US must pay $4.03bn import duty - EU

The EU said yesterday it wanted to impose sanctions of $4.03 billion (€4.74 billion) in annual import duties on US goods, in a major escalation of its trade row with the US over so-called "foreign sales corporations" (FSCs).

The EU also wants to set up a new World Trade Organisation disputes panel to rule on the legality of newly amended US legislation on FSCs. Mr Anthony Gooch, spokesman for the EU Trade Commissioner, Mr Pascal Lamy, said the FSCs represented a subsidy to US exporters on half of US exports worth up to 30 per cent of their tax bills, in clear breach of WTO rules. "That level of subsidy represents the difference between winning and losing contracts," he said, insisting that the figure of $4.03 billion represented a "reasonable estimation of the value of the damage we incur".

The EU wanted to level the playing field, he said. The EU imported some $160 billion from the US last year and the Commission yesterday submitted to the WTO an indicative list of the sectors it would target with import levies. It ranges from most agricultural products to textiles, and industrial products.

The scale of the penalties, to be ruled on by WTO arbitration, are likely to exceed any previous sanctions approved by the organisation. But the EU will not impose them until the WTO disputes panel rules on the new legislation, probably next autumn. Currently the EU is facing US WTO-approved sanctions costing $300 million over its refusal to reform its banana regime and its ban on hormone-treated beef.

The EU insists the new legislation, signed into law on November 16th by President Clinton, maintains the violations ruled against previously by the WTO and its predecessor, GATT. The FSCs were introduced first in 1984 to replace the old export promotion tax scheme which had fallen foul of the GATT. Although the EU insisted from the start the FSCs were little better, it did not take action in the WTO until after the completion of the Uruguay Round in 1997. A WTO panel ruled against the US in October 1998.

The EU argues that the new legislation maintains a regime whose subsidies are export-contingent and thus in breach of the WTO subsidies agreement.

The US insists that its new legislation meets the WTO requirements.

"We feel very good about the legislation, " the US ambassador to Switzerland, Ms Rita Hayes, told a news briefing in Geneva, which hosts the WTO headquarters.

"We certainly have always complied and we'll continue to comply. We feel we have met our obligations," she said.

Ms Hayes said she would submit the new legislation to a meeting of the WTO's dispute settlement body later yesterday.