Today, at its weekly meeting, the European Commission has adopted a proposal to impose countermeasures on selected US products in connection with the long-standing WTO dispute on the US Foreign Sales Corporations. Under the proposed scheme, countermeasures would be imposed gradually starting from 1 March 2004. The Commission's proposal is in line with the WTO authorisation, granted earlier this year, to apply countermeasures of up to $4 billion following the failure of the US to comply with the WTO rulings. The proposal has now been forwarded to the Council for its adoption.
EU Trade Commissioner Pascal Lamy said: "The Commission hopes to pass a very clear message to the US that their continued failure to implement 3 years after the expiry of the original WTO deadline is unacceptable. I have just been to Washington and have clearly explained our position. Still, we have opted for a measured approach and have actually left the door open for US action before countermeasures are to be applied in March 2004. I hope the US will seize this opportunity".
With the clear objective of obtaining withdrawal of the US measures, the Commission's proposal provides for a gradual imposition of countermeasures as from 1 March 2004 at the level of 5%, followed by automatic, monthly increases of 1% up to a ceiling of 17% to be reached in March 2005.
The Commission proposal includes a detailed list of products on which countermeasures may be applied, which was prepared following extensive consultations with EU economic operators and Member States. This list was already rendered public in May 2003.
In subsequent rulings by a Panel and the Appelate Body, 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. The US was then given until 1 November 2000 to withdraw the FSC scheme.
On 15 November 2000, President Clinton signed the ETI Act, 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.
Consequently, 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 had, 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 FSC(ETI).