UNITED STATES – TAX TREATMENT FOR "FOREIGN SALES CORPORATIONS"
Document: Notification of an Appeal by the United States under paragraph 4 of Article 16 of the Understanding on Rules and Procedures Governing the Settlement of Disputes (DSU)
Date: 28 October 1999
Document codes: WT/DS108/5
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"
Notification of an Appeal by the United States under
paragraph 4 of Article 16 of the Understanding on Rules
and Procedures Governing the Settlement of Disputes (DSU)
The following notification, dated 28 October 1999, sent by the United States to the Dispute
Settlement Body (DSB), is circulated to Members. This notification also constitutes the Notice of
Appeal, filed on the same day with the Appellate Body, pursuant to the Working Procedures for
Appellate Review.
Pursuant to Article 16 of the Understanding on Rules and Procedures Governing the
Settlement of Disputes (DSU) and Rule 20 of the Working Pr ocedures for Appellate Review, the
United States hereby notifies its decision to appeal to the Appellate Body certain issues of law
covered in the panel report on () and certain legal interpretations developed by the panel.
1. The United States seeks review by the Appellate Body of the panel's finding that the tax
exemption provided by the Foreign Sales Corporation (FSC) provisions of the U.S. Internal Revenue
Code constitutes an export subsidy prohibited by Article 3.1(a) of the Agreement on Subsidies and
Countervailing Measures (SCM Agreement). This finding is in error, and is based upon erroneous
findings on issues of law and on related legal interpretations with respect to various provisions of the
SCM Agreement and other covered agreements, including:
(a) the panel's failure to find that footnote 59 of the SCM Agreement establishes a
controlling legal principle to the effect that a Member may exempt foreign source
income from tax even if such exemption is specifically related to exports;
(b) the panel's failure to find that footnote 59 of the SCM Agreement establishes a
controlling legal principle to the effect that a Member may take measures to avoid the
double taxation of foreign source income even if such measures are specifically
related to exports;
(c) the panel's failure to begin its analysis with the more specific provisions of item (e)
and footnote 59 of Annex I to the SCM Agreement;
(d) the panel's finding that the 1981 Understanding has no relevance to the instant dispute
and the interpretation of the SCM Agreement even though, as found by the panel, the
Understanding constitutes a "decision" within the meaning of Article XVI:1 of the
WTO Agreement;

(e) the panel's finding that the 1981 Understanding adopted by the GATT Council and
approved by the CONTRACTING PARTIES doe s not fall within paragraph 1(b)(iv)
of the language in Annex 1A incorporating GATT 1994 into the WTO Agreement;
(f) the panel's finding that a failure to tax foreign source income constitutes the foregoing
of revenue that is "otherwise due" within the meaning of Article 1.1(a)(1)(ii) of the
SCM Agreement.
2. The United States seeks review by the Appellate Body of the panel's finding that the FSC tax
exemption violates U.S. obligations under Articles 3.3 and 8 of the Agreement on Agriculture. This
finding is in error, and is based upon erroneous findings on issues of law and on related legal
interpretations with respect to various provisions of the Agreement on Agriculture and other covered
agreements, including:
(a) the panel's finding that the FSC tax exemption is a subsidy for purposes of the
Agreement on Agriculture;
(b) the panel's finding that the FSC tax exem ption constitutes a subsidy to "reduce the
costs of marketing exports of agricultural products" within the meaning of
Article 9.1(d) of the Agreement on Agriculture;
(c) the panel's finding that the mere availability of the FSC tax exemption constitutes a
violation of the obligation in Article 3.3 not to "provide" export subsidies listed in
Article 9.1 in respect of any agricultural product not specified in Section II of Part IV
of a Member's Schedule.
3. The United States seeks review of the panel's procedural finding denying the U.S. request to
dismiss the claims of the European Communities (EC) under Article 3 of the SCM Agreement due to
the EC's failure to include in its request for consultations under Article 4.2 of the SCM Agreement a
statement of available evidence regarding the existence and nature of the subsidy in question.
4. The United States seeks review of the panel's procedural finding denying the U.S. request that
the EC's claim regarding the FSC administrative pricing rules be dismissed or deferred until the EC
has first attempted to resolve the issues it raises through the facilities of existing bilateral tax treaties
or other specific international instruments.