EU to sanction US Companies...

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By BRADLEY S. KLAPPER
Associated Press Writer

The European Union advised the World Trade Organization on Tuesday that it would reintroduce trade sanctions against the United States in two months unless Washington complies with a WTO ruling condemning tax breaks for U.S. companies operating overseas.

The 25-nation EU said, however, that it is still offering the United States ways to end the long-standing dispute without having to incur sanctions on lists of targeted products, including everything from textiles and foodstuffs to automotive parts and steel.

The announcement comes 30 days after a WTO panel upheld a decision condemning the tax breaks, affirming previous judgments that the so- called Foreign Sales Corporation, or FSC, law breached global trade rules by giving illegal subsidies to some U.S. businesses.

The law gave tax exemptions on part of the income of more than 6,000 U.S. exporters, including companies such as Microsoft Corp., Boeing Co. and General Electric Co.

Last month's decision "made it absolutely clear that the U.S. has yet to come into full compliance with earlier rulings and recommendations," the EU told the WTO's dispute settlement body. The panel's ruling was officially adopted by the global commerce body at Tuesday's meeting.

EU legislation means the retaliatory measures, suspended in January will automatically go back into force in 60 days. But the EU noted its "utmost restraint in applying countermeasures" and called on the United States "to ensure full compliance with the applicable rulings and recommendations."

Brussels told the WTO body it was ready "to explore with the U.S. ways and means to put an end to this long-standing dispute," but rejected Washington's claims that the tax breaks were insignificant.

"We believe the remaining benefit to be over $750 million, and this is ... not insignificant," the EU said.

U.S. officials in Geneva were unavailable for comment, and the United States' statement to the dispute settlement body was not immediately circulated.

Washington has repealed the FSC law and claims it has fallen into line with previous WTO rulings, but the appeal body in February upheld that transitional provisions under the 2004 American Jobs Creation Act were still against the commerce body's rules because they allow tax exemptions to continue for a transition period through the end of this year and potentially longer.

In 2002, the WTO authorized $4 billion in sanctions by the EU, although Brussels decided to impose only $300 million and suspended them after Jan. 1, 2005.

The EU estimates the tax advantages from the jobs creation act will benefit airplane maker Boeing alone by at least $615 million over the next decade.