US To Appeal WTO Ruling

by Mike Godfrey, Tax-News.com, New York

11 October 2001

The US said yesterday it would appeal against a World Trade Organisation ruling against its Foreign Sales Corporation legislation that allows exporters to claim tax savings worth $6bn a year. The decision had to be made by October 19th, under WTO rules.

This latest step in a long-running saga follows issuance of the ruling in August by the WTO's compliance panel that the FSC Replacement Act, enacted by the US on 15 November 2000 in order to comply with a previous WTO ruling, is a prohibited export subsidy, violates the Agriculture Agreement and discriminates in favour of US goods in breach of WTO rules.

The WTO's disputes panel now has 60 days in which to rule on the appeal, which defers the next act in the drama until after the crucial WTO meeting due to be held in Qatar later this month and will provide extra time for the US and the European Union to try to negotiate an end to the trade dispute. The EU has claimed the right to apply sanctions worth up to $4bn if the US doesn't comply with the WTO's final ruling, although this amount would be subject to scrutiny by the organisation's arbitration panel.

The US decision to appeal will please US corporations: in August executives from 74 of the largest companies in the US wrote to President Bush asking the administration to appeal. 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, "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."

The European Union espressed its disappointment yesterday at the US decision. "We are disappointed that the U.S. has decided to appeal the WTO panel report ... which we judged to be pretty clear and well reasoned," European Commission trade spokesman Anthony Gooch said, "This will only serve to further delay the compliance process. However, the decision to appeal or not was for the US to make and we fully respect it," Gooch said.

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