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EU's LAMY DEFENDS STANCE ON FSCs

BRUSSELS - European Union Trade Commissioner Pascal Lamy has defended his decision to give the United States until autumn to change disputed tax laws or face $4.0 billion of sanctions, reports Reuters. Lamy issued the autumn deadline, which could spark the record sanctions in the form of punitive duties from January 1, just days after the US and EU pledged to work closer together on stalled global trade talks. Asked whether the move had soured relations and set back the talks, he told reporters it was not meant as a threat. "I have not heard of a threat, I have heard of a deadline," he said. "We have had this thing (the dispute) for more than two years now and I don't think that there is anything aggressive in this (deadline)," Lamy added. The EU got the green light from the World Trade Organisation (WTO) on Wednesday to impose the sanctions in retaliation for a system of export tax breaks given to US companies, including giants such as Boeing and Microsoft. The Foreign Sales Corporation (FSC) mechanism was judged illegal by the WTO three years ago. The EU can impose the sanctions when it sees fit, but has said it would hold off as long as the US "was making progress" in scrapping the tax program, Lamy said. He said his intention had been to help the debate on Capital Hill, where two bills have been introduced to comply with the WTO ruling, and in the Bush Administration. "They are determined to adopt WTO-compliant tax legislation by the autumn. I have not invented this, I have plugged my own attitude into theirs," he added. European Commission trade spokeswoman Arancha Gonzalez said Lamy was looking at the bills being discussed in Congress and took issue with the idea there should be any phase-in periods for scrapping the tax breaks. One bill, proposed by Rep. Charles Rangel (D-NY), includes a period of six years for the FSC scheme to be phased out. It has been criticized by the proponent of another bill, Rep. Bill Thomas (R-CA). Gonazalez said Commission lawyers had concluded transition periods were not compatible with WTO rules and were therefore "unacceptable" to the EU executive.

SOUTH AFRICAN CIRCUIT BREAKER INVESTIGATION ENDED

WASHINGTON, DC - The US International Trade Commission (USITC) has
ended in its first phase a dumping case concerning US imports of hydraulic magnetic circuit breakers from South Africa and made a preliminary determination that evidence of injury or threat to the domestic industry did not suffice to continue the investigation. The move effectively ends the case. According to the ITC, the top 2002 source of these imports into the US was Mexico. The commission gave no information about the value of imports from South Africa.

USTR COMMENDS JAPAN FOR DEREGULATION ZONES, REFORMS

TOKYO - US Trade Representative Robert Zoellick has commended the creation of more than 100 deregulation zones and other important regulatory reform steps that Japan is taking to spur its economy and further open its markets to US companies. These steps are included in the "Second Report to the Leaders" under the U.S.-Japan Regulatory Reform and Competition Policy Initiative. In April, Japanese Prime Minister approved the first 57 deregulation zones under the new Initiative. Some of the first zones could be of significant commercial interest to US business, such as the zones established at seven of Japan's major air and seaports where overtime charges associated with customs processing have been cut in half. An additional 60 zones were approved recently in Tokyo, Zoellick said. In addition to the deregulation zones, other measures specified in the 55-page report include: introducing competition in an increasingly important segment of the telecommunications sector (fixed-line to mobile phone calling) by allowing market players to set their own prices; submitting legislation this month to extend the term of copyright protection for cinematographic works from 50 to 70 years, a step that would bring Japan in line with the global trend to extend such rights; significantly advancing reform of Japan's energy sector through legislation now being deliberated in the Japanese parliament that would pave the way for expanding liberalization of the retail electricity sector in Japan from 26% of the market to 63% by 2005; improving the speed and efficiency of approval processes for medical devices and pharmaceuticals that will bring products to market faster, increase consumer choice, and expand access for US companies to Japan's healthcare market; bolstering the independence and staffing of Japan's antitrust watchdog so that it can better promote a competitive environment in the Japanese market for domestic and foreign companies alike; allowing foreign firms to use modern merger techniques to acquire Japanese companies, which will make Japan a more attractive environment to much needed foreign direct investment; and reducing by 50% overtime fees associated with Customs procedures at most of Japan's major air and seaports, thereby lowering the cost of doing business for US exporters and express carriers.

THAILAND 'UST IMPROVE COMPETITIVENESS

BANGKOK - Thailand "must improve its competitiveness significantly" if it is to continue to recover from the 1997 Asian financial crisis, according to the World Bank. The warning comes even though Thailand's economy grew by 5.2% last year - the most since the crisis - and poverty levels have dropped to nearly pre-crisis levels, the bank said in its recently released annual report. Over the medium term, the bank recommended greater deregulation of business, opening up more to foreign trade and joining the information-technology driven "knowledge economy." The bank credits Thai policy-makers for stimulating domestic demand and targeting new export markets, both of which helped boost growth in gross domestic product last year. Before the 1997 crisis, Thailand's economy grew by 10% for a decade, but since then it has expanded at less than 5%. The World Bank reiterated its projection that real GDP growth is expected to slow to 4.5% this year due to "an uncertain external environment," referring to modest growth projections for Thailand's markets in the developed world. The report said that Thailand has pushed poverty back down from 13.8% in 2000 to 10.4% in 2002, almost the level it was at before the 1997 crisis. The government also won plaudits for successful macroeconomic adjustment, reflected in increasing foreign exchange reserves to more than $7 billion and lowering external debt to 47% of GDP, nearly half the share in 1998. But it also noted that "recent financial and corporate sector restructuring and reforms have been limited" even though Thailand has made significant progress since the crisis in strengthening its banking sector. "The banking system's financial position, although improving, remains fragile," it said. It noted as well that reforms for the development of the non-bank sector and capital market remain stalled. The report praised Thailand's efforts in targeting new export markets including China; creating a separate information technology ministry; recognizing the need for education reform; and refocusing on poverty.

UKRAINE FOLLOWS RUSSIA, INSTITUTES FLAT INCOME TAX

KIEV -- Ukraine's parliament has followed Russia's lead and approved a 13% flat income tax in a move hailed by the government as a crucial step toward creating a prosperous middle class and reducing the country's so-called shadow economy. The bill, which will take effect next January 1, was backed by a majority of 352 deputies in the 450-seat chamber. The 13% flat income tax Russia introduced in 2001 is widely credited with helping to boost the country's economy. Ukraine's parliament, the Rada, changed the income tax regime from the current rates of 10, 15, 20, 30 and 40%. Ukrainians earning more than $320 per month fall in the top tier. The 13% rate would be raised to 15% from Jan. 1, 2007, it said. According to one analyst, the move will help develop a strong consumer market and reduce Ukraine's dependence on exports. Exporters account for about 60% of Gross Domestic Product and have been the major driving force behind the country's economic recovery over the past three years. The government also plans to submit to parliament in the near term a bill on tax amnesty.

ITC POSTPONES DECISION ON TELEVISION IMPORTS
 
WASHINGTON, DC  - The International Trade Commission has announced it will hand out a ruling by June 16 about whether a full investigation is necessary for a US  maker's allegation of dumping against Chinese and Malaysian television manufacturers. The antidumping claim was filed earlier this month by a Tennessee-based electric appliance company - Five Rivers Electronic Innovations, and two US labor unions. The targeted Chinese makers include the nation's largest - Sichuan Changuhong Electric Co. - and several other major television manufacturers. The ITC's current investigation is still at the preliminary stage. If it determines in favor of the US maker in the mid-June ruling, the trade watchdog will investigate further to determine if Five Rivers' actually suffered an injury from the Chinese and Malaysian makers' exports. In parallel with the ITC's continued investigation, the Commerce Department will examine whether the Chinese and Malaysian television export practices constitute dumping and, if so, will set their dumping margins. On the other hand, a preliminary ITC ruling in favor of the foreign exporters would end the case. Five Rivers' complaint demanded the imposition of tariffs up to 84% on China's television exports to the US and up to 46% of Malaysia's. The US-based manufacturer reportedly claimed that the volume of color television exports to the US by the two countries jumped to 2.8 million in 2002 from 375,695 a year earlier. China, now the world's biggest color television producer, exported almost 19 million units worldwide in 2002, up 48% from a year earlier, according to the official statistics.

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