Inside US Trade | January 4, 2002
The dispute over how to deal with a likely adverse World Trade Organization ruling against a U.S. tax system benefiting exporters will feature prominently in U.S.-European Union relations next year, along with the EU's failure to approve pending applications for new biotechnology crops, according to a senior U.S. trade official. In addition, possible steel trade restraints under section 201 will be "very important" for the two sides, he said in a Dec. 20 press briefing.
The WTO is expected to rule this month on whether a new tax system replacing the Foreign Sales Corporation (FSC) provision is a prohibited export subsidy, and the U.S. is expected to lose the case. The U.S. official said the WTO ruling will help determine whether the Administration opts for a legislative fix; negotiates new WTO rules on tax treatment; offers the EU compensation for trade damage caused by the tax system; or accepts EU retaliation.
On the basis of the January decision, the EU could pursue trade retaliation against U.S. exports if the U.S. does not change its tax law, which it is unlikely to do immediately. The EU has claimed trade damage of more than $4 billion, but the final amount of retaliation the EU could impose would be set by a WTO arbitrator most likely in April.
Each of the potential solutions in the FSC case has its limitations, the official said. The option to negotiate new tax rules in the WTO, which could be a lengthy undertaking, presents a "time problem" with respect to U.S. compliance with an adverse panel ruling. He also said that the legislative approach made many U.S. companies now benefiting from the FSC replacement scheme "very anxious" since any change raised "a question of winners and losers."
The ruling will decide a U.S. appeal of a compliance review panel conducted under Article 21.5 of the Dispute Settlement Understanding. That panel found that the U.S. bestowed a prohibited export subsidy with legal reasoning the U.S. said was overly broad and created new benchmarks for defining an export subsidy.
Any decision to give relief to the steel industry under the pending section 201 case will be "contentious," and the Bush Administration has to take that into account when assessing the recommendations of the International Trade Commission, the official said. But he insisted that the U.S. is entitled to provide relief to its industry under WTO rules, and that countries are free to challenge that if they feel the U.S. has violated its obligations.
In a Dec. 18 press conference in Brussels, EU Trade Commissioner Pascal Lamy charged that the U.S. had not met the terms of the safeguard agreement because imports are going down, not up. WTO rules allow countries to impose safeguards if imports enter a market in such increased quantities and under such conditions as to injure a U.S. industry or threaten to do so.
President Bush has at least until Feb. 19 to decide how much relief he will give to the U.S. steel industry and under what terms. The President can extend that 60 day period by 15 days, if he requests additional information from the industry, the official said. This would bring the decision into early March.
The U.S. official parried EU rhetoric against U.S. use of trade remedies, pointing out that the EU itself is a frequent user of antidumping law to defend its steel industry. In the past three years, the EU has had 113 antidumping cases, with roughly one third on steel, he said. This is a case of the "pot calling the kettle black," he said.
On biotechnology, the U.S. has pressed the EU to move forward this year on pending approvals or face possible WTO action (Inside U.S. Trade, Dec. 21, p. 1). However, some observers question whether the U.S. would really pursue a WTO case on this issue in advance of French and German elections.
EU Ambassador Guenter Burghardt last month acknowledged that the Commission may not be able to persuade member states to restart the approval process before the EU approves traceability and labeling legislation designed to ease fears about approval of new GMOs. That legislation is expected to be approved sometime in 2003.
It may take until 2003 to get legislation put in place for that, Burghardt told reporters Dec. 14. "It may not happen this next year," he said.
EU officials said that member states remained reticent, and Commission efforts in October to urge them to begin some approvals were unsuccessful. "We're making efforts on both sides," Burghardt said.
Biotechnology approvals also were a major agenda item during a Dec. 18 Zoellick visit to Europe during which he met with several members of the Commission to get a good sense of where they stood on the biotechnology issue and to inform them directly of the U.S. position, according to the U.S. official.
Zoellick also urged members of the Commission to consult with the U.S. on pending chemical regulations and to consider U.S. industry views in developing them, the senior U.S. official said. The Commission is drafting legislation based on a chemical policy White Paper, which U.S. industry has charged would impose additional testing requirements and eliminate certain uses of chemicals, resulting in reduced imports. The White Paper also proposed that transactions involving a small list of chemicals considered carcinogens, mutagens, and reproductive hazards, be subject to specific approvals, according to a private-sector source.
The U.S. official cited the pending chemical regulations as an example of the need for trading partners to cooperate closely on regulations. This is "one of the reasons" the U.S. is promoting trade agreements, which increasingly create the basis for "regulatory convergence or harmonization or cooperation," the officials said.
Zoellick and Lamy also discussed how to handle China's entry into the WTO and how to work together on Russia's entry into the WTO, the official said. Lamy reported on his trip to China, and Zoellick informed Lamy on U.S. efforts to monitor China's compliance with its commitments, he said. Lamy asked if the U.S. and EU could coordinate on this issue, and Assistant USTR Jeff Bader will coordinate with his EU counterpart, according to the U.S. official.
During the Dec. 18 visit, the two sides settled a copyright dispute with a U.S. offer to provide cash compensation to the EU worth about $3 million (Inside U.S. Trade, Dec. 21, p. 6).
Separately, House Ways and Means Committee Chairman Bill Thomas (R-CA) introduced a bill on Dec. 20 that could serve as a step toward resolving another pending trade dispute with the EU over antidumping provisions of the 1916 Antidumping Act.
The bill, HR 3557, would repeal the antidumping provisions of the 1916 Act. The Bush Administration earlier this year proposed legislation to repeal the antidumping provisions of the act and to end all cases brought under it in U.S. courts (Inside U.S. Trade, Aug. 3, p 16). Thomas introduced the bill without co-sponsors.
The U.S. is under pressure from the World Trade Organization to repeal the 1916 law after an adverse dispute settlement ruling brought by the EU. The EU may see the introduction of legislation on the 1916 Act as a positive move towards resolving the pending trade dispute (Inside U.S. Trade, Dec. 21, p. 6).
Zoellick and Lamy have a larger strategy to ensure that any individual trade dispute does not spin out of control and endanger the larger bilateral relationship or the WTO, according to the U.S. official. This is different from approaching each individual case solely as a litigator and advocate of respective industry interests, he said.
The FSC dispute was discussed "a lot" during a Dec. 18 visit of Zoellick and Lamy in Brussels, according to the senior official. He cautioned that the fact of discussing it extensively does not assure the dispute will be resolved, but could help manage the political pressures in a way that is not hurting the international trading system.
The upcoming FSC ruling may create a "different basis" for a resolution of the dispute than now exists under the last ruling, according to the U.S. official.
It may give the U.S. further guidance on how it fails to meet WTO rules against industrial export subsidies or how it could meet the terms of the Agreement on Subsidies and Countervailing Measures (ASCM), according to the official. The ruling may also create "some vulnerabilities" in other countries tax systems by raising questions about their WTO compliance, he said.
"We really do need to get more information," he said. The Administration has criticized the last ruling of a WTO dispute settlement panel on this issue as overly broad and as failing to give a clear indication of how a U.S. tax system could comply with the rules of the ASCM.
Lamy and Zoellick want to manage the FSC issue as much as possible to ensure it does not spin out of control, according to the U.S. official. He pointed out that Lamy has said publicly he wants to work cooperatively on FSC to the greatest degree possible.
In doing so, both sides have to deal with "different political currents," the senior U.S. official said. Lamy faces people who want to resolve this dispute and people that want to push for a confrontation, he said. "He has to manage this just like I do," he said.
Most observers see Zoellick playing less of a role in the dispute since the Treasury has asserted its jurisdiction. For example, Treasury officials argued the U.S. appeal before the WTO appellate body, while in earlier proceedings the U.S. was represented by trade officials.
On the EU side there is a "ray of hope" in that many countries and companies recognize that it will not be a win for them to block a large amount of trade, the U.S. official said. That may give the two sides some room to maneuver.Inside US Trade:
