News Release
No. 32/04
February 27, 2004
FOREIGN SALES CORPORATION
(FSC): QUESTIONS AND ANSWERS
History of the FSC case
In
subsequent rulings the WTO found the
FSC to constitute an illegal export subsidy under both the Subsidies
Agreement and (in relation to agricultural products) the Agriculture
Agreement and gave the US until 1 November 2000 to withdraw the FSC
scheme.
On
15 November 2000, President Clinton signed the Extraterritorial Income
Exclusion (ETI) Act into law, which meant to replace the FSC. The ETI Act,
however, did not modify the substance of the export subsidy scheme and as
a result the EU challenged it before the WTO. In January 2002, the WTO
confirmed that the ETI Act also constituted a prohibited export subsidy
and that the US had not, therefore, complied with its previous ruling to
withdraw the prohibited export subsidy.
On 7
May 2003 the WTO endorsed the EU request for countermeasures for a level
roughly equal to the estimated annual US subsidy (i.e., US $4 billion).
The EU, however, avoided any immediate recourse to retaliation so as to
give a reasonable time for the US Administration and Congress to adopt the
necessary legislation for the repeal of ETI.
The
deadline for compliance was set 1 March 2004, as a result of a unanimously
approved
Council Regulation 2193/2003 of 8 December, i.e., more than 2 years
after the due date for compliance (January 2002), and 3.5 years beyond the
original date set for US compliance in the FSC case.
EU countermeasures on US
goods
EU's
objective remains the withdrawal of the US illegal subsidy. Therefore, the
EU has opted for a response which is measured, gradual and geared towards
focusing the mind of the
US legislator to comply.
Countermeasures on the selected
products consist of an
additional customs duty of 5% to be enforced as from
1 March 2004, followed by
automatic, monthly increases by 1% up to a ceiling of 17% to be reached on
1 March 2005, if compliance has not happened in between. Thereafter, the
measures should be re-examined in the light of the then applicable
circumstances.
In application of the above, the EU had
estimated the amount
of the countermeasures at $315 million in additional customs duties in the
period 1 March to 31 December 2004 and at $666 million in additional customs
duties for the
period 1 January 2005-31 December 2005. These amounts have been estimated
by applying the above mentioned extra customs duties on the average US
imports during the period 1999-2001.
For example, the monthly impact in
2004 is estimated as
follows:
|
2004 |
Cumulative duty |
in 000 US $ |
|
March |
5% |
16,575 |
|
April |
6% |
19,890 |
|
May |
7% |
23,206 |
|
June |
8% |
26,521 |
|
July |
9% |
29,836 |
|
August |
10% |
33,151 |
|
September |
11% |
36,466 |
|
October |
12% |
39,781 |
|
November |
13% |
43,096 |
|
December |
14% |
46,411 |
Countermeasures will be applicable throughout the EU
(including as of 1 May the ten new Member States), but they will remain
within the authorised level of US $4 billion.
The
entire list of US goods subject to countermeasures was published in
December 2003 (Official
Journal L 328 p.3, 17 December 2003) and is accessible at
http://trade-info.cec.eu.int/wtodispute/show.cfm?id=152&code=1 .
How the list of US goods was prepared
On
30 August 2002, the WTO arbitrators established that the EU may impose up
to US $4 billion in trade retaliation in the FSC/ETI dispute. On 13
September 2002 the European Commission published a list of products that
could be subject to countermeasures and invited European Industry and
Member States to comment on this list(1).
These products were selected from the very general custom chapters which
had been notified to the WTO at the time of the original condemnation of
the FSC by the WTO(2) (November 2000).
In
order to minimise the negative consequences that a possible retaliation
could cause to EU economic operators, the European Commission had included
in the list products on which dependency from the US was considered very
low, i.e., the list contained:
- only products for which imports from the US represented maximum 20 % of total
imports into the EU, and,
- which were
also exported from the EU.
Following the public consultation,
Member States gave their unanimous
support to the final list in March 2003. The EU notified the final list to
the WTO which, on 7 May 2003, endorsed the EU request for countermeasures.
The
list covers products from a great number of sectors such as agriculture
(e.g., hams and cuts, milk powder, tomatoes, pineapples), textiles (e.g.,
anoraks, suits, trousers, bedlinen), industrial products (e.g., forks,
handtools, drilling tools), electronical products (e.g., watertube
boilers, steam engines, refrigerators), paper products and steel (e.g.,
ferro-nickel alloys, non-alloy ingots, flat hot rolled products). The
above are only general descriptions; the exact description of the products
under each CN code can be found at:
http://europa.eu.int/eur-lex (OJ
L 290 of 28 October 2002).
The
additional duty is to be added on top of the current customs duty; for
example, the customs duties on specific products such as certain types of
honey, oil cakes, skates and candles will change as follows:
|
CN Code |
Description |
Normal rate of duty |
Additional duty March
‘04 |
Total applicable duty March
‘04 |
|
23040000 |
OIL-CAKE |
0% |
5% |
5.00% |
|
34060019 |
CANDLES. |
0% |
5% |
5.00% |
|
95067030 |
ROLLER SKATES |
2.70% |
5% |
7.70% |
|
4090000 |
NATURAL HONEY |
17.30% |
5% |
22.30% |
For more information:
http://trade-info.cec.eu.int/wtodispute/show.cfm?id=152&code=1
(1) Notice Relating to the WTO Dispute Settlement proceeding concerning
the US tax treatment of Foreign Sales Corporations ("FSC") - Invitation
for Comments on the List of Products that could be subject to Countermeasures,
OJ C 217/2 of 13 September 2002.
(2) United States Tax Treatment For "Foreign Sales Corporations," Recourse
by the European Communities to Article 4.10 of the SCM Agreement and Article
22.2 of the DSU, WT/DS108/13, 17 November 2000.
Press Contacts: |
Anthony Gooch
202-862-9523
|
Maeve O'Beirne
202-862-9549
|
