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$4.043 billion in fines


W.T.O. Allows Europe to Impose Record Sanctions Against U.S.

By Reuters | New York Times



Friday, 30 August, 2002


The World Trade Organization ruled Friday the European Union could slam sanctions worth a record $4 billion on U.S. exports in retaliation for illegal tax breaks to U.S. 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 authorized 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 U.S. giants like Microsoft and Boeing.


U.S. 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, i.e. they have given us an amount of potential countermeasures which will create a major incentive for the U.S. 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 (United States) have (congressional) elections in November. This is an important date for the future. Of course, we would like to see the U.S. 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 minimize 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 U.S. business official lashed out at the ruling as "just not appropriate."


Kimberly Pinter, director of international tax policy at the National Association of Manufacturers, told Reuters in Washington, "There's no reason they should be entitled to the full amount" of the annual subsidy.


There have been calls by some 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 Bush pledged in May that the United States would comply with the WTO rulings and there have been moves in Congress on an alternative bill to aid U.S. 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 administration has made various attempts in the past to reform the Foreign Sales Corporation, as the tax system is known, but each time it has fallen foul of the WTO.


The EU last month steered clear at the last minute of hitting Washington with sanctions over steel after the administration agreed to exclude more European products from emergency duties it imposed in March.


But the bloc's patience on the tax issue could be tested to the limit if Congress fails to come up with a package that meets WTO rules before lawmakers adjourn for the year in October.


Trade officials have expressed concern that disputes between the world's two most powerful economies could hamper attempts by the WTO's 144 member states to negotiate a new round of trade liberalization, which many economists see as vital to revive a sagging world economy.


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