US exporters benefit from illegal tax breaks, says WTO

The EU yesterday welcomed the WTO's confirmation of its initial ruling in August 2001 that the Foreign Sales Corporation Replacement Act, brought in by the Clinton administration in response to condemnation of the country's original export subsidy system, is also incompatible with WTO rules.

Reacting to the news, EU Trade Commissioner Pascal Lamy said:

"We now have a definitive legal ruling on the FSC case. Of course I'm pleased that the WTO has confirmed what we always believed. We have made a point of handling this dispute in a very reasonable manner. Now it is up to the US to comply with the WTO's findings to settle this matter once and for all. As to how, we look forward to rapid US proposals."

The WTO's ruling found that the system provided for by the FSC Replacement Act constitutes an export subsidy incompatible with WTO rules. As the decision of the WTO Appellate Body is final, the Commission expects this ruling to put an end to the long lasting WTO dispute on the tax breaks granted to US exporters.

Both the WTO panel and Appellate Body have stated in clear terms that the US must end this WTO-incompatible practice. It is now up to the US to take the necessary steps to bring its legislation in line with its international obligations.

As part of the agreement between the EU and the US on procedures to handle the dispute, reached in September 2000, the next step in the procedure will be the automatic reactivation of the WTO arbitration procedure to decide on the amount of countermeasures the EU would be entitled to request authorisation to impose. The arbitrators' report is expected by the end of March.