GENEVA, Aug 30: The World Trade Organization on Friday gave the European Union a green light to consider sanctions worth a record four billion dollars against the United States until Washington lifts tax breaks for major exporters.
The panel of WTO arbitrators largely ruled in line with the EU’s assessment of the amount of retaliation it could take against US imports every year until the subsidy for foreign service corporations (FSC) is eliminated.
They allowed $4.043 billion (4.122 billion euros) as “appropriate countermeasures”, basing the amount on the total trade impact of Washington’s policy, and rejected a US suggestion of $1.110 billion.
After a bitter dispute between the two trading giants, the WTO confirmed in February that the FSC system is illegal because it provides a direct export subsidy for major US corporations.
US REACTIONS: The United States said it was disappointed by Friday’s evaluation and insisted that the US Congress was examining changes in legislation.
“I am disappointed that the arbitrator did not accept the lower figure put forward by the United States,” US Trade Representative Robert Zoellick said in a statement.
But EU Trade Commissioner Pascal Lamy said the approved level of sanctions would create “a major incentive” for the US to eliminate the subsidy.
“We are satisfied by today’s (Friday’s) decision that makes the cost of non-compliance with WTO crystal clear,” he said.
Diplomats said the amount of potential sanctions, which is in line with the EU’s expectations, was unprecedented.
The ruling triggered an unusual statement from WTO Director-General Mike Moore, who urged the US and EU to resolve the dispute in “an amicable and constructive fashion”.
“The European Union and the United States are among the most important members of the organization and both hold a special responsibility to ensure the continued health and soundness of the WTO and the global trading system,” he added.
The EU can now ask the WTO’s Disputes Settlements Body for a final approval to apply the measures at any time, a step regarded largely as formality.
“It’s up to the EU how and when they act,” a trade source said. The FSC system allows US companies carrying out business through subsidiaries in offshore tax havens to benefit from reduced export taxes.
There are an estimated 4,000-5,000 FSCs, mostly based in tax havens, used by US multinationals. About half of annual US exports of $250 billion (252 billion euros) benefit from the regime, according to diplomats.
Brussels now has the option to impose a tax of up to 100 per cent on any US import, within a total limit of the $4.04 billion a year set by the arbitrators.
But diplomats also indicated that the EU was likely to tread carefully before it wielded the massive sanctions in case they in turn triggered some form of retaliation against European products and a wider trade war.—AFP