Posted on 12/08/2003 6:35:46 AM PST by MrFreedom
Brussels set for clash with US on tax breaks
Only days after Brussels and Washington narrowly averted a costly transatlantic trade war, European Union foreign ministers are on Monday set to agree a law that will threaten the US with sanctions in another long-running dispute.
Brussels will give the US Congress until March next year to repeal special tax breaks for US exporters - or face punitive tariffs worth hundreds of millions of dollars on US goods shipped to Europe.
The tax breaks, enshrined in the so-called Foreign Sales Corporations (FSC) provision, benefit large US exporters such as Microsoft, Boeing and Caterpillar.
The law, which would introduce sanctions from March next year, is likely to increase pressure on Washington lawmakers to comply with a World Trade Organisation decision that ruled the tax breaks illegal last year.
At the time, the WTO also granted Brussels the right to levy punitive tariffs on US goods worth $4bn (3.3bn, £2.3bn) - the biggest sanctions package ever awarded - though the EU has said its sanctions will only amount to 290m ($352m, £204m) in the first year.
But some trade experts fear that even the threat of sanctions might not prevent the transatlantic war of words from turning into an economic conflict. Although the EU has twice pushed back the deadline for the introduction of sanctions, the Senate and the House of Representatives have left themselves little time to pass a new bill, a process that has already proved controversial and complex.
In addition, the bills aimed at repealing FSC that are currently making their way through the two chambers differ sharply, raising the prospect of a drawn-out conciliation procedure. Both versions, however, include generous transition periods for phasing out the tax breaks, an outcome the EU has said it will not accept.
While there are some voices among EU member states that advocate a more cautious approach, the European Commission's tough line was vindicated last week in another case. Faced with the threat of sanctions from the EU and others, the US decided to repeal steel tariffs that had been ruled illegal by the WTO earlier this year.
Trade officials and experts agree that the conflict over FSC is more complex and potentially more dangerous. They point out that taxation is a particularly sensitive issue, and that the beneficiaries of FSC are more numerous and spread more evenly across the US, a notable difference from the steel conflict.
And some observers argue that even the lifting of the FSC provision could have dangerous consequences. Nick Clegg, a Liberal Democrat member of the European parliament and trade specialist, said: "To let the US eat humble pie twice in just a few months is not the best way of fostering its love for the multilateral trade system
Reprinted from NewsMax.com
Time to Bail on the WTO
Geoff MetcalfReality Check
Tuesday, Sept. 3, 2002
Please forgive me, but ... I told you so!
Ten years ago I argued with Ambassador Myles Frechette, Warren Christopher's special assistant for NAFTA/GATT that the dispute resolution provisions of both NAFTA and GATT could and would bite the U.S. in the butt.
Now the New York Times reports, "The World Trade Organization, the international arbiter in global trade disputes, ruled today that the European Union can impose $4 billion in penalties on the United States because an American tax break that promotes exports is illegal." It is not the first time the WTO has stuck it to the U.S., just the biggest.
The monster penalty will zap companies like "Boeing, General Electric and Caterpillar Inc. that have been heavy users of the tax break."
Back in 1992 I spent way too much time on my radio talk shows and in my columns harping on the negative inevitabilities of NAFTA and the WTO. I was wrong to fixate on the issue, but I was not wrong in my arguments.
Dr. Pat Choate was a wealth of information and support for my anti-WTO rants.
Pat sent me seven key points about the WTO that I have kept posted to my Web page: http://www.geoffmetcalf.com/wto_20020427.html
The analysis was, and is, significant because it includes documentation from the General Agreement on Tariffs and Trade that most of those who voted for it never read.
However, notwithstanding the protestations to the contrary a decade ago, trade experts now say the EU will now have what amounts to a sword of Damocles to hold over the United States on a variety of hotly contested issues "ranging from steel tariffs to farm subsidies."
International trade analyst Gary Hufbauer said, "This gives the European Union a $4 billion club against us. It can keep the club in the closet, but it will be a presence that surrounds all the negotiations at the World Trade Organization."
The Bush administration played down the significance of the WTO decision, predicting that the offending American law will soon be rewritten. Hell-o?!?!
Oh, so when the WTO has us by the short hairs we fold? The threat to national sovereignty that Ross Perot, Pat Buchanan, Pat Choate, Ralph Nader and Geoff Metcalf were ranting about in 1992 is real? You damnbetcha! It was in 1992. It is in 2002. And it will remain a clear and present danger unless or until we extricate ourselves from this one world, globalist, kumbaya fiction.
The European Commission's chief trade negotiator, Pascal Lamy, made it clear that he would give the United States time to rewrite its laws before imposing any penalties. In other words, if we change OUR laws to comply with what the WTO wants, it'll back off on its $4 billion blackmail.
But he rattled the economic saber when he said the verdict "makes the cost of noncompliance with the WTO crystal clear."
Congress already passed one new version of the tax break in 2000, but Euro Nazis ruled in February that the law wasn't good enough because it still gave a selective tax break to exporters.
European officials are diffident to press their case partly because they want to avoid a trade war with the United States but also because new tariffs would raise prices for European consumers. In other words, there ARE consequences to action that cut both ways.
The bigger issue is whether European leaders will try to use their new authority to grind us over other contentious issues.
The big imported steel tariffs we imposed still have European honchos p.o.-ed big time. Despite the administration do-over that diluted those tariffs by making hundreds of exceptions, EU suits are still threatening retaliatory tariffs on American products.
Christoph Feddersen, a trade lawyer in Brussels, capsulized the complexities when he said: "The WTO is not just about the law. It is also about politics and diplomacy." And with 83 percent of the WTO "anti-American," guess who wins any debate?
Visit Geoff Metcalf's Web site at http://www.geoffmetcalf.com. He may be contacted at geoff@geoffmetcalf.com.
Even the RATS who are in love with International organizations are beginning to note the uncomfortable realities:
26 September 2002 Senator Baucus Assails Record of WTO Dispute Panel RulingsDemocrat sees bias against U.S., overreaching by panels A leading Senate Democrat on trade issues has criticized the World Trade Organization (WTO) dispute-settlement process for exercising bias against the United States and for acting beyond its authority. In a September 26 speech to the Global Business Dialogue in Washington, Senator Max Baucus, chairman of the Finance Committee, said that, time after time in challenges to U.S. trade laws, WTO dispute-settlement panels have disregarded the standard of review requiring them to defer when national authorities make reasonable interpretations of fact and WTO rules. He cited WTO rulings overturning decisions made under Section 201 of U.S. trade law, which authorizes imposition of temporary tariffs for industries as a safeguard against a surge of fairly traded imports. He cited the ruling against the Byrd amendment, which diverts antidumping duties from the general treasury to the industries that petitioned for antidumping investigations. He cited the ruling against the way that the U.S. Department of Commerce calculated prices for a subsidy investigation on imports of softwood lumber from Canada. And he cited the ruling against the Foreign Sales Corporation (FSC) and successor law giving tax breaks for certain exports by multinational companies. "WTO dispute-settlement panels are legislating," Baucus said. "They are ignoring the deferential standard of review. They are exceeding their powers to add to the obligations and diminish the rights of the United States." He predicted that, even if the United States loses the Byrd amendment case on appeal, Congress would refuse to implement the WTO decision. "I frankly think there is a bias against the United States and its trade laws within the WTO dispute-settlement system," Baucus said. "WTO dispute-settlement rules and procedures have proved inadequate to guard against bias and overreaching by panels." Baucus recommended that the United States press in ongoing WTO negotiations for reforms in the dispute-settlement process that would punish decisions that ignore the standard of review. He recommended also that the United States should form its own group to review the legitimacy of WTO dispute panel rulings. Following is the text of Baucus' speech: U.S. Trade Laws and the WTO I appreciate the opportunity to speak today about the World Trade Organization and some recent dispute-settlement actions. This is one of the issues that I believe will dominate the trade debate in the next few years. The Trade Act of 2002 Before we talk about the next two years, though, let me begin by looking at the last two -- specifically the recently signed Trade Act. The Trade Act -- by codifying the labor and environmental standards of the Jordan Free Trade Agreement -- has allowed us to move forward on a stalled trade agenda. At the same time, the Act includes a truly historic expansion of Trade Adjustment Assistance [TAA]. Hopefully, this will lead to a broader national consensus on trade. Certainly, it will address the real human needs of workers who lose their jobs due to imports. Going into the Senate debate on the trade bill, conventional wisdom was that the bulk of our time would be devoted to these issues -- labor, environment, and TAA. But in the end, it was trade laws that generated the fiercest battles. Senators Dayton and Craig offered an amendment that would have provided for a separate vote on trade laws -- and proved to be so controversial that the Administration threatened to veto the bill if the amendment was included. Now, at the time, I have to admit I was baffled by the Administration's response. If they weren't planning on weakening our trade laws in future agreements, I would think that the Dayton-Craig amendment shouldn't have been a major problem. But I will leave that issue for another day. I will say that I think the alternative we came up with in Conference is actually a stronger provision. Under the Trade Act, the Administration must now report on proposed trade law changes a full 6 months before an agreement is finalized. If there are problems, the bill allows time to fix them. If the Administration refuses, the Trade Act provides a process for Congress to indicate it opposes the changes and, in an extreme case, a process for taking fast track away. I am very proud of this legislation. It is the most progressive trade bill ever signed into law. And it is a rare example of bipartisan cooperation in a highly partisan climate. The Report on Adverse WTO Panel Decisions One of the most important issues addressed in the Trade Act is the provision directing the Secretary of Commerce to draft a report on recent WTO decisions. A growing number of WTO panels have inappropriately ruled against U.S. trade laws -- so the legislation requires the Secretary to prepare a strategy for countering those rulings. Why is this study so important? Because U.S. trade laws are a critical part of the foundation of U.S. trade policy. And these laws have been under aggressive attack in WTO dispute-settlement proceedings. Depending on how you count, the U.S. has lost as many as 15 decisions regarding the operation of U.S. trade laws in the last several years. I am deeply troubled about what has been going on in the WTO dispute-settlement process. These proceedings are looking more and more like a kangaroo court against U.S. trade laws. This trend must stop. And I am here today to suggest some steps to stop it. The Dispute-Settlement Record While the trade law provisions in the Trade Act are critical, it is not new negotiations or new trade agreements that put U.S. trade laws most at risk. Instead, it is the WTO's binding dispute-settlement system that casts the darkest shadow over our trade laws. During the Uruguay Round negotiations, the U.S. fought for and achieved a system of binding dispute resolution. We also fought for and won a deferential standard of review for trade remedy cases. This standard requires dispute-settlement panels to defer to national authorities when they make reasonable interpretations of fact and WTO provisions. It was supposed to apply to all trade remedy cases, but it has been improperly narrowed. And even where notionally applied, it has been disrespected. As a nation with trade laws that are transparent, fair, and consistent with the express language of WTO agreements, we thought we had little to fear and much to gain from a system that would require our trading partners to bring their practices into compliance with WTO standards. But it hasn't worked out that way. In the area of trade remedies, the U.S. has had one significant victory -- against Mexico's politically motivated antidumping duties on high-fructose corn syrup. Unfortunately, we have lost more than a dozen cases. While time limits prevent an exhaustive review, a few examples are worth mention. First, the safeguard cases. In a series of cases, WTO panels have overturned U.S. safeguard decisions taken under section 201 involving wheat gluten, lamb, steel wire rod, and line pipe. Instead of deferring to reasonable agency interpretations, these panels have interpreted any ambiguity against U.S. authorities and done serious damage to core principles of U.S. law. Second, the Byrd Amendment. This is a law that simply takes money out of the U.S. Treasury and spends it. Even though Byrd Amendment payments impose no burden on imports -- and certainly affect few if any exports -- a WTO panel recently ruled that they are an impermissible penalty for dumping. While I expect this to be appealed, in the end, this decision may matter very little -- as I suspect there is almost no support in Congress for implementing it. Nonetheless, it is yet another example of overreaching. Third, softwood lumber. While the WTO appropriately found that Canada subsidizes its lumber industry, it mistakenly ruled that Commerce cannot use U.S. timber prices as a benchmark for determining market prices. Instead, the WTO suggested that Commerce must use Canadian prices, regardless of how distorted those prices are. This is wholly inconsistent with previous WTO cases and makes little sense. If the entire market is distorted by enormous subsidies, why should only prices in that market be examined? This is a troubling decision -- more so because of the dire environmental consequences of Canada's practices. Fourth, FSC. While this is not a case involving trade laws, it is one more example of arbitrary decision-making. Of course, I believe the EC [European Community] was wrong even to bring this case. But on the merits, the Appellate Body's decisions make an unworkable distinction between countries that rely primarily on direct taxes (like income taxes) and countries that rely primarily on indirect taxes (like the VAT). Even though the Appellate Body acknowledged countries' sovereign right to set their own tax systems, they interpret WTO rules in a way that heavily favors one particular model. I should note here that Senator Grassley [Charles Grassley, senior Republican on the Finance Committee] and I convened a working group on FSC this week, and I am hopeful that working together with our colleagues in Congress and with the Administration, we can evaluate all options and come up with possible solutions. So, why have we lost all these cases? What is going on here? The answer is straightforward. WTO dispute-settlement panels are legislating. They are ignoring the deferential standard of review. They are exceeding their powers to add to the obligations and diminish the rights of the United States. In sum, they are making up rules out of whole cloth -- substituting their judgment for the negotiated agreement. They are making up rules that the United States never negotiated, that Congress never approved, and, I suspect, that Congress would not approve. The Threat and the Solution This problem has at least two causes. Most importantly, I frankly think there is a bias against the United States and its trade laws within the WTO dispute-settlement system. The Commerce Department and the International Trade Commission -- the two U.S. agencies on the front lines of this battle -- have done and continue to do their best. They have tried hard both to defend U.S. cases and to reconcile their duties under U.S. trade laws with the rising tide of new obligations handed down by WTO panels. But no amount of hard work on their part can convince decision-makers who are determined to bring down U.S. trade laws one piece at a time. Second, WTO dispute-settlement rules and procedures have proved inadequate to guard against bias and overreaching by panels. Maybe the standard of review is not clear enough. I think it is, but I am open to considering how to strengthen it. Certainly, the rules under which dispute-settlement panels and the Appellate Body operate allow them flout the standard of review with impunity. What can we do to improve this situation? First, we should look to the ongoing WTO negotiations. WTO members are now undertaking a comprehensive review of the dispute-settlement process. Many of our trading partners have tabled ambitious proposals. We must as well. It is critical that the United States move forward with an aggressive proposal designed to ensure that we receive the benefit of the standard of review negotiated in the Uruguay Round. There are several approaches we could take. For example, we can look at changes to the Dispute Settlement Understanding or other Uruguay Round agreements that would reinforce the standard of review. We can also consider seeking structural changes to the operations of panels, the Appellate Body, and the Dispute Settlement Body that would reinforce adherence to the standard of review and create adverse consequences for any failure to so adhere. But we need to have a serious discussion on this issue and a forward-looking strategy. I stand ready to work toward that end. Second, we should consider some kind of oversight. Several years ago, Senator Dole [former Republican Senator Robert Dole] suggested a commission of U.S. judges that would review WTO decisions. I think this kind of commission is an excellent idea. And it shouldn't be controversial. If the WTO is found to be acting appropriately, it will silence critics. If not, lawmakers should have that information -- and I suspect they will act on it. Overall, one thing is clear. WTO proceedings must be governed by the rule of law, not simply an abiding dislike on the part of our trading partners for some aspects of U.S. trade policy. If this trend is not addressed, this will be the next major trade issue. And it absolutely threatens the legitimacy of the WTO. Conclusion I hope there will come a day when U.S. trade laws aimed at countering unfair foreign trade practices can fade in importance. When subsidies are sharply reduced, when cartels no longer control key markets, when trade generally flows freely -- there will be little call for anti-subsidy or antidumping laws. But that day is not today. And those who advocate eliminating U.S. trade laws now -- and later working on reducing other problems -- well, they are simply confusing the causes of current problems with the remedies. Duties on Canadian lumber do not exist because of U.S. countervailing duty laws. Duties exist because the Canadian industry receives enormous subsidies. Duties on imports of Japanese steel do not exist because of U.S. antidumping laws. Duties exist because a cartel of Japanese steel companies colludes to control their domestic market and then dumps excess production in the United States. If Canada or Japan or any other country wants to eliminate those duties, they need merely put a stop to subsidies and dumping. Period. It is just that simple. In November of 1994 I stood on the Senate floor and explained why I would vote against the WTO. This was a vote that I agonized over for weeks, and a vote that surprised many. I said at the time that I was concerned about preserving U.S. sovereignty. My concerns have proven to be correct. I understand and support the need for a global trading system and have fought for it at some political risk to myself. But the institution needs to fulfill its mandate and honestly apply its rules. Otherwise, it will be committed to the dustbin of history as another grand failure. Congressional Consultations Now, I had originally planned to end my speech there, but I can't help commenting on one additional issue that is causing me very serious concern. Last week, the Administration met for the first time with the newly formed "Congressional Oversight Group." I thought our first meeting with Ambassador Zoellick [U.S. Trade Representative Robert Zoellick] was useful, and I look forward to continuing this process. But I worry that the Administration is eager to slip back to the old way of doing things -- that is, negotiate first, consult later. They have, as recently as this week, expressed reluctance at allowing Congressional staff to observe negotiations -- not participate -- but merely observe. I have to say here -- I think the Administration risks starting out this post-TPA [trade promotion authority, otherwise known as fast track] era on exactly the wrong foot. To me, it is quite simple. If you involve Congress throughout the process, Congress is more likely to support agreements. If not, Congress is going to worry that the Administration has something to hide. At the end of the day, what we all want is for agreements to pass with wide margins. But I would warn the Administration in the strongest possible terms -- if they try to shut Congress out of the process, they risk creating an atmosphere of distrust, and that is not the way to get agreements passed. Thank you all for the opportunity to speak with you today. I am happy to answer questions. end text |
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