WRITTEN QUESTION E-2554/01

by Salvador Garriga Polledo (PPE-DE) to the Commission

(19 September 2001)

Subject: EU's waiving of demands for the United States to be penalised in the Foreign Sales Corporation case

The World Trade Organisation has ruled in favour of the European arguments against the multimillion FSC (Foreign Sales Corporation) programme for the second time in less than two years.

The WTO considers this scheme to be incompatible with its rules and is obliging Washington to rectify the situation.

Given that the EU previously threatened to demand a penalty of at least $ 4 billion if the WTO backed its arguments, will the Commission demand payment of that penalty, make a smaller claim or simply waive its demand by means of an agreement which is satisfactory for both sides?

Answer given by Mr Lamy on behalf of the Commission

(5 November 2001)

In October 1999, a Panel of the World Trade Organisation (WTO) ruled that the United States (US) tax treatment for Foreign Sales Corporations (FSC) is incompatible with WTO provisions. In February 2000, the WTO Appellate Body confirmed the Panel ruling.

In September 2000, the Community and the US concluded a procedural agreement for the handling of this case.

This agreement provides the following:

- The Community will launch an expedited WTO panel procedure, which may include an appeal to the WTO Appellate Body, to examine the WTO compatibility of the FSC replacement legislation.

- The Community will also request an authorisation from the WTO Dispute Settlement Body (DSB) to adopt countermeasures in the form of suspension of concessions against the US indicating the amount of countermeasures and the preliminary list of US products on which sanctions will be imposed. In case the US objects to the level of countermeasures requested by the Community, the matter will be referred to WTO arbitration. However, the arbitration procedure will be suspended until the expedited WTO panel procedure is concluded.

- The Community will not impose countermeasures on the US unless the FSC replacement legislation is condemned by the WTO.

On 17 November 2000, the Community presented to the WTO both the request for suspension of concessions and the request for consultations as the first step in the panel procedure. The WTO panel ruled on 20 August 2001 condemning the FSC replacement legislation. On 15 October 2001 the US, as is its right under relevant WTO provisions, appealed this ruling before the WTO Appellate Body. The Appellate Body is expected to rule within 90 days from the date of the appeal.

At the end of the panel procedure, the arbitration procedure examining whether the amount of countermeasures requested by the Community is appropriate will be automatically reactivated. It is, therefore, for the WTO arbitrators to fix the amount of the countermeasures the EC can finally impose on the US which cannot be higher than the amount initially requested by the Community, i.e. $ 4 000 millions.

In light of the above, it can be clearly seen that the Commission has not waived any rights under the WTO. As said before, the WTO Appellate Body will review the panel ruling and, if the ruling is confirmed, the final amount of countermeasures the Community might be entitled to will be fixed by the arbitrators. However, the Commission continues to expect that the US will comply with the WTO rulings.