USTR - U.S. Challenges EU Claim on FSC Trade Sanction Amount
                 
The Office of the United States Trade Representative

U.S. Challenges EU Claim on FSC Trade Sanction Amount
Contact: Richard Mills (202) 395-3230 02/08/2002

WASHINGTON - In a submission filed today with the World Trade Organization, the United States indicated that it would aggressively challenge the amount of trade sanctions claimed by the European Union in the Foreign Sales Corporation ("FSC") dispute.

"In our view, sanctions have to be linked to the alleged harm caused by the FSC to interests of the EU," said United States Trade Representative Robert B. Zoellick. "The EU position grossly overstates the purported burden on the EU, and is inconsistent with WTO principles, the facts in this case, and common sense."

Today's submission was made in a WTO proceeding in which the United States has challenged the EU's claim that trade sanctions against U.S. exports to the EU may be set at $4.043 billion. Earlier this week, the EU submitted a short paper in which it explained how it had calculated the $4.043 billion figure. In today's submission, the United States:

• Indicated it would challenge the basic approach taken by the EU, which ignores the impact of the FSC on EU interests; and

• Challenged the technical accuracy of the EU's calculations.

The U.S. position will be set forth more fully in a submission to be filed on February 14.

BACKGROUND

On March 20, 2000, the WTO adopted rulings by a dispute settlement panel and the WTO Appellate Body which found the FSC provisions of U.S. tax law to be a WTO-inconsistent export subsidy. In order to comply with these rulings, on November 15, 2000, the FSC Repeal and Extraterritorial Income Exclusion Act of 2000 ("ETI Act") was signed into law. On November 17, 2000, the EU commenced a WTO dispute, alleging that the ETI Act failed to eliminate the problems that the WTO had found with the FSC provisions. On the same day, the EU also requested authority from the WTO to impose trade sanctions on $4.043 billion worth of U.S. exports, $4.043 billion being the EU's estimate as to the amount of the export subsidy. On November 27, 2000, the United States initiated a WTO arbitration proceeding, alleging that the amount of sanctions requested by the EU was excessive under WTO standards. This arbitration was suspended pending the outcome of the EU's challenge to the WTO-consistency of the ETI Act.

On January 29, 2002, the WTO adopted rulings by a dispute settlement panel and the Appellate Body which found the ETI Act to be WTO-inconsistent. As a result of this action, the arbitration automatically resumed. The arbitrator is expected to issue its decision in late April.

In accordance with the procedures established for the arbitration, in today's submission, the United States presented its preliminary comments on the EU's calculation methodology. The United States will present more detailed arguments in briefs to be submitted later in the proceeding.