EU welcomes WTO award of US $ 4 B of Countermeasures 
Renews Call for US compliance with WTO Rules

PRESS RELEASE 30aug02

BRUSSELS--Today, the EU welcomed the decision by the WTO arbitrators to authorise the EU to take countermeasures of US $ 4,043 million. This decision should bring US compliance with the WTO rulings a step closer. Following the decision, Commissioner Lamy said: "We are satisfied by today's decision that makes the cost of non-compliance with WTO crystal clear. The arbitrators have endorsed the EU's request, i.e., they have given us an amount of potential countermeasures which will create a major incentive for the US to eliminate this huge illegal export subsidy."

"We need to see compliance in a series of steps. President Bush took a first important step at the last EU-US Summit by stating that the US Administration will do everything in its power to comply. Another important step has been accomplished with the introduction of the Thomas bill in Congress that is manifestly intended to bring the US into compliance. We call on the US Congress to act quickly so that legislation will move forward and enable repeal of the FSC/ETI scheme within a short period of time.

The path is now clear for the EU to adopt sanctions if the US does not repeal the FSC/ETI scheme expeditiously. We will consult with our industry and the Member States on a detailed product list of possible countermeasures to be notified to the WTO. Before any countermeasures are taken, we will carefully evaluate progress made on US implementation." The decision of the WTO arbitrators authorises the EU to impose sanctions at the level of US $ 4,043 million by increasing the customs duties on certain selected products up to 100%. The EC's request of US $ 4,043 million was made on the basis that the countermeasures should equal at a minimum the amount of the subsidy. The EU is, therefore, pleased with the fact that the arbitrator has accepted its arguments. In particular, in line with WTO provisions on export subsidies and their interpretation in past cases, the arbitrator's decision is based on the principle that the US is under an obligation to withdraw the FSC subsidy and that countermeasures for the amount of the subsidy are appropriate to achieve this end.

Although no specific deadlines are specified under WTO rules, the EU must formally request from the Dispute Settlement Body authorisation to suspend concessions and notify the relevant detailed list of products, building on the original indicative list (chapter headings) submitted in November 2000. The products concerned will be selected in due course following consultations with Member States and industry. Countermeasures may be taken anytime after final DSB authorisation has been granted.

Background

The history of this case goes back to 1971 to the Domestic International Sales Corporation (DISC) scheme, which was declared an illegal export subsidy by a GATT panel in 1976 (the panel ruling was adopted in 1981). The US replaced the DISC scheme with the FSC scheme in 1984. At the time the EU contested the legality of the FSC but did not pursue it due to the opening of the Uruguay Round trade negotiations.

Following further complaints by EU companies, and in view of the increasing amount of FSC subsidies being granted by the US, the EU resumed bilateral contacts with the US in 1997. Since no progress was made, the EU requested a WTO panel to pronounce itself on the dispute. The Panel in its report of October 1999, found the FSC to constitute an illegal export subsidy under both the Subsidies Agreement and (in relation to agricultural products) the Agriculture Agreement. The US appealed against the Panel Ruling but the Appellate Body confirmed the panel findings on the illegality of the FSC scheme. The US was then given until 1 October 2000 (extended to 1 November 2000) to withdraw the FSC scheme.

In an effort to comply, on 15 November 2000, President Clinton signed the FSC Replacement Act (ETI Act) into law. The ETI Act, however, did not modify the substance of the export subsidy scheme and as a result on 17 November 2000, the EU launched a further Panel on compliance and at the same time presented a request for countermeasures for an amount of US $ 4,043 million. While the compliance panel was established in December 2000, it was agreed that, during the compliance procedure, the arbitration procedure on the amount of countermeasures would be suspended and that it would be automatically reactivated upon adoption by the WTO of the Appellate Body's findings.

On 20 August 2001, the WTO compliance panel examining the ETI Act issued its report in full support of the EU. In particular, the panel found that the ETI Act also constituted a prohibited export subsidy under WTO rules. The US appealed but in January 2002 the WTO Appellate Body once more confirmed the panel findings.

Consequently, on 28 January 2002 the panel and Appellate Body reports were adopted and the arbitration procedure was reactivated. The report of the arbitrators was originally due on 29 March 2002 (60 days from adoption of the reports) but, upon the initiative of the arbitrators, it was delayed until the end of August 2002.

For further information see:

IP/01/1214, IP/00/1321, MEMO/00/84, IP/00/1094 and IP/00/186

source: http://europa.eu.int/comm/trade/miti/dispute/fsc0209_en.pdf 14sep02