29 Non-compliance with WTO rulings: suspension
of additional customs duties on certain US exports
| (26185)
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| Draft Council Regulation suspending additional customs duties on imports of certain products originating in the United States of America
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| Legal base | Article 133 EC; QMV
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| Department | Trade and Industry
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| Basis of consideration | EM of 13 December 2004
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| Previous Committee Report | None
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| To be discussed in Council | Shortly
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| Committee's assessment | Politically important
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| Committee's decision | Cleared
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Background
29.1 In 1971, the United States introduced its Domestic International
Sales Corporation (DISC) scheme, which was subsequently declared
an illegal export subsidy by a GATT panel. That scheme was then
replaced in 1984 by the Foreign Sales Corporations (FSC) scheme,
and, although the Community contested its legality at the time,
it did not pursue the point, due to the opening of the Uruguay
Round of trade negotiations. However, following further complaints
by Community companies, it subsequently requested a World Trade
Organisation (WTO) panel to rule on the dispute. That panel found
that the FSC amounted to an illegal export subsidy, and, after
its findings had been confirmed by the WTO's Appellate Body, the
US was given until 1 October 2000 to withdraw the scheme.
29.2 In an effort to comply, the previous Administration
passed an Act in November 2000, but, as this did not modify the
substance of the export subsidy scheme, the Community launched
a further panel proceeding on compliance. In August 2001, this
fully supported the Community case by finding that the Act did
not amount to a withdrawal of the FSC subsidy, and this finding
was also confirmed by the WTO Appellate Body in January 2002,
following a US appeal. As a result, the Community was authorised
to impose sanctions at the level of $4.04 billion by increasing
the customs duties on certain selected products by up to 100%.
29.3 The measures eventually adopted are set out
in Council Regulation No. 2193/2003,[83]
and are based on the principle that, although the imposition of
additional import duties of up to 100% on all imports of US origin
covered by the WTO authorisation is an appropriate counter-measure,
a gradual approach, in terms of both timing and level of duty,
would be preferable. In general, therefore, the Regulation set
an initial level of duties at 5% on 1 March 2004, to be increased
monthly up to a level of 17% by 1 March 2005, with any action
thereafter being the subject of a further proposal from the Commission.
29.4 As we noted in our Report of 3 December 2003,[84]
the UK believed that the introduction of these retaliatory measures
would do little to improve transatlantic trade relations, but
was conscious that the period set by the WTO for US compliance
had long since expired, and that the US had yet to come forward
with firm proposals to repeal the offending measures. Consequently,
and on balance, it supported the view of the Commission and other
Member States that it was necessary to plan for the introduction
of retaliatory measures to keep up the pressure on the US to comply
with the WTO rulings and repeal the FSC scheme.
The current proposal
29.5 Although an official text is not yet available,
we have received an Explanatory Memorandum, of 13 December 2004,
from the Minister for International Trade, Investment and Foreign
Affairs at the Department of Trade and Industry (Mr Douglas Alexander),
indicating that President Bush has recently approved a Bill which
includes provisions to repeal in part the effects of the FSC scheme.
Although the Commission is concerned that the US has still not
complied fully with its obligations to amend the FSC provisions,
and has requested the WTO to rule on this, it will nevertheless
be asking the Council on 22 December to agree that the retaliatory
duties imposed by the Community in Council Regulation 2193/2003
should be suspended as from 1 January 2005, on the grounds that
this would recognise that the United States has to an extent decided
to live up to its obligations in this case, and encourage it to
do likewise in other current instances of non-compliance. However,
the proposal would also provide for Regulation 2193/2003 to become
applicable again as from 1 January 2006, or 60 days after the
WTO's Dispute Settlement Body confirms that certain aspects of
the recent United States legislation are incompatible with its
WTO obligations, whichever is the later, and it would at the same
amend the list of products covered, and impose a 14% ad valorem
duty if and when the Regulation is brought back into effect.
The Government's view
29.6 The Minister says that it is in the interests
of trade relations between the Community and the US that retaliatory
duties are suspended whilst the WTO further considers the issue,
and that it is also in the interests of UK operators (including
some small businesses which have been adversely affected by the
imposition of retaliatory duties) that the situation is normalised
as from 1 January 2005. However, the UK does have reservations
about the automatic re-introduction of retaliatory duties should
the WTO find that the US remains outside its compliance obligations
on FSCs, since it believes that it is not possible at this stage
to determine the level of retaliation which the Community may
be able to reintroduce.
Conclusion
29.7 Although doubts apparently still exist as
to how far the measures taken recently by the United States remove
the earlier objections to the Foreign Sales Corporations scheme,
the fact that they do so to some extent at least is welcome, as
is the Commission's proposal to suspend for the time being the
retaliatory action which the Community took last year. We also
note that, notwithstanding its reservations about the possible
automatic re-introduction of those measures, the Government believes
that what is now proposed is on balance in the UK interest, and
we are therefore clearing this proposal.
83 OJ No. L.328, 17.12.03, p.3. Back
84
(25088) - ; see HC 42-i (2003-04), para 18 (3 December 2003). Back
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