UNITED STATES – TAX TREATMENT FOR "FOREIGN SALES CORPORATIONS"
Document: Understanding between the European Communities and the United States Regarding Procedures under Articles 21 and 22 of the DSU and Article 4 of the SCM Agreement
Date: 5 October 2000
Document codes: WT/DS108/12
Complainant: EU
Respondent: U.S.
Third parties: Australia, Barbados, Brazil, Canada, China, India, Jamaica, Japan
Dispute stage: Retaliation & Arbitration
Agreements cited: Art. 1, 3, 8  AgricultureArt. 3.1(a), 3.1(b)  Subsidies and Countervailing Measures (SCM)Art. 9, 10  Agriculture

UNITED STATES – TAX TREATMENT FOR "FOREIGN SALES CORPORATIONS"
Understanding between the European Communities and the United States
Regarding Procedures under Articles 21 and 22 of the DSU
and Article 4 of the SCM Agreement
The following communication, dated 2 October 2000, from the Permanent Delegation of the
European Commission and the Permanent Mission of the United States to the Chairman of the
Dispute Settlement Body is circulated at the request of these delegations.
The European Communities and the United States would like to inform the Dispute
Settlement Body that they have agreed on the following "Agreed procedures under Articles 21 and 22
of the Dispute Settlement Understanding and Article 4 of the SCM Agreement applicable in the
follow-up to the United States – Tax Treatment of "Foreign Sales Corporations" WTO dispute"
(WT/DS108).

Agreed procedures
under Articles 21 and 22 of the Dispute Settlement Understanding
and Article 4 of the SCM Agreement applicable in the follow-up to the
United States – Tax Treatment of "Foreign Sales Corporations" WTO Dispute
The Panel and Appellate Body reports in the WTO dispute ( and ) between the European
Communities (EC) and the United States of America (US) were adopted by the Dispute Settlement
Body (DSB) on 20 March 2000.
The parties, in reaching this agreement, contemplate that the US Congress will pass
legislation this Congressional session to replace the foreign sales corporation provisions of the
Internal Revenue Code.
This agreement does not prejudice the parties' rights to take any action or procedural step to
protect their rights or interests, including the activation of any aspect of dispute settlement
proceedings.
The EC and the US have agreed on the following procedures:
1. Should the European Communities consider that the situation described in Article 21.5 of the
DSU exists, the EC will request consultations which the parties agree to hold within 12 days
from the date of circulation of the request so as to allow third parties to request to join the
consultations. The EC and the US agree that at the end of this round of consultations, should
either party so state, the parties will jointly consider that the consultations have failed to settle
the dispute.
2. Consequently, the EC will be entitled to request immediately the establishment of a panel
pursuant to Article 21.5 of the DSU (the Article 21.5 compliance panel).
3. At the first DSB meeting in which the EC request appears as an item on the agenda, the US
will accept the establishment of the Article 21.5 compliance panel.
4. The EC and the US will cooperate to enable the Article 21.5 compliance panel to circulate its
report within 90 days of its establishment, excluding any time during which the panel's work
may be suspended pursuant to Article 12.12 of the DSU.
5. Either party may request the DSB to adopt the report of the Article 21.5 compliance panel in a
meeting at least 20 days after the circulation of the report unless either party appeals the
report.
6. In case of an appeal of the Article 21.5 compliance panel report, the EC and the US will
cooperate to enable the Appellate Body to circulate its report within 60 days from the date of
notification of the appeal.
7. In the event of an appeal, either party may request the DSB to adopt the reports of the
Appellate Body and the Article 21.5 compliance panel (as modified by the Appellate Body
report) in a meeting within 15 days after the circulation of the Appellate Body report.

8. Where the EC has requested consultations under paragraph 1, and after the end of the period
(the implementation period) available to the US to implement the DSB recommendations and
rulings in the WTO dispute United States – Tax Treatment of "Foreign Sales Corporations",
the European Communities may request authorization to suspend concessions or other
obligations pursuant to Article 22.2 of the DSU and to adopt countermeasures pursuant to
Article 4.10 of the Agreement on Subsidies and Countervailing Measures (SCM Agreement).
9. Where there exist no measures taken to comply with the DSB recommendations and rulings
by the end of the implementation period, the EC may request authorization to suspend
concessions or other obligations pursuant to Article 22.2 of the DSU and to adopt
countermeasures pursuant to Article 4.10 of th e SCM Agreement, without having recourse to
Article 21.5 of the DSU.
10. Under Article 22.6 of the DSU including Arti cle 4.11 of the SCM Agreement, the US will
object to the appropriateness of the countermeasures and/or the level of the suspension of
concessions or other obligations and/or make an Article 22.3 claim, before the date of the
DSB meeting considering the EC request, and the matter will be referred to arbitration
pursuant to Article 22.6 of the DSU. The European Communities will not pose any objection
to referral of the matter to such arbitration.
11. Where the EC has requested the establishment of a panel under paragraph 2, both the EC and
the US agree to request the arbitrator, at the earliest possible moment, to suspend its work
until either (a) adoption of the Article 21.5 compliance panel report or (b) if there is an
appeal, adoption of the Appellate Body report.
12. In the event that the DSB finds that measures taken by the US to comply with the
recommendations and rulings of the DSB are inconsistent with the covered agreements
referred to in the Article 21.5 compliance panel request, the arbitrator will automatically
resume its work. In the event that the DSB finds that the measures taken by the US to comply
with the recommendations and rulings of the DSB are not inconsistent with the covered
agreements referred to in the Article 21.5 compliance panel request, the EC will withdraw its
request under Article 22.2 of the DSU, thereby terminating the arbitration procedure.
13. The EC and the US will cooperate to enable the arbitrator to circulate its report within 60 days
of the resumption of its work.
14. If any of the original panelists are not available for either the Article 21.5 compliance panel or
the Article 22.6 arbitration (or both), the EC and the US agree to request the Director-General
of the WTO to appoint as soon as possible a replacement for the proceeding or proceedings in
which this is required. If an original panelist is unavailable to serve in both proceedings, the
parties will further request that in making this appointment the Director-General seek a person
who will be available to act in both proceedings.
15. As this dispute has been conducted under the SCM Agreement and the Agreement on
Agriculture, the parties agree that the timeframes under the DSU will continue to apply to the
proceedings covered by this agreement, except as otherwise agreed herein.
16. The parties agree to continue to cooperate in all matters related to this agreement and not to
raise any procedural objections to any of the st eps set out in this agreement. If during the
application of this agreement the parties consider that a procedural aspect has not been
properly covered by this agreement, they will endeavour to find a solution within the shortest
time possible that will not affect the other aspects and steps therein agreed.

Brussels, 29 September 2000
(s) Hervé Jouanjean (s) Robert T. Novick
For the European Communities For the United States of America