*EPF110 01/14/2002
Text: U.S. Disappointed with WTO Ruling on Foreign Sales Corporation Tax
(Zoellick says U.S. to cooperate with EU to resolve dispute) (500)

In remarks contained in a statement released January 14, U.S. Trade Representative Robert B. Zoellick expressed disappointment with a World Trade Organization ruling upholding a prior finding by a WTO dispute settlement panel that said a U.S. tax law confers a prohibited export subsidy.

Characterizing the case involving the U.S. Foreign Sales Corporation tax as a matter of "a level playing field on tax rules," Zoellick said the United States intends "to continue to seek to cooperate with the EU [European Union] in order to manage and resolve this dispute."

Following is the text of the press release, which also provides background on the dispute:

(begin text)

Office of the United States Trade Representative
Executive Office of the President
Washington, D.C.
January 14, 2001

WTO UPHOLDS ADVERSE RULING ON FOREIGN SALES CORPORATION (FSC) TAX

WASHINGTON - The WTO Appellate Body affirmed today a prior finding by a WTO dispute settlement panel that the FSC Repeal and Extraterritorial Income Exclusion Act of 2000 (ETI Act) is inconsistent with United States obligations under the WTO.

"We are disappointed with the outcome," said United States Trade Representative Robert B. Zoellick. "Given prior decisions, we knew this would be an uphill struggle, but we believed it was important to make our case for a level playing field on tax rules. The United States respects its WTO obligations, which serve America's interests, and we intend to continue to seek to cooperate with the EU in order to manage and resolve this dispute."

"This is an especially sensitive dispute that, at its core, raises questions of a level playing field with regard to tax policy," added Zoellick. "We will be consulting closely with Congress and affected U.S. interests regarding next steps."

Background:

In February, 2000, the WTO Appellate Body upheld a panel decision finding that the Foreign Sales Corporation (FSC) provisions of U.S. tax law violated U.S. WTO obligations. In response to these findings, in November, 2000, the United States enacted the FSC Repeal and Extraterritorial Income Exclusion Act of 2000 (ETI Act). The EU challenged the ETI Act, and on August 20, 2001, a WTO panel issued a report containing the following findings: (1) the ETI Act confers a prohibited export subsidy under the WTO Subsidies Agreement; (2) the ETI Act confers an export subsidy which violates U.S. obligations under the WTO Agriculture Agreement; (3) the ETI Act violates the national treatment provisions of Article III:4 of the GATT 1994; and (4) the ETI Act's transition rules violate the panel's recommendation (as modified by the WTO Dispute Settlement Body) to withdraw the FSC subsidy with effect from November 1, 2000.

The United States appealed the panel report to the WTO Appellate Body on October 15. The Appellate Body held an oral hearing on November 26-27. The Appellate Body circulated its report on January 14, affirming the findings of the panel.

Contact: Richard Mills (202) 395-3230

(end text)

(Distributed by the Office of International Information Programs, U.S. Department of State. Web site: http://usinfo.state.gov)

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