WTO Sets Up Panels To Resolve Foreign Sales Corporation Spat

Jason Gorringe, Tax-news.com, London

30 November 2000

Following a meeting of its dispute settlement forum this week, the WTO (World Trade Organisation) has set up an arbitration panel to consider the EU's claim for permission to impose $4bn worth of trade sanctions on the US in the long-running FSC (Foreign Sales Corporation) imbroglio. However the panel will be suspended pending a decision from the WTO compliance panel which will consider whether the new version of the disputed legislation which was rushed through Congress last week is legal under WTO trading rules or not.

This latter compliance panel has yet to be set up, and its pronouncement when it comes is fairly certain to be appealed, either by the EU or the US depending on who wins. Therefore the arbitration panel, which won't sit until the compliance ruling is settled one way or the other, is unlikely to meet before the summer of 2001. The EU made its claim for damages as a precautionary move on the last permitted day, and has not done more than indicate the broad tariff headings under which it would impose sanctions.

If the US side hoped that its new legislation would placate the Europeans, it was disappointed last week when Pascal Lamy, EU Trade Commissioner, said that the new version of the disputed law was even worse than the previous attempt.

This correspondent, as weary of writing about the endless FSC saga as you probably are weary of reading about it, can't understand why these two superpowers are squabbling like two fractious children. All countries subsidise exports in one way or another. In the EU, exports are exempt from VAT, which is worth between 12% and 28% depending on the country, while the FSC tax rebate is worth about 5% (15% of income tax of 30%). OK, VAT is not exactly 'saved' in the same way, but it's still an economic advantage to the exporter in competitive terms, whereas a US exporter will have stumped up import duties or sales taxes at various stages of the production process which the EU exporter probably hasn't faced. Please can some economically literate reader explain to this ignorant hack what is going on? If we receive a good answer, we'll publish it!

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