In a letter sent to President Bush and cabinet officials, executives from 74 of the largest companies in the US have asked the administration to appeal against the World Trade Organisation's ruling on Foreign Sales Corporations (FSC).
The long-running FSC saga may be nearing its end, and it could be nasty: the WTO's declaration that revised FSC rules hurriedly put in place before a deadline last summer are still an 'illegal trade subsidy' was leaked last month and will be announced officially on Monday. The ruling would allow the EU to apply sanctions worth $4bn to $6bn against the US, although the exact amount and type of sanctions would be decided by a WTO arbitration panel. That's if the US doesn't appeal. An appeal would extend the process by another nine months or so, giving time for the administration to negotiate a settlement with the Europeans.
Both Robert Zoellick and Pascal Lamy, the US and EU chief trade representatives, have insisted that neither wants confrontation, yet there have been no obvious moves towards reconciliation. The US position is that the FSC tax break (amounting to about 15% of corporate profits tax) is needed to offset the EU's exemption of exports from VAT, averaging 17%.
The top executives who signed the letter included Philip Condit of Boeing, Allen Andreas of Archer Daniels Midland, Lee Raymond of Exxon Mobil, G.R. Wagoner, Jr., of General Motors and Michael Eisner of the Walt Disney Co.
"This dispute could be enormously destabilizing," the executives said in the letter dated Tuesday. "A move toward retaliation, or a continuing threat of retaliation, could undermine the US-EU relationship, which is our most important strategic, diplomatic and economic alliance."
"Absent an appeal or a suspension, the specter of massive EU retaliation would draw near and possibly take on a political life of its own," they wrote.
The administration had no immediate reaction to the letter Thursday. An ally in Congress, House Ways and Means Committee Chairman Bill Thomas, has said repeatedly that the United States should not appeal and instead should enact a fundamentally different tax system that would be acceptable to the WTO.
"Dragging out the process through extensive appeals or cosmetic changes to our tax system will not solve the problem," Thomas, R-Calif., said in a recent statement.
With Congress expected to be in session for only a month after returning
from its August recess, a major rewrite of US export tax provisions, which
would be politically contentious, is unlikely before next year.
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