Subject: FW: hostile brothers - Raising the transatlantic trade stakes
Date: Fri, 18 Jan 2002 10:14:26 +1100



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> -----Original Message-----
> Sent:	Friday, January 18, 2002 9:57 AM
> Subject:	hostile brothers - Raising the transatlantic trade stakes
>
> =E8res examines the likely repercussions of the WTO ruling on
> > Foreign Sales Corporations
> > Published: January 13 2002 19:57 | Last Updated: January 14 2002 13:57
> >
> >
> >
> > The World Trade Organisation's appellate body will deliver the final
> ruling
> > in a four-year battle over a US corporate tax law on Monday afternoon
> (5pm
> > CET). The dispute is the biggest and politically most highly charged yet
> > adjudicated by the WTO.
> >
> > Since Robert Zoellick became US trade representative last spring, he and
> > Pascal Lamy, European Union trade commissioner, have worked tirelessly -
> and
> > with some success - to calm transatlantic trade strife.
> >
> > The EU says the law gives US exporters illegal subsidies worth $4bn a
> year
> > and has threatened sanctions of similar value on US exports unless it is
> > changed.
> >
> > Mr Zoellick has said that if retaliation goes ahead, it will unleash "a
> nuclear
> > weapon on the trading system" and severely damage companies on both
> > sides of the Atlantic.
> >
> > After winning three previous WTO cases on the issue, Brussels is
> confident
> > of decisive victory. Washington, meanwhile, seems resigned to defeat.
> > "People here would be amazed if the WTO ruled in our favour. Nobody
> seems to
> > think we stand a chance," says Bruce Stokes, a trade specialist with the
> US
> > Council on Foreign Relations.
> >
> > Brussels says that if the US loses, it must comply with WTO rules by
> ending
> > the disputed tax break. That would place President George W. Bush's
> > administration in a tight political corner, from which there appears to
> be
> > no easy escape.
> >
> > The US Congress has already changed the law on export tax relief once,
> in
> > response to a WTO decision in 1998 upholding an EU complaint against the
> > Foreign Sales Corporations act. The act allowed US companies to avoid
> tax on
> > foreign income by channelling it through special offshore subsidiaries.
> >
> > However, the EU objected that the FSC's replacement, the
> Extraterritorial
> > Income Exclusion Act (ETI), also flouted world trade rules. Last summer,
> a
> > WTO disputes panel agreed, prompting the US to appeal to the
> organisation's
> > appellate body.
> >
> > Congress repealed the FSC law reluctantly and seems in no mood to act
> again.
> > Although some influential Republican members favour changing the US
> > corporate tax system as part of broader fiscal reform, the idea lacks
> > majority support. Removing the offending tax break by tinkering with the
> > existing law would also face fierce resistance from companies that stood
> to
> > lose as a result.
> >
> > Mr Bush's administration appears to have no clear ideas about what to
> do. It
> > also lacks senior officials skilled at lobbying Congress on fiscal and
> > economic issues. Mr Zoellick has few admirers on Capitol Hill. Paul
> O'Neill,
> > Treasury secretary, who is nominally in charge of the ETI case, is under
> > fire from all sides, including the Republican right.
> >
> > However, the EU has made clear it intends to hold Washington's feet to
> the
> > fire. One reason is that it is determined to force the US to comply with
> > other WTO rulings against it on its anti-dumping, copyright and
> trademark
> > laws.
> >
> > If Brussels wins today, it plans to ask a WTO panel to authorise in
> April
> > sanctions on US exports. Washington cannot block the request, though the
> > panel would probably set the value of retaliation at less than $4bn.
> >
> > The EU would then publish a preliminary list of products targeted for
> > sanctions but would suspend retaliation temporarily, while it sought a
> > solution with the US. That would set the stage for an elaborate
> diplomatic
> > poker game.
> >
> > The EU says it is ready to negotiate constructively but would not wait
> > forever for results. If Washington balks at acting swiftly, Brussels may
> > insist it pay a price by cutting tariffs on exports of interest to
> Europe.
> > Such a demand could create new frictions, because American companies
> > protected by import barriers would fight their removal.
> >
> > The US, meanwhile, is warning Brussels not to push it too far. It has
> hinted
> > that if it loses the WTO case, it may challenge the legality of EU
> members'
> > corporate tax systems.
> >
> > In any event, the level of political rhetoric seems likely to rise on
> both
> > sides of the Atlantic. "There will be lots of tough language and
> > sabre-rattling," says an executive of a large European multinational
> > company.
> >
> > Some of the grandstanding is expected to be stage-managed by Mr Zoellick
> and
> > Mr Lamy. Although they co-operate closely behind the scenes, both know
> that
> > to get a settlement, they must impress their domestic constituencies
> with
> > tough talk.
> >
> > Most observers believe that, left to themselves, the two negotiators
> will
> > manage the dispute responsibly. European multinational companies, many
> of
> > which have US operations that benefit under ETI, are not pressing Mr
> Lamy to
> > raise the stakes. In the US, many business leaders are urging an
> amicable
> > settlement.
> >
> > However, things could go off the rails if hardliners in the Congress and
> EU
> > capitals start losing patience. There is a danger that the dispute could
> > become entangled in a looming transatlantic confrontation over US steel
> > imports, on which Mr Bush is threatening to impose stiff tariffs in the
> next
> > few weeks. If he does so, pressure may grow within Europe to strike back
> by
> > imposing sanctions over ETI.
> >
> > Trade officials fear hostilities could quickly escalate, with both sides
> > taking up the cudgels over other long-standing trade grievances, such as
> the
> > EU's refusal to approve genetically modified foods and the US
> Helms-Burton
> > anti-Cuba act.
> >
> > "If countries start taking aggressive actions, there is a risk of
> starting a
> > downward spiral of retaliation and counter-retaliation," says William
> > Reinsch, president of the US National Foreign Trade Council, an
> influential
> > Washington business association. "Things could easily get out of hand."
> >
> > Some observers hope the WTO's appellate body will still avert that
> threat by
> > delivering a less than clear-cut ruling that would make it easier for
> the US
> > and EU to reach a compromise settlement. However, few are counting on
> that
> > possibility.
> >
> > Although the tribunal often disagrees with the legal arguments used by
> WTO
> > disputes panels, it seldom reverses the substance of their findings.
> Unless
> > that pattern is broken today, the onset of a new transatlantic war of
> nerves
> > may be hard to avoid.
> >
> > ============================================================
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> > ============================================================
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>
> ----- Original Message -----
> From: <mritchie-AT-iatp.org>
> To: <jmcv-AT-bigpond.com>
> Sent: Tuesday, January 15, 2002 11:26 AM
> Subject: [wto-activist] Raising the transatlantic trade stakes
>
>
> > WTO Activist (wto-activist-AT-iatp.org)    Posted: 01/14/2002  By
> mritchie-AT-iatp.org
> > ============================================================
> >
> >
> >
> >
> >
> >  Financial Times.
> >
> > Raising the transatlantic trade stakes
> > Guy de Jonqui <<ATT5464574.txt>>

	name="ATT5464574.txt"
	filename="ATT5464574.txt"


=E8res examines the likely repercussions of the WTO ruling on
> Foreign Sales Corporations
> Published: January 13 2002 19:57 | Last Updated: January 14 2002 13:57
>
>
>
> The World Trade Organisation's appellate body will deliver the final
ruling
> in a four-year battle over a US corporate tax law on Monday afternoon (5pm
> CET). The dispute is the biggest and politically most highly charged yet
> adjudicated by the WTO.
>
> Since Robert Zoellick became US trade representative last spring, he and
> Pascal Lamy, European Union trade commissioner, have worked tirelessly -
and
> with some success - to calm transatlantic trade strife.
>
> The EU says the law gives US exporters illegal subsidies worth $4bn a year
> and has threatened sanctions of similar value on US exports unless it is
> changed.
>
> Mr Zoellick has said that if retaliation goes ahead, it will unleash "a
> nuclear weapon on the trading system" and severely damage companies on
both
> sides of the Atlantic.
>
> After winning three previous WTO cases on the issue, Brussels is confident
> of decisive victory. Washington, meanwhile, seems resigned to defeat.
> "People here would be amazed if the WTO ruled in our favour. Nobody seems
to
> think we stand a chance," says Bruce Stokes, a trade specialist with the
US
> Council on Foreign Relations.
>
> Brussels says that if the US loses, it must comply with WTO rules by
ending
> the disputed tax break. That would place President George W. Bush's
> administration in a tight political corner, from which there appears to be
> no easy escape.
>
> The US Congress has already changed the law on export tax relief once, in
> response to a WTO decision in 1998 upholding an EU complaint against the
> Foreign Sales Corporations act. The act allowed US companies to avoid tax
on
> foreign income by channelling it through special offshore subsidiaries.
>
> However, the EU objected that the FSC's replacement, the Extraterritorial
> Income Exclusion Act (ETI), also flouted world trade rules. Last summer, a
> WTO disputes panel agreed, prompting the US to appeal to the
organisation's
> appellate body.
>
> Congress repealed the FSC law reluctantly and seems in no mood to act
again.
> Although some influential Republican members favour changing the US
> corporate tax system as part of broader fiscal reform, the idea lacks
> majority support. Removing the offending tax break by tinkering with the
> existing law would also face fierce resistance from companies that stood
to
> lose as a result.
>
> Mr Bush's administration appears to have no clear ideas about what to do.
It
> also lacks senior officials skilled at lobbying Congress on fiscal and
> economic issues. Mr Zoellick has few admirers on Capitol Hill. Paul
O'Neill,
> Treasury secretary, who is nominally in charge of the ETI case, is under
> fire from all sides, including the Republican right.
>
> However, the EU has made clear it intends to hold Washington's feet to the
> fire. One reason is that it is determined to force the US to comply with
> other WTO rulings against it on its anti-dumping, copyright and trademark
> laws.
>
> If Brussels wins today, it plans to ask a WTO panel to authorise in April
> sanctions on US exports. Washington cannot block the request, though the
> panel would probably set the value of retaliation at less than $4bn.
>
> The EU would then publish a preliminary list of products targeted for
> sanctions but would suspend retaliation temporarily, while it sought a
> solution with the US. That would set the stage for an elaborate diplomatic
> poker game.
>
> The EU says it is ready to negotiate constructively but would not wait
> forever for results. If Washington balks at acting swiftly, Brussels may
> insist it pay a price by cutting tariffs on exports of interest to Europe.
> Such a demand could create new frictions, because American companies
> protected by import barriers would fight their removal.
>
> The US, meanwhile, is warning Brussels not to push it too far. It has
hinted
> that if it loses the WTO case, it may challenge the legality of EU
members'
> corporate tax systems.
>
> In any event, the level of political rhetoric seems likely to rise on both
> sides of the Atlantic. "There will be lots of tough language and
> sabre-rattling," says an executive of a large European multinational
> company.
>
> Some of the grandstanding is expected to be stage-managed by Mr Zoellick
and
> Mr Lamy. Although they co-operate closely behind the scenes, both know
that
> to get a settlement, they must impress their domestic constituencies with
> tough talk.
>
> Most observers believe that, left to themselves, the two negotiators will
> manage the dispute responsibly. European multinational companies, many of
> which have US operations that benefit under ETI, are not pressing Mr Lamy
to
> raise the stakes. In the US, many business leaders are urging an amicable
> settlement.
>
> However, things could go off the rails if hardliners in the Congress and
EU
> capitals start losing patience. There is a danger that the dispute could
> become entangled in a looming transatlantic confrontation over US steel
> imports, on which Mr Bush is threatening to impose stiff tariffs in the
next
> few weeks. If he does so, pressure may grow within Europe to strike back
by
> imposing sanctions over ETI.
>
> Trade officials fear hostilities could quickly escalate, with both sides
> taking up the cudgels over other long-standing trade grievances, such as
the
> EU's refusal to approve genetically modified foods and the US Helms-Burton
> anti-Cuba act.
>
> "If countries start taking aggressive actions, there is a risk of starting
a
> downward spiral of retaliation and counter-retaliation," says William
> Reinsch, president of the US National Foreign Trade Council, an
influential
> Washington business association. "Things could easily get out of hand."
>
> Some observers hope the WTO's appellate body will still avert that threat
by
> delivering a less than clear-cut ruling that would make it easier for the
US
> and EU to reach a compromise settlement. However, few are counting on that
> possibility.
>
> Although the tribunal often disagrees with the legal arguments used by WTO
> disputes panels, it seldom reverses the substance of their findings.
Unless
> that pattern is broken today, the onset of a new transatlantic war of
nerves
> may be hard to avoid.
>
>
>
>
>
>
>
>
>
>
>
>
>
> ============================================================
> How to Use this Mailing List
> ============================================================
>
> You received this e-mail as a result of your registration on the
wto-activist mailing list.
>
> To unsubscribe, please send an email to listserv-AT-iatp.org. In the body of
the message type:
> unsubscribe wto-activist
>
> For a list of other commands and list options, please send email to
listserv-AT-iatp.org.
> In the body of the message type:
> help
>
> Please direct content questions about this list to: support-AT-iatp.org
>
> Please direct technical questions about this service to: support-AT-iatp.org
>
>