February 14, 2006	Tuesday	Muharram 15, 1427

GENEVA, Feb 13: The United States has failed to fall into line with a ruling in 2001 that declared certain corporate tax breaks to be an illegal export subsidy, the World Trade Organization said on Monday.

A WTO compliance panel upheld an earlier finding by the organization, saying in a report that changes to US legislation in 2004 had failed properly to repeal the former US Foreign Sales Corporations (FSC) system.

The new US rules maintain some subsidies that were first found to breach the rules of international trade in a ruling in August 2001 by the WTO following a complaint by the European Union, the report said.

Under WTO regulations, the United States has three months to implement changes. EU Trade Commissioner Peter Mandelson said the EU would impose trade sanctions in the form of raised customs duties if Washington failed to act before the deadline.

“The responsibility now lies squarely with the US,” he said in a statement.

He said he was ready to “work closely” with the United States to find a solution but that Brussels would not accept the continuation of a system giving US exporters an “unfair advantage.”

The 149 trading nations in the WTO set the rules for global commerce among themselves, and can turn to the Geneva-based body to settle their spats. WTO cases are often extremely complex and can last for years, particularly when the organization’s members opt to appeal. Governments agree to be bound by the decisions of the WTO’s dispute settlement body and to bring their legislation into order. They can face stiff penalties if they do not.

If the WTO members who lodged the original complaint are still unhappy, they can ask for a compliance panel ruling — as was the case in the FSC dispute. In October 2004, President George W. Bush signed legislation that ended the FSC system of export tax breaks for US corporations operating in off-shore tax havens. But the EU, which charged that the original tax breaks constituted illegal subsidies for US business, filed another WTO complaint.

It said that Washington’s new legislation appeared to allow some US exporters to benefit from tax breaks in 2005 and 2006 and for an indefinite period on certain binding contracts.

The reference in the law to binding contracts concerned long-term sales options signed by US heavyweights such as Boeing, General Electric, Motorola and Microsoft. After Brussels won the first round of the trade tussle, in May 2003, the WTO granted the EU the right to impose up to $4 billion in punitive duties in US imports.—AFP