Brussels, 22.12.2004

COM(2004) 822 final

2004/0282 (ACC)

Proposal for a

COUNCIL REGULATION

amending and suspending the application of Regulation (EC) No 2193/2003 establishing additional customs duties on imports of certain products originating in the United States of America

(presented by the Commission)

EXPLANATORY MEMORANDUM

The World Trade Organization (WTO), in a number of rulings issued upon application of the European Communities (“the EC”) , has found the Foreign Sales Corporation subsidy scheme of the United States of America (“the US”), as such and as amended by the Foreign Sales Corporation and Extraterritorial Income (FSC-ETI) legislation to provide an illegal export tax subsidy to US firms to the tune of roughly US $ 4 billion per year (as of year 2000). Following those rulings, on 7 May 2003 the EC was granted by the WTO the right to impose countermeasures, in the form of additional import tariffs of up to 100% ad valorem on imports of certain goods from the United States (selected after consultation of the public, Member States and the Commission services), up to the amount of the US illegal subsidy. Consequently, on 8 December 2003 the EC adopted Council Regulation (EC) No. 2193/2003 establishing additional customs duties on imports of certain products originating in the United States of America[1].

Council Regulation No. 2193/2003 provides for the repeal of the countermeasures upon the United States’ full implementation of the recommendation of the WTO Dispute Settlement Body[2].

Legislation foreseeing the repeal of the FSC-ETI legislation has now been adopted by the US (The American JOBS Creation Act of 2004 – “the repeal Act”). The repeal of the FSC subsidy scheme represents a major and welcome step towards solving a long standing dispute. The repeal Act, however, includes transitional and grandfathering provisions which appear to be WTO incompatible. In particular, the repeal Act provides that FSC/ETI benefits will still be available to US exporters up to the end of 2006 (at the level of 80% and 60% for 2005 and 2006 respectively) and in some cases for an unlimited period thereafter. A WTO dispute settlement procedure on the repeal Act has, therefore, been initiated. The WTO dispute settlement procedure will rule on the WTO compatibility of the transitional and grandfathering provisions of the JOBS Act. In light of prior Appellate Body rulings, it can be expected that the WTO will rule that such provisions in the JOBS Act are WTO incompatible.

The Commission considers it appropriate to suspend the application of current EC countermeasures while the WTO dispute settlement proceedings are ongoing, and this despite the US refusal to do the same in respect of its retaliation against the EC on hormone beef. There are 3 reasons for this proposed suspension: 1) As a sign of recognition that the US has, to an extent, decided to live up to its international obligations in this case; 2) As an encouragement to the US to continue to do the same in other (current) cases of US non-compliance (such as Byrd, hormones); 3) For systemic reasons (that is countermeasures should not be applied in the absence of a WTO ruling).

These dispute settlement proceedings are expected to be concluded in 2005. It should be noted that the suspension of countermeasures is an autonomous act, which in no way affects the EC right to maintain countermeasures pursuant to the authorisation already granted by the DSB. Thus, countermeasures will be reintroduced by 1st January 2006 (or later if dispute settlement proceedings have not been concluded by then) at 60% of the currently authorised level unless the EC decides otherwise.

The purpose of reintroducing countermeasures is to induce the US to fully comply with its WTO obligations and, in particular, to take action to eliminate the distortion of competition arising from the maintenance of FSC/ETI subsidies. Therefore, prior to the reintroduction of countermeasures, the Commission shall present a report to the Council on the outcome of dispute settlement proceedings as well as on any other development. Obviously countermeasures should not be reintroduced if competent WTO institutions have found that the repeal Act is WTO compatible or if a mutually agreed solution is found which would remove the continued violation.

It is, therefore, proposed to suspend Council Regulation 2193/2003 (until 31 December 2005, or until 60 days after the WTO confirms the WTO-incompatibility of the remainder of the FSC subsidy, whichever comes later) and re-introduce countermeasures - at a reduced level so as to reflect the reduced FSC/ETI benefits made available to US exporters - as from 1 January 2006, unless the Council following a proposal from the Commission decides otherwise before that date.

Suspension of the countermeasures requires action by the Council under Article 133 of the EC Treaty. A new Council Regulation, therefore, suspending Council Regulation 2193/2003 needs to be adopted following a proposal from the Commission.

2004/0282 (ACC)

Proposal for a

COUNCIL REGULATION

amending and suspending the application of Regulation (EC) No 2193/2003 establishing additional customs duties on imports of certain products originating in the United States of America

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty establishing the European Community, and in particular Article 133 thereof,

Having regard to the proposal from the Commission[3],

Whereas:

On 7 May 2003, the Community was authorised by the Dispute Settlement Body of the World Trade Organisation (WTO) to impose countermeasures up to a level of USD 4,043 million in the form of additional 100% ad valorem [changed to italics] duties on certain products originating in the United States of America. Consequently, on 8 December 2003 the Community adopted Council Regulation (EC) No 2193/2003 establishing additional customs duties on imports of certain products originating in the United States of America.[4]

It is considered that, following the adoption of the American Jobs Creation Act of 2004, the application of additional duties should be suspended and only take effect again on 1 January 2006 or 60 days after the Dispute Settlement Body of the WTO confirms, whichever date is later, the incompatibility of certain aspects of the abovementioned Act with WTO law.

HAS ADOPTED THIS REGULATION:

Article 1

1. The application of Regulation (EC) No 2193/2003 is hereby suspended.

Article 2

2. Regulation (EC) No 2193/2003 shall be applicable again with effect from 1 January 2006 or 60 days after the confirmation by the Dispute Settlement Body of the WTO, whichever date is later, that certain aspects of the American Jobs Creation Act of 2004 of the United States of America are inconsistent with the United States’ WTO obligations.

3. Before the expiry of that deadline, the Commission shall publish a notice in the Official Journal of the European Union that such confirmation has been given.

4. Article 2.1 of Regulation (EC) No 2193/2003 is amended as follows:

“1. A 14% ad valorem duty additional to the customs duty applicable under Council Regulation (EEC) No. 2913/92[5] shall be imposed on the products originating in the United States of America listed in the Annex to this Regulation.”

Article 3

5. The Annex to Regulation (EC) No 2193/2003 is replaced by the Annex set out in the Annex to this Regulation.

Article 4

6. This Regulation shall enter into force on the day of its publication in the Official Journal of the European Union .

7. Article 3 shall apply with effect from the date Regulation (EC) No 2193/2003 becomes applicable again in accordance with Article 2(1).

This Regulation shall be binding in its entirety and directly applicable in all Member States.

Done at Brussels,

For the Council

The President

ANNEX

The products on which additional duties are to apply are identified by their eight-digit CN codes. The two-digit CN Chapters are given for information purposes only., The description of these codes can be found in Annex I to Council Regulation (EEC) No 2658/87 on the tariff and statistical nomenclature and on the Common Customs Tariff (as last amended by Commission Regulation (EC) No 1810/2004, OJ L 327, 30.10.2004, p. 1).

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[1] OJ No. L 328, 17.12.2003, p. 3.

[2] Article 3 of Council Regulation No. 2193/2003.

[3] OJ C …, …, p. ….

[4] OJ No. L 328, 17.12.2003, p. 3.

[5] OJ No L 302, 19.10.1992, p.1.