Foreign Sales Corporation update at WTO

Michael Pollak mpollak at panix.com
Mon Sep 4 17:31:10 PDT 2000


On Mon, 4 Sep 2000, Max Sawicky wrote:


> Much more interesting is the political impasse that results
> if the new law does not pass muster with the WTO. It's
> hard to imagine the Congress knuckling under to the WTO,
> all their free trade rhetoric notwithstanding. This is nearly
> as great a threat to WTO as agitation from the left.

Apropos, today's lead editorial from the FT:

Taxing the WTO to the limit

Trade conflicts between the US and the European Union are nothing new. But none has threatened greater political and economic damage than their dispute over the US Foreign Sales Corporation law, an export tax- break scheme that the EU has challenged successfully in the World Trade Organisation.

The risks have grown since Brussels said on Friday that a proposal in the US Congress to amend the law would still not satisfy WTO rules. Washington promptly rejected the EU objections and vowed to press ahead anyway. The stand-off makes it almost certain that the issue will be thrown back to the WTO, turning it once again into a forum for a bitter transatlantic gladiatorial contest.

The nightmare scenario is that the EU will impose sanctions on as much as Dollars 4bn of US exports - possibly without waiting for a WTO verdict on the legality of the US legislation. As well as massively disrupting trade, sanctions would invite a violent response by the US, which has already hinted at launching WTO complaints against EU tax laws. The organisation's disputes procedures, which underpin the rules-based trade system, might well not survive the impact.

It may not come to that: a last-minute escape route may yet be found. But the fact that events have got this far is a damning indictment of both US and EU trade policy. In this case, Brussels is mostly to blame. Its WTO challenge was designed to right no big commercial wrong and was weakly supported by European business. It was largely tit-for-tat retaliation for US bullying in trade disputes over bananas and beef. Having won its point, the EU now seems determined - in the name of upholding trade rules - to make the US squirm.

To its credit, the US has striven to meet the WTO deadline for changing its law - while the EU is still flouting rulings on beef and bananas. However, Washington's overall record in WTO disputes cases is far from glorious. It has too often been slave to narrow special interests and big corporate campaign contributors. It is also as prone as the EU to manipulate WTO machinery to settle scores as much as to open markets.

Such behaviour by the organisation's two biggest members would be deplorable at the best of times. It is even more so after last year's catastrophe in Seattle, which has left the WTO internally divided and under attack by outside critics. For the US and the EU to go on treating it like ambulance-chasing lawyers scrapping in a courtroom is playing with fire.

Both must learn to look beyond petty grudge fights and parochial concerns to the broader interests of the global trade system. If they do not, they risk mortally wounding the organisation they were largely responsible for creating.

Copyright © The Financial Times Limited

__________________________________________________________________________ Michael Pollak................New York City..............mpollak at panix.com



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