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WTO condemns US illegal subsidies to exporters

FSC: WTO condemns US subsidies to exporters; recipients of illegal support include Boeing

Today the WTO panel decision regarding U.S. federal tax subsidies for exporters was circulated to WTO Members. The Panel has found in favour of the EU in all respects. It concludes that despite some changes to its legislation the US has yet to abide by previous WTO rulings and the recommendations of the WTO Dispute Settlement Body regarding the FSC/ETI dispute. The Panel also makes clear that the tax subsidies which have been carried forward by using transitional periods and so-called ‘grandfathering’ violate WTO rules.>

Peter Mandelson, EU Commissioner for Trade said “The EU welcomes the WTO’s clear language and conclusions. It has been confirmed that the U.S. has yet to comply with previous WTO rulings. The EU appreciates that the U.S. Congress has repealed the original FSC tax scheme. However, despite European opposition, the US Congress chose to perpetuate the prohibited tax subsidies through a transition period and the permanent ‘grandfathering’ of existing contracts. These provisions, which are now contained in the American Jobs Creation Act are unacceptable in view of the large benefits involved. We estimate these advantages, for example, to add up to over €750 million for Boeing alone. This is striking because the US is asking European companies to abide by the WTO definition of subsidies regarding grants to Europe’s civil aircraft sector. I hope that the U.S. authorities will choose to act consistently in this matter.”

In May 2003 WTO arbitrators authorised the European Union to impose trade sanctions at the level of US $ 4 billion (the estimated value of the subsidy in 2000) by increasing the customs duties on certain selected US products up to 100%. Countermeasures on certain US products entered into force on 1 March 2004, with their level gradually increasing. On 31 January 2005 the EU Council adopted a regulation suspending such sanctions retroactively as from 1 January 2005 in the light of the further WTO dispute settlement proceeding. The Council Regulation provides that the trade sanctions will apply again after 1 January 2006 or, at the latest, 60 days after the adoption of the compliance panel/Appellate Body report finding the U.S. law WTO incompatible.

Background

The U.S. FSC tax subsidies have been declared in violation of WTO rules by a WTO panel, the Appellate Body, and two compliance panels. This second compliance panel was necessitated by the American American Jobs Creation Act (“AJCA”), which preserved in a transitional or ‘grandfathered’ form some of the federal payments made under the FSC.

The aim of the grandfathering clause is to ensure that certain US exporters will continue to obtain WTO-prohibited FSC/ETI export subsidies many years into the future, even beyond the expiry of the FSC/ETI transitional period in 2006.
For key questions and answers on FSC please visit:

http://europa.eu.int/comm/trade/index_en.htm.

Read the WTO Panel report at: http://www.wto.org

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