DSB: EC-US Disputes Top Agenda

13 November 2003

Two major WTO disputes between the US and the EC have recently moved to a level where the EC is threatening to impose retaliatory measures: the US - Definitive Safeguard Measures on Imports of Certain Steel Products and the US - Tax Treatment for Foreign Sales Corporations. Meanwhile, the EC - Beef Hormones case looks set to continue, since the US and Canada remained unconvinced that new EC scientific evidence justified an EU import ban on hormone-treated beef.

The WTO Appellate Body, in a 10 November report, upheld a July 2003 panel conclusion that had found US steel tariffs inconsistent with the General Agreement on Tariffs and Trade (GATT 1994) and the WTO Safeguards Agreement (see BRIDGES Weekly, 17 July 2003). The US had imposed tariffs of up to 30 percent in March 2002 in order to re-energise its ailing steel industry, and Brazil, China, the EC, Japan, Korea, New Zealand, Norway and Switzerland had filed disputes over the measures.

Under the WTO ruling, the EC would have the right to impose tariffs worth USD 2.2 billion, and has threatened to do so by mid-December. However, Adolfo Urso, Italy's Industry Ministry undersecretary in charge of foreign trade, urged US President Bush to discontinue the support to the steel industry. According to Urso, "we want to ward off a commercial war that, in terms of its size, would be unprecedented". Japan, China and South Korea have also announced that they are considering sanctions. The steel tariffs are also under debate domestically in the US, as certain industry sectors, such as the car industry, have suffered from the increased steel prices. To view the Appellate Body report, see http://www.wto.org/english/news_e/news_e.htm.

EU prepared to retaliate over American ETI/FSC

The EC announced on 5 November that it is set to impose a gradually phased-in scheme of retaliatory tariffs unless the US repeals the Extraterritorial Income Exclusion Act (ETI -- formerly the Foreign Sales Corporations Act, FSC), granting disputed tax-breaks to US exporters. The scheme, to begin in March 2004, would start with a five percent tariff imposed on US imports worth USD 4 billion and then be raised by one percent every month until reaching 17 percent in March 2005.

US Trade Representative Robert Zoellick warned that the levying of USD 4 billion in sanctions would be akin to releasing a "nuclear bomb" on trade relations. Pascal Lamy, European Trade Commissioner, noted that the gradual and measured approach would "leave the door open for US actions" before the March deadline of tariff commencement, and the countermeasures would be spread out over a long time period. According to one trade source "in the context of EU-US trade-relations, economically and politically, gradual retaliation seems the only way to go". In order to add pressure, however, the EC has drawn up a list of strategic products mainly from states crucial to US President Bush's re- election campaign next year.

The EC move followed a 7 May authorisation by the WTO Dispute Settlement Body (DSB) decision granting the EC retaliatory power (see BRIDGES Weekly, 14 May 2003). On 14 January 2002, the WTO's Appellate Body had upheld a 2001 compliance panel ruling which stated that the ETI/FSC scheme violated WTO rules as an illegal export subsidy under both the subsidies and agriculture agreements (see BRIDGES Weekly, 16 January 2002). The ETI/FSC is a scheme that allows American companies to exclude 15 percent of their net income from the export of goods made in the US from federal income tax. This benefits thousands of US firms, especially major corporations such as Microsoft, who were able to operate through subsidiaries in other countries.

EC beef hormone dispute drags on

At a DSB meeting on 7 November, the US and Canada rejected an EC appeal to end WTO-endorsed trade sanctions amounting to over USD 116.8 million and CAD 11.3 million, respectively, after the EC presented new scientific proof to justify an EC ban on beef containing hormones. On 22 September the European Parliament had adopted an amendment, based on new scientific evidence, to the existing Council Directive prohibiting the use in stockfarming of certain substances with hormonal or thyrostatic effects -- testosterone, progesterone, trenbolone acetate, zeranol and melengestrol acetate. The directive further banned the use of oestradiol in growth promotion of farm animals because "recent evidence suggests that it has to be considered as a complete carcinogen," and limited its use to treatment. The prohibition of the other five hormones for growth promotion would be provisional, as the "current state of knowledge does not make it possible to give a quantitative estimate of the risk to consumers".

At the DSB meeting, Canada said there was nothing new in the scientific evidence presented by the EC. US Ambassador Linnet Deily added that "the Directive... neither removes the European Communities' unjustified ban on US beef nor presents an appropriate risk assessment as a basis for the ban... The United States, however, cannot understand how this new Directive...could amount to implementation of the DSB recommendation". According to the US Food and Drug Administration, the level of hormones used in US beef production was too low to have any effect on humans. The US also stated that oestradiol was produced naturally in humans and would be safe in beef when used as approved and that synthetic compounds in other hormones had received "extensive toxicological testing in animals to determine safe levels for human food". Ninety-five percent of US beef is produced using growth- promoting hormones.

In 1999, a DSB panel had ruled that the US and Canada could impose higher tariffs on certain EU products based on the fact that EC had not provided sufficient scientific evidence to back the banning of US and Canadian beef containing growth promoting hormones. In response, the EU Scientific Committee on Veterinary Measures relating to Public Health (SCVMPH) carried out a risk assessment in 1999 and reviews in 2000 and 2002. The EC claimed that these reports, with the revised Directive, would render EC actions justified and the WTO complaint null. The negative reaction from the US and Canada at the meeting, however, prompted the EC to say it would take "necessary appropriate action," in requesting the original dispute panel to review the new scientific findings for a new ruling.

The next meeting of the DSB is scheduled for 1 December this year.

"EU Bares Teeth In Trade Row Over US Steel Tariffs," DOW JONES, 12 November 2003; "Foreign Sales Corporations: Commission prepares for the imposition of countermeasures on US products," EUROPEAN COMMISSION, 5 November 2003; "US must drop sanctions in beef hormone row-EU", REUTERS, 15 October 2003; "EC- measures concerning meat and meat products (hormones)", WTO COMMUNICATION FROM THE EC, 27 October 2003; "EU complies with WTO ruling on hormone beef and calls on USA and Canada to lift trade sanctions," EU PRESS RELEASE, 15 October 2003; "EU bans beef with growth hormones," THE BOSTON GLOBE, 16 October 2003; "EU mulls "appropriate action" as US, Canada reject claims in hormone row," AFP, 7 November 2003; "EU threatens tariffs on US exports," CALTRADE REPORT, 1-15 November 2003.

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