TRADE: EU Gets Green Light on Sanctions Against US

By Gustavo Capdevila Reprint | | Print |

Gustavo Capdevila

GENEVA, Aug 30 2002 (IPS) - The European Union may charge the United States up to 4.043 billion dollars in additional tariffs in retaliation for the undue tax breaks the latter gives its exporters, according to the biggest trade sanction approved by the World Trade Organisation (WTO) since its creation in 1995.

The Dispute Settlement Body (DSB), the WTO’s tribunal, reckons the four-billion-dollar sum is a reasonable estimate of the true value of the subsidies received by U.S.-based companies that exported to Europe through subsidiaries located in tax havens.

This regimen, a tax exemption scheme known as “Foreign Trade Corporations”, had already received the DSB’s condemnation last year.

By setting up Foreign Trade Corporations, a mostly artificial foreign subsidiary, companies have been able to exempt 15 to 30 percent of their export income from U.S. taxes.

The tax breaks granted in the United States to certain exporters, which include Boeing, General Electric and Microsoft, violate the rules of the multilateral trade system, according to the precedence the DSB has set in a series of rulings over the last two years.

The DSB decisions also stated that the reforms the United States introduced to the system of Foreign Sales Corporations were insufficient to bring it in line with international trade rules.

The EU charged that these subsidies had continued and petitioned the DSB for authorisation to impose tariffs on certain goods imported from the United States in retaliation, up to a total of just over four billion dollars.

The United States responded that the magnitude of the EU- requested sanction was disproportionate to the impacts the tax- exemption regime in question have had on the European bloc’s trade.

Instead, the United States suggested that an appropriate sum would be around 1.1 billion dollars.

But the WTO tribunal opted for the figure put forth by the EU, which is the biggest trade sanction ever authorised in the seven years of the institution’s existence.

The ruling states: “imposition of a 100-percent ad valorem charge on imports of certain goods from the United States in a maximum amount of 4.043 million dollars per year would constitute appropriate countermeasures.”

The largest sanction before Friday’s ruling came in response to a Canadian petition against Brazil in a dispute about subsidies to the latter’s aeronautics industry. The WTO gave Canada the right to retaliate through slapping tariffs on Brazilian imports for a total of 220 million dollars.

In the case of international banana trade, the WTO declared the EU’s import regimen for the fruit illegal and said that Ecuador — the world’s leading banana exporter — could retaliate for 201.6 million dollars.

In the same case, the United States, home to the banana industries big transnational corporations, won the right to impose tariffs on European imports totalling 191.3 million dollars.

The EU also lost a dispute, filed by the United States and Canada in response to the European opposition to imports of beef from cattle treated with hormones. The WTO authorised the United States to impose 116.8 million dollars in tariffs and Canada to charge 7.2 million dollars extra in taxes on imports from the EU.

WTO director-general Mike Moore, who hands over the helm Sunday to Thai economist Supachai Panitchpakdi, urged Washington and Brussels to resolve the dispute “in an amicable and constructive fashion.”

The EU and the United States “are among the most important members of this organisation,” he said, adding that “both hold a special responsibility to ensure the continued health and soundness of the WTO and global trading system.”

The reactions of Washington and Brussels to Friday’s decision by the DSB were measured, although the two international trading powers are already suffering tense relations due to what has been dubbed “the steel wars”.

That conflict erupted earlier this year when the United States hiked its tariffs on imports of steel and related products.

U.S. Trade Representative Robert Zoellick said of the ruling Friday, “I am disappointed that the arbitrator did not accept the lower figure put forward by the United States.”

EU Trade Commissioner Pascal Lamy, meanwhile, commented that “the WTO has given us an amount of potential counter-measures which will create a major incentive for the United States to eliminate this huge, illegal export subsidy.”

Zoellick recognised that possibility, saying the DSB ruling “will ultimately be rendered moot by U.S. compliance with the WTO’s recommendations and rulings in this dispute.”

The next move is up to the EU, which must seek the approval of the DSB, made up of representatives of the WTO’s 144 member nations, for its list of products imported from the United States to be targeted for tariffs.