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Sanctions threat are said to jeopardize ''harmonious'' trans-Atlantic relations

WASHINGTON, DC - 02/15/06 - The Bush Administration has criticized the European Union (EU) intention to re-impose trade sanctions following a World Trade Organization (WTO) ruled that the US law repealing illegal export tax breaks is "inadequate."
 
In its recent ruling, the WTO Appellate Body said the 2004 law passed by the US Congress repealing the tax breaks improperly continues them for two years, through 2006.

Also improper, it said, is a "grandfather clause" continuing some tax breaks beyond 2006 that were included in business contracts signed before late 2003.

At issue were the Foreign Sales Corporation (FSC) and the successor Extraterritorial Income Act (ETI), which allowed certain US exporters to exclude some of their trade-related profits from taxation. 

WTO had ruled against each program as violating a WTO agreement that prohibits certain government subsidies.

In March 2004, the EU began imposing retaliatory duties - a percentage (rising each month) of the $4 billion annual level authorized by the WTO - on certain US imports. 

In January 2005, the EU suspended the retaliatory duties pending its challenge of the US repeal.

After the final Appellate Body ruling, the EU quickly threatened to re-impose sanctions within 90 days unless the United States complied fully. 

In a written statement, USTR spokesman Neena Moorjani urged the EU to refrain from re-imposing the sanctions saying, "Congress has repealed the FSC and the ETI, and prolonging this dispute will not serve to foster harmonious transatlantic relations."

That, she said, "is especially true given the fact that the general transition provision expires at the end of this year, and any benefits from the grandfather provisions will be extremely small."

Some of the "grand-fathered" US tax breaks go to The Boeing Company, the Seattle-headquartered commercial aircraft maker and arch-rival of EU-subsidized Airbus. 

Unable so far to reach a negotiated resolution on the larger issue of aircraft subsidies, each side has filed WTO complaints against the other, creating possibly the most complex set of WTO dispute-resolution cases ever.

Moorjani said that by re-imposing sanctions the European Commission (EC) would "reinforce the perception that the European Commission is primarily acting in response to the US filing of a WTO complaint against Airbus subsidies."

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