UNITED STATES - TAX TREATMENT FOR "FOREIGN SALES CORPORATIONS"
Document: Recourse to Article 21.5 of the DSU by the European Communities Request for the Establishment of a Panel
Date: 8 December 2000
Document codes: WT/DS108/16
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"
Recourse to Article 21.5 of the DSU by the European Communities
Request for the Establishment of a Panel
The following communication, dated 7 December 2000, from the Permanent Delegation of
the European Commission to the Chairman of the Di spute Settlement Body, is circulated pursuant to
Article 21.5 of the DSU.
On 17 November 2000, the Ambassador to the WT O of the United States of America (US)
informed the European Communities (EC) that on 15 November 2000 the US President signed into
law H.R. 4986, the FSC Repeal and Extraterritori al Income Exclusion Act of 2000 (the "FSC
Replacement Act") and that the US considered that with this law it has implemented the
recommendations and rulings of the WTO Dispute Settlement Body in , WT/DS108. The FSC Replacement Act was adopted 14 days after
the extended deadline granted by the Dispute Settlement Body (DSB) to the US to implement the
WTO recommendations and rulings on the above-mentioned dispute, i.e. 1 November 2000.
In the view of the EC, the FSC Replacement Act fails to bring the US into compliance with
the DSB recommendations and rulings in , WT/DS108 and is inconsistent with the covered agreements. The FSC Replacement
Act provides equally prohibited subsidies to US exporters as did the FSC scheme and introduced
further prohibited subsidies to certain foreign corporations.
On 17 November 2000 the EC initiated the procedures under Article 21.5 of the
Understanding on Rules and Procedures Governing the Settlement of Disputes (DSU) by requesting
the United States to enter into consultations. The request was circulated in document
of 21 November 2000. Consultations were held on 4 December 2000 in Geneva. Consultations have
allowed a better understanding of the respective positions but have failed to settle the dispute.
Accordingly, "there is a disagreement as to the existence or consistency with a covered
agreement of measures taken to comply with the recommendations and rulings" of the DSB. Pursuant
to Article 6 and Article 21.5 of the DSU, Article 4 of the Agreement on Subsidies and Countervailing
Measures (SCM Agreement), Article 19 of the Agreement on Agriculture and Article XXIII of the
General Agreement on Tariffs and Trade 1994 (GATT 1994), and as envisaged in the "Agreed
procedures under Articles 21 and 22 of the Disp ute Settlement Understanding and Article 4 of the
SCM Agreement applicable in the follow-up to the United States - Tax Treatment for "Foreign Sales

Corporations' WTO dispute" between the EC and the US of 29 September 2000, the EC hereby
requests the establishment of a panel.
In particular, the EC claims and requests the Panel to find the following:
- that the FSC Replacement Act results in the foregoing of tax revenue that is otherwise
due, thereby conferring a benefit upon recipients. Therefore, the FSC Replacement Act provides
subsidies within the meaning of Article 1 of the SCM Agreement and under the Agreement on
Agriculture;
- that the FSC Replacement Act provides subsidies which are contingent upon export
performance contrary to Article 3.1(a) of the SCM Agreement and specifically related to export
contrary to item (e) of Annex 1 of the SCM Agreement;
- that the FSC Replacement Act provides subsidies which are contingent upon the use
of domestic over imported goods contrary to Article 3.1(b) of the SCM Agreement;
- that consequently, the FSC Replacement Act grants and maintains subsidies contrary
to Article 3.2 of the SCM Agreement;
- that the subsidies provided by the FSC Replacement Act also constitute export
subsidies within the meaning of Articles 1(e) and 9.1(a) of the Agreement on Agriculture and are
contrary to Articles 3, 8, and 10.1 of the Agreement on Agriculture;
- that the FSC Replacement Act provides treatment less favourable to products
imported into the US that is accorded to like US products, contrary to Article III:4 of GATT 1994;
- that the FSC Replacement Act contains transitional provisions which allow
companies to continue to benefit from the WTO incompatible FSC scheme beyond
30 September 2000;
- that the US has failed to comply with the DSB recommendations and rulings in
, WT/DS108 by 1 November 2000, as
specified by the DSB on 12 October 2000.
Accordingly, the EC requests the Panel to conclude:
- that the FSC Replacement Act is inconsistent with the above provisions of the SCM
Agreement, the Agreement on Agriculture and GATT 1994; and
- that by failing to withdraw the subsidies found to be inconsistent with the SCM
Agreement and to bring its law into conformity with its obligations under the SCM Agreement and
the Agreement on Agriculture, the US has also fa iled to comply with the DSB recommendations and
rulings in this dispute.
The EC requests that the Panel be established with the standard terms of reference set out in
Article 7 of the DSU.
The EC requests that a special meeting of the DSB be held on 20 December 2000 to consider
this request.