WTO rules tax breaks for US exporters are illegal
The World Trade Organisation (WTO) appellate body has ruled in favour of a complaint by the European Union (EU) that export subsidies provided by the US for exporting companies under the Foreign Sales Corporations (FSC) Replacement Act are illegal. The EU is now calling on the US to comply with the WTO’s decision as soon as possible. The ruling of the appellate body upheld the findings of a previous WTO Panel and is final. The report of the ruling said that the FSC Replacement Act "constitutes an export subsidy incompatible with WTO rules".
The EU is now free to retaliate and can theoretically pursue trade sanctions up to the $4 billion the tax break is calculated to be worth to US companies. However, the WTO is likely to agree to a much lower figure.
The history of the dispute goes back over 30 years to 1971 with successive US export promotion schemes causing complaints from the EU and other countries such as Australia, Canada, India and Japan. The FSC scheme's predecessor, the Domestic International Sales Corporation (DISC) scheme, was declared an illegal export subsidy by a GATT panel in 1976. This was then replaced with the FSC in 1984. Complaints soon followed, but progress was delayed by the prolonged Uruguay round of GATT negotiations. The EU then took up the matter under the WTO dispute settlement procedure, which eventually led to President Clinton creating the FSC Replacement Act on November 15, 2000. This in turn has now been declared an illegal export subsidy, and the US is under pressure to remove or amend the legislation.
Reacting to the news from Geneva, EU Trade Commissioner Pascal Lamy said "I'm pleased that the WTO has confirmed what we always believed. Now it is up to the US to comply with the WTO's findings to settle this matter once and for all. As to how, we look forward to rapid US proposals".
