*EPF514 01/25/2002
USTR Zoellick Outlines Approach to WTO Tax Break Dispute
(EU's Lamy indicates patience, no rush to trade sanctions) (410)

By Bruce Odessey
Washington File Staff Writer

Washington -- U.S. Trade Representative Robert Zoellick has outlined an approach for complying with a World Trade Organization (WTO) panel ruling against a U.S. tax provision.

European Union (EU) Trade Commissioner Pascal Lamy has indicated his side would give the United States some time to comply before moving to impose sanctions.

The two men briefed reporters January 25 in Washington, just ahead of the January 29 meeting in Geneva where the WTO Dispute Settlement Body is expected to adopt the ruling against the U.S. provision replacing Foreign Sales Corporation (FSC) tax breaks.

The WTO has now struck down the original FSC provision and the replacement passed by Congress in 2000, ruling that both amounted to prohibited export subsidies.

Zoellick said the Bush administration would consult with tax experts in the United States and the EU as well as with members of Congress to devise a solution that does not leave U.S. business at a competitive disadvantage.

That disadvantage would arise because the ruling does not apply to a territorial tax system such as that used by the EU but does apply to the U.S. system, which taxes earnings by U.S. companies made both inside and outside the United States.

"This would not be a negotiation," Zoellick said, "but it'd be a good-faith effort to try to solve this issue fairly and put it to rest."

Because Congress would ultimately have to pass legislation implementing any proposed resolution making sensitive changes to the U.S. tax code, he said, "I can't know for sure the time that it would take."

Lamy indicated EU willingness to resolve the issue without resorting to trade retaliation but reserved EU rights to retaliation under WTO rules. The EU estimates the damage to EU business from the U.S. tax provision at $4,000 million a year.

"We will retain the ability of leveraging this process in the right direction," Lamy said.

On another topic, Lamy reiterated strong EU opposition to any U.S. decision imposing temporary tariffs or quotas on steel imports. Under Section 201 of U.S. trade law, President Bush faces a decision by March 6 on whether to give temporary protection from surging imports to the ailing U.S. steel industry while it restructures.

"Whatever action we take we intend to be consistent with our WTO obligations," Zoellick said, adding he welcomed EU suggestions.

(The Washington File is a product of the Office of International Information Programs, U.S. Department of State. Web site: http://usinfo.state.gov)

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