WTO ruling against US export tax subsidies
The WTO has again ruled against United States (US) tax subsidies for
export in the long-running Foreign Sales Corporations (FSC) dispute
between the United States and the European Communities (EC). Under
the United States scheme, US companies are provided tax breaks linked to
exports. The illegal export subsidies have an impact on the
competitive trading opportunities of Australian exporters in all markets.
The Panel and Appellate Body reports were adopted by the Dispute
Settlement Body on 29 January. The EC had earlier sought WTO
authorisation for retaliation against the US for US$4 billion, the annual
value of the tax subsidies. This retaliation request will now be
examined by a WTO arbitrator which is expected to report by the end of
Under the WTO rules, the US may offer compensation usually in the
form of reduced tariff rates if it cannot bring its measure into
conformity. The EC is however under no obligation to accept
US International Trade Commission Investigation into Steel
Recent media reports have highlighted the possibility of the United
States introducing restrictions on steel imports. Problems in the US
steel sector have been long-running, including large so-called legacy
costs (social security obligations) and economic inefficiencies.
Last June the US Administration announced a safeguards enquiry to be
undertaken by the United States International Trade Commission (USITC).
The enquiry, the largest safeguards investigation ever initiated by the
US, found that imports were causing serious injury to the US industry and
recommended the imposition of a range of import restrictions. President Bush has until 6 March to decide what action the Administration
Severe import restrictions are a major concern as they would have a
significant impact on both Australian steel exports to the US and on
global steel trade generally. A number of countries, most notably
the European Union, have signalled their intention to take dispute action
in the WTO against any US measures. Australia also has concerns
about the legal basis for the USITC's findings and, once the President's
decision has been announced, Mr Vaile will consider all options for
protecting Australia's commercial and trade policy interests in this case,
including possible WTO action.
Australia as a Complainant (1)
United States: Continuing Dumping and Subsidy Offset Act of 2000
(Byrd Amendment) (WT/DS217 and WT/DS234)
The first oral hearing before the Panel will take place on
5-6 February. This will be an opportunity for the eleven
co-complainants (including Australia) to present their arguments that the
United States Continued Dumping and Subsidy Offset Act of 2000 (the
Byrd Amendment) is inconsistent with US obligations under GATT 1994,
the Anti-Dumping Agreement and the Agreement on Subsidies and
Countervailing Measures. This Act requires US customs authorities to
distribute anti-dumping and countervailing duties assessed on imports to
US domestic parties that supported the original petition for anti-dumping
or countervailing duties to be imposed. The Panel is expected to
release its final report on 10 July 2002. A copy of Australia's
submission to the Byrd Amendment panel can be found at: http://220.127.116.11/trade/negotiations/disputes/wto_disputes-US_AD.html
Disputes involving Australia as a Third Party (7)
Chile: Price band system and safeguard measures relating to certain
agricultural products (WT/DS207)
No new developments. The Panel is expected to complete its work
by the end of March 2002.
European Communities (EC): Measures affecting meat and meat
products (Hormones) (WT/DS26)
No new developments. The EC is still facing WTO-authorised retaliation
by the US and Canada because of its failure to implement within a
reasonable period of time.
Canada: Measures affecting the importation of milk and the
exportation of dairy products (WT/DS103 and WT/DS113)
The US and New Zealand have requested a second recourse to Article 21.5
following the Appellate Body's inability (due to an insufficient factual
basis in the Panel Report) to make any findings in its Article 21.5 Report
on the consistency of Canada's new measures. The matter has been
referred to the original panel for the second time. Australia, the
EC and Argentina have reserved their third-party rights to participate in
the Panel's proceedings. Canada, New Zealand and the US have reached
agreement to suspend the Panel's work until 18 February 2002. They
have also reached additional understandings regarding procedures under
Article 21 and 22 of the DSU, which include Canada's agreement that the
arbitration requested by Canada under Article 22.6 of the DSU remain
suspended pending the work of the compliance Panel.
United States: Section 110(5) Copyright Act (Homestyle
The EC and the US are understood to have come to an agreement regarding
compensation in this case. Under this agreement, pending
implementation of the Panel's findings the US will pay the EC US$1.1
million per annum over three years. This is in line with the
Arbitrators' award of US$1.1 million per year as the level of
nullification and impairment of benefits to the EC resulting from the
WTO-inconsistent US measure. However, it is the first time that an
arrangement has involved the payment of monetary compensation in the WTO
dispute settlement system. Australia has continued to register its
expectation that any compensation will be applied on a non-discriminatory
United States: Definitive safeguard measures on imports of circular
welded carbon quality line pipe from Korea (WT/DS202)
The US has appealed the Panel's finding that the US line pipe measure
was imposed inconsistently with certain provisions of GATT 1994 and the
Safeguards Agreement. Australia has made a third party submission.
An oral hearing was held on 15 January 2002 and the Appellate Body's
report is due by 15 February 2002.
United States: Tax Treatment for Foreign Sales Corporations
In its report issued on 14 January, the Appellate Body has rejected the
US appeal and upheld the Article 21.5 Panel's core findings that the US
replacement measure provides export subsidies inconsistent with US WTO
obligations, including under the Agreement on Agriculture.
Arbitration on the EC's request for DSB authorisation for retaliation
against the US to the value of US$4 billion per year will now resume
following the adoption of the Appellate Body and Panel reports. (See
also report in Recent Developments above).
Canada: Export credits and loans guarantees for regional aircraft
In its report issued on 28 January, the Panel upheld Brazil's claim
that the Canadian Export Development Corporation's (EDC) provision of
financing to three Canadian civil airlines constituted prohibited export
subsidies contrary to the Subsidies and Countervailing Measures Agreement.
The Panel recommended that Canada withdraw these subsidies within 90 days.
Other claims made by Brazil pertaining to related Canadian measures,
including the EDC's Corporate Account and Canada Account programmes as
such, were rejected.
Disputes in which Australia has a policy or economic interest (4)
Japan: Measures affecting agricultural products
(Varietal testing) (WT/DS76)
No new developments. Japan reached an agreement with the US on a
mutually satisfactory solution last September. Australia has registered
its expectation that the outcome will be applied in a non-discriminatory
manner to the products of all WTO members.
EC: Regime for the Importation, Sale and Distribution of
The EC Council Regulation giving effect to Phase II of its bilateral
settlements with the US and Ecuador in this dispute was adopted on 19
December 2001 and entered into force on 1 January 2002. This follows
the waivers granted to the EC for its new banana import regime at the Doha
Ministerial Conference in November 2001.
United States: Section 129(c)(1) of the Uruguay Round Agreements
No new developments. Canada is challenging the legality of a
specific aspect of the US statute controlling the US implementation of DSB
rulings. A panel was established at the 23 August 2001 DSB meeting,
and was constituted on 30 October. Third party rights were reserved
by the EC, India, Japan and Chile.
United States Section 211 Omnibus Appropriations Act (WT/DS176)
The Appellate Body released its report on 2 January 2002. It
upheld aspects of the EC appeal, finding that the U.S. law known as
Section 211 (which prevents U.S. recognition of trademarks and other
intellectual property used in connection with confiscated property) is
inconsistent with US national treatment and most-favoured-nation
obligations under the WTO TRIPS Agreement. It also reversed the
Panel's finding that trade names (company or business names that are not
registered as trademarks) are not covered under the TRIPS Agreement,
finding that WTO Members do have an obligation under this Agreement to
provide protection to trade names. In addition, the Appellate Body
upheld the one issue appealed by the US, overturning the Panel's finding
that Section 211 denied parties fair and equitable judicial procedures to
enforce trademark rights.
Meetings of the Dispute Settlement Body: January 2002
The DSB, consisting of all the Members of the WTO, met on 18 January
and 29 January 2002. The next regular DSB meeting will be held on 1
February 2002. Australia uses DSB meetings to monitor progress and
to register its views on disputes of interest. The agendas of the January
DSB meetings were as follows (any Australian interventions are indicated):
Special DSB Meeting 18 January 2002
1. Panel Request
Argentina Definitive Safeguard Measure on Imports of
Preserved Peaches (WT/DS238)
request for the establishment of a Panel by Chile
A Panel was established, with the EC, Paraguay and the US reserving
third party rights. At Chile's request the process of panel
composition was deferred to allow for further consultations between
2. Requests by the EC and Japan for DSB authorisation to retaliate
under DSU Art. 22
United States Anti-Dumping Act of 1916 (WT/DS162)
The EC and Japanese retaliation requests were referred to
arbitration following the US objection to the level of suspension of
obligations proposed by the EC and Japan and its claim that the
principles and procedures of Article 22.3 had not been followed.
The EC, Japan and the US foreshadowed a request to suspend the
arbitration to allow for prompt US implementation.
The retaliation proposed by the EC and Japan (authorisation to
suspend the application of obligations under GATT 1994 and the
Anti-Dumping Agreement so as to allow the introduction of a measure
with the equivalent effect of the WTO-inconsistent provisions of the
US Act solely against the US) led to some systemic concerns being
raised by Chile, Brazil, Hong King (China) and Venezuela.
Australia also noted the systemic issues raised but suggested that
some of the concerns raised would be addressed if the US proceeded
with implementation as soon as possible.
3. Request by the EC for DSB authorisation to retaliate under DSU
United States Section 110(5) of the US Copyright Act
The EC retaliation request was referred to arbitration following
the US objection to the level of suspension of obligations proposed
by the EC and its claim that the principles and procedures of
Article 22.3 had not been followed. The EC and the US both
indicated that a request would be made to suspend the arbitration so
as to facilitate a positive outcome to ongoing discussions
(including on a compensation arrangement) in this dispute.
The following were the main points made in Australia's
- Australia is
concerned that any compensation arrangement agreed between the US
and the EC be applied on a non-discriminatory basis.
- Australia expects
the US to comply with the WTO findings as quickly as possible and is
concerned that any compensation arrangement not significantly delay
4. Other Business
Colombia and Costa Rica registered their disappointment that
their request to be joined as third parties in consultations between
Thailand and the EC in respect of measures under the EC's
Generalized System of Preferences scheme had not been granted.
Special DSB Meeting 29 January 2002
1. Adoption of Panel and Appellate Body Reports
United States Tax Treatment for "Foreign Sales
- Recourse to Article 21.5 of the DSU by the EC
The Article 21.5 Appellate Body and Panel Reports were adopted.
Australia noted that the prohibited export subsidies in this dispute
directly impacted on the competitive trading opportunities of
Australian exporters in all markets, and urged the United States to
comply as quickly as possible with the WTO findings and remove the