EU backs away from retaliation on FSC

The real process­es of WTO dis­pute set­tle­ment don’t fol­low the sim­ple-mind­ed, trade-war scripts of the news head­lines. The EU’s offer to cool the lev­el of its threats over the dis­pute on income-tax sub­si­dies to US cor­po­ra­tions is a more accu­rate reflec­tion of how the sys­tem works. Last year, the WTO Dis­pute Set­tle­ment body “authorized(link to WTO press release)”:http://www.wto.org/english/news_e/news03_e/dsb_7may03_e.htm the EU to take tem­po­rary com­pen­sa­tion mea­sures affect­ing a record $4bn of imports from the USA to off­set the sub­si­dies due to the US For­eign Sales Cor­po­ra­tion leg­is­la­tion, found to be incon­sis­tent with WTO pro­vi­sions in Octo­ber 1999. Of course, rais­ing the costs of imports by intro­duc­ing a tax on your own users and con­sumers is a com­plete­ly insane way to obtain ‘com­pen­sa­tion’ for some for­eign breach of the WTO rules, so the EU did not pro­ceed with the autho­rized tar­iff increas­es imme­di­ate­ly. It demand­ed, nev­er­the­less the ‘imme­di­ate’ ces­sa­tion of the US pay­ments. The US promised that it would make anoth­er attempt to fix its leg­is­la­tion. Now Brus­sels has soft­ened its line again. bq. Brus­sels trade offi­cials said they would accept a tran­si­tion peri­od allow­ing the US to phase out the so-called For­eign Sales Cor­po­ra­tions pro­vi­sion — which grants tax breaks to exporters such as Microsoft and Boeing.(“Financial Times”:http://news.ft.com/servlet/ContentServer?pagename=FT.com/StoryFT/FullStory&c=StoryFT&cid=1075982534043&p=1012571727179) The price of this con­ces­sion, says the Com­mis­sion, is that the Con­gress take the first steps toward revis­ing the leg­is­la­tion in the next few weeks. The EU looks to be the result of a cal­cu­la­tion that the Con­gress is more like­ly to respond to soft words in an elec­tion year and an indi­ca­tion that the con­tentious leg­is­la­tion could be post­poned until after the US elec­tion, as long as the first steps toward change are booked now. Dis­pute set­tle­ment is some­thing that the major economies want to make work, because the prospect of an actual—as opposed to a threatened—trade war is very unwel­come to any of them. The eco­nom­ic and for­eign pol­i­cy costs are far too high.

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