]

WTO backs Europe in row over tax breaks

Brussels tells US it must scrap scheme or face £2.7bn sanctions

Andrew Osborn in Brussels and Charlotte Denny
Tuesday August 21, 2001
The Guardian

The World Trade Organisation yesterday backed the European Union against
the US in a multi-billion dollar trade dispute over tax
breaks, paving the way for Brussels to impose sanctions on Washington
worth up to $4bn (£2.7bn).

In a widely expected decision, the WTO ruled that an American scheme
offering tax breaks to US multinationals, such as Boeing
and Microsoft, contravenes global trade rules and discriminates unfairly
in favour of American firms.

Unless Washington successfully appeals against the ruling or gives the
EU a cast-iron commitment to scrap the scheme,
Brussels will be legally justified in imposing the sanctions.

Last night, Robert Zoellick, the US trade representative said Washington
was consulting "closely" with the EU over how to
resolve the dispute. "Our goal is to promote US economic interests while
at the same time fulfilling our WTO obligations," he
said.

Although he made no mention yesterday of appealing against the decision,
trade analysts believe Washington will begin a formal
appeal in order to play for time. The final amount of sanctions which
the EU will be entitled to levy on the US will be determined
by a WTO-appointed arbitrator but Brussels has already said it believes
the accumulated loss to its own exporters is in the
region of $4bn-$5bn per year and that is what it will be asking for.

The WTO ruling sets the scene for another transatlantic trade war since
the US has shown itself reluctant to scrap the scheme in
the past, known as the Foreign Sales Corporations Act. It also increases
the likelihood that a new attempt to relaunch global
trade talks could be frustrated before it has even got off the ground.

Last year the WTO ruled that the FSC was an illegal export subsidy only
to see the Americans put forward a revised version
which they claimed would be compatible with world trade rules. It is
that amended legislation which has been deemed in breach
of the rules.

The report reveals that the WTO rejected Washington's amendments to the
scheme. The three members of the WTO's
adjudication body - from New Zealand, Switzerland and South Korea - said
the new programme provided illegal export subsidies,
violated the trade body's agriculture agreement, and discriminated in
favour of US goods in breach of WTO rules.

Washington has 60 days to appeal, although the EU has said it will
"defend itself strongly" if the decision is challenged.

A decision by Brussels to levy such extreme sanctions has already been
dubbed "the nuclear option" by Mr Zoellick and would
be likely to leave transatlantic ties, already strained over disputes
about bananas and hormones in beef, in tatters. The case is
notable since it is the first big victory for the EU at the WTO after a
succession of rulings for the US.

Full article at:
http://www.guardian.co.uk/business/story/0,3604,540001,00.html

Michael Keaney
Mercuria Business School
Martinlaaksontie 36
01620 Vantaa
Finland

michael.keaney@xxxxxx