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Posted on 01/14/2002 3:14:06 AM PST by Jethro Tull
Yahoo - WTO ruling could reignite US-EU export tax spat
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By Doug Palmer
WASHINGTON, Jan 10 (Reuters) - A high-stakes trade dispute between the United States and the European Union over tax breaks for exporters comes to a head next Monday with a World Trade Organization ruling that could open the door for Brussels to impose sanctions on more than $4 billion of U.S. goods.
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The case dates back to November 1997 when former President Bill Clinton and former European Commission President Jacques Santer were still in office. Since then, the WTO has thrice ruled against the United States in the spat over whether U.S. tax breaks for exporters amount to an illegal export subsidy.
If the upcoming appellate decision goes against the United States, the case would move next to a WTO arbitration panel for a ruling on the amount of sanctions the EU could impose.
Brussels asked permission in November 2000 to retaliate on $4.043 billion worth of U.S. goods in the dispute, which originally centered on the U.S. Foreign Sales Corporation (FSC) program that doled out billions of dollars of tax breaks each year to companies such as Boeing (NYSE:BA - news) and Microsoft (NasdaqNM:MSFT - news).
``I expect the (appeals panel) ruling will be against the United States, but I also expect the Europeans will move very slowly in imposing any penalties,'' said Clyde Prestowitz, president of the Economic Strategy Institute and former U.S. trade negotiator. ``The timing for the Europeans to do something very Draconian isn't very good.''
After losing twice in the FSC case -- once before the original WTO dispute settlement panel and once on appeal -- the Clinton administration pushed a package of reforms known as the Extraterritorial Income Exclusion Act (ETI) through Congress during its final year in office to comply with WTO rules.
The EU, complaining the new system was just as bad as the old, challenged the ETI at the WTO while also seeking permission to retaliate against the United States. Under a ``process agreement'' worked out between the two sides, the EU suspended action on its sanctions request until the WTO made a final determination on the ETI.
LIMITED OPTIONS
If the United States loses again on Monday, the arbitration panel would have 60 days after the WTO officially adopts the rulings in late January to decide on the amount of sanctions the EU could impose. Once the final figure is approved, the EU could immediately lower the boom unless it has reached agreement with the United States on alternative action.
U.S. Trade Representative Robert Zoellick has been loathe to say how the United States would comply with the ruling if it loses again on appeal. But U.S. trade officials note there is a relatively limited range of options to avoid sanctions.
One choice would be to push through a new package of tax reform legislation, but there is little chance of that happening before the arbitration panel would be due to rule on the EU's sanctions request in late March or early April.
Another would be for the United States to pay ``compensation'' by lowering U.S. tariffs on some EU goods or taking other action to allow EU companies to sell more of their goods and services in the United States.
A third possibility would be to try to persuade the EU to fold the issue into a new round of world trade talks that begin this year and are scheduled for completion in 2005.
U.S. Treasury officials say the WTO's rulings in August unfairly discriminated against the United States, by siding with one system of export tax breaks over another.
But they also contend that the panel report raised questions about whether some European territorial tax systems are in compliance with WTO rules.
Before heading to Geneva in late November for a WTO appeals panel hearing, U.S. Deputy Treasury Secretary Kenneth Dam told reporters he would argue that the August ruling put a number of European countries ``at risk.''
RAY OF HOPE
A senior U.S. trade official told reporters in late December he saw a ``ray of hope'' that the U.S. could avoid sanctions in the dispute, even if it loses the appeal.
That's because many European companies and countries recognize the damage they could do to themselves if sanctions are imposed, the official said.
Kimberly Pinter, a tax specialist with the National Association of Manufacturers, agreed with that analysis.
``They don't want to sanction us any more than we want to be sanctioned,'' she said. ``The European Union and the United States are incredibly economically interdependent and to try to do that would hurt them as much as it would hurt us.''
EU officials acknowledge the difficulty of constructing a retaliation list that would not harm EU exporters and have stressed retaliation is not their preferred option.
However, some observers doubt the EU would simply drop its sanctions threat without getting something in return.
SORRY, TIMES UP. THE WTO MEETS IN SECRET AND INSISTS IT'S PANEL MEMBERS REMAIN ANONYMOUS.
DOPEY PUBBIES...
FROM THE UNITED STATES CONSTITUTION:
ARTICLE 1, SECTION 8: (ONLY CONGRESS SHALL HAVE THE POWER) "To regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes;
Not true, Hugh.
Our 'congressional hires' have ceded that constitutional authority to the WTO.
Witness the above article,,,
And Congress still has that power.
If the WTO has the power and authority to impose fines on America vis-a-vis trade disputes within the family of WTO member nations, congress has ceded it's constitutional authority.
If the WTO has the power and authority to impose fines on AmericaThey don't.
Before the WTO existed, if we enacted tarrifs that our trading partners thought was unfair, they could "sanction" us by imposing tarrifs of their own.
Now, if the WTO rules against us, our trading partners in this case can "sanction" us by imposting tarrifs of their own.
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