News
Releases
Peter Mandelson
No. 79/05
September 30, 2005
FSC: WTO CONDEMNS US SUBSIDIES TO EXPORTERS; RECIPIENTS OF ILLEGAL
SUPPORT INCLUDE BOEING
Today the WTO panel decision regarding US federal tax subsidies for
exporters was circulated to WTO Members. The Panel has found in favour of
the EU in all respects. It concludes that, despite some changes to its
legislation, the US has yet to abide by previous WTO rulings and the
recommendations of the WTO Dispute Settlement Body regarding the
FSC(Foreign
Sales Corporation)/ETI (Extraterritorial Income Exclusion)
dispute. The Panel also makes clear that the tax subsidies which have been
carried forward by using transitional periods and so-called
"grandfathering" violate WTO rules.
Peter Mandelson, EU Commissioner for
Trade, said, “The EU welcomes the WTO’s clear language and conclusions. It has been confirmed that the US
has yet to comply with previous WTO rulings. The EU appreciates that the
US Congress has repealed the original FSC tax scheme. However, despite
European opposition, the US Congress chose to perpetuate the prohibited
tax subsidies through a transition period and the permanent
‘grandfathering’ of existing contracts. These provisions, which are now
contained in the American Jobs Creation Act, are unacceptable in view of
the large benefits involved. We estimate these advantages, for example, to
add up to over $750 million for Boeing alone. This is striking because the
US is asking European companies to abide by the WTO definition of
subsidies regarding grants to Europe’s civil aircraft sector. I hope that
the US authorities will choose to act consistently in this matter.”
On 30 August 2002 WTO arbitrators authorized the European Union to impose
trade sanctions at the level of $4 billion (the estimated value of the
subsidy in 2000) by increasing the customs duties on certain selected US
products up to 100%. Countermeasures on certain US products entered into
force on 1 March 2004, with their level gradually increasing. On 31
January 2005 the EU Council adopted a Regulation suspending such sanctions
retroactively as from 1 January 2005 in the light of the further WTO
dispute settlement proceeding. The Council Regulation provides that the
trade sanctions will apply again after 1 January 2006 or, at the latest,
sixty days after the adoption of the compliance panel/Appellate Body report
finding the US law WTO incompatible.
Background
The US FSC tax subsidies have been declared in violation of WTO rules by a
WTO panel, the Appellate Body, and two compliance panels. This second
compliance panel was necessitated by the American Jobs Creation Act (“AJCA”),
which preserved in a transitional or "grandfathered" form some of the
federal payments made under the FSC.
The American Jobs Creation Act provides that the repeal of the Foreign
Sales Corporation and Extraterritorial Income provisions “shall not apply
to any transaction in the ordinary course of a trade which occurs pursuant
to a binding contract” entered into between unrelated persons before 17
September 2003, and contains the following clarification: “a binding
contract shall include a purchase option, renewal option, or replacement
option which is included in such contract and which is enforceable against
the seller or lessor.”
Consequently, in practice all standard commercial contracts are covered as
all such contracts bind their signatories and are enforceable. It should
also be noted that the clause applies to both sales and lease contracts
(and their options) which typically run for a number of years from the
moment they are signed until final delivery of the goods (i.e., typically
contracts for the delivery of large capital goods, such as aircraft). The
manufacturer will obtain the tax benefit once the goods are paid for and
actually exported.
The aim of the grandfathering clause is to ensure that certain US
exporters will continue to obtain WTO-prohibited FSC/ETI export subsidies
many years into the future, even beyond the expiry of the FSC/ETI
transitional period in 2006.
Further Contact Information
Press and Media Relations
Delegation of the European Commission
2300 M Street, NW
Washington, DC 20037
http://www.eurunion.org/PressRoom
Tel: 202-862-9552
Fax: 202-429-1766
