The Telegraph
Since 1st March, 1999
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US faces $4-bn EU sanctions
- Ban in retaliation for illegal tax breaks to American firms

Geneva/Brussels, Aug. 30 (Reuters): The World Trade Organisation (WTO) ruled today the European Union could slam sanctions worth a record $4 billion on US exports in retaliation for illegal tax breaks to US companies.

The figure was set by a special panel of trade arbitrators who had been debating since January how much the European Union was being hurt by a tax system that the WTO has repeatedly ruled to be in breach of international trade rules.

“We find that the amount of $4.043 billion ... can be considered to be a reasonable approximation of the actual value of the subsidy,” the panel said.

The finding, which could stoke simmering trans-Atlantic trade tensions, is by far the highest level of retaliation authorised since the Geneva-based international trade body was established in January 1995.

The $4.043 billion figure met exactly the EU calculations for trade losses it said companies in the 15-state bloc were suffering as a result of the disputed tax concessions, granted to US giants like Microsoft and Boeing.

US officials had argued that just under $1.1 billion would be a fairer estimate.

But the panel said that on the basis of figures provided by the United States, it calculated the annual damage to the EU at $3.74 billion, while the EU’s numbers pointed to $5.33 billion — suggesting it could have awarded Brussels even more.

“We are satisfied by today’s decision that makes the cost of non-compliance with WTO crystal clear,” said EU Trade Commissioner Pascal Lamy in a statement. “The arbitrators have endorsed the EU’s request, that is they have given us an amount of potential countermeasures which will create a major incentive for the US to eliminate this huge illegal export subsidy,” he said.

Commission trade official Nikos Zaimis said the European Union sought fast implementation of the WTO ruling.

“We know that they (US) have (Congressional) elections in November. This is an important date for the future. Of course, we would like to see the US comply before that date,” he told a news conference. The ruling, however, is unlikely to lead to immediate sanctions because the EU has given abundant hints that it is prepared to stay its hand as long as Washington is making serious efforts to revise the offending legislation.

“But obviously it is our concern to have everybody playing by the rules, it is our concern to minimise the fallout from problems with our biggest trade partner,” said European external affairs Commissioner Chris Patten. There was no immediate reaction from Washington to the decision. But a senior US business official lashed out at the ruling as “just not appropriate”.

Kimberly Pinter, director of international tax policy at the National Association of Manufacturers, said in Washington, “There’s no reason they should be entitled to the full amount” of the annual subsidy.

There have been calls by some US Congressmen for the administration to hit back over losing the FSC case by challenging parts of the complicated EU tax laws which they say help European exporters.

In a bid to hold off EU retaliation, President George W. Bush pledged in May that the US would comply with the WTO rulings and there have been moves in the US Congress on an alternative bill to aid US exporters.

But the proposals are opposed by Boeing and other beneficiaries of the tax breaks, which say that they do not go far enough. The aeronautics company has warned that nearly 10,000 jobs could be lost unless a comparable system is devised, a powerful argument with congressional elections looming.

The US administration has made various attempts in the past to reform the Foreign Sales Corporation (FSC), as the tax system is known.

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