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Current Disputes
Crucially, the WTO provides for the effective
enforcement of its rules and agreements through a Dispute
Settlement system, the results of which are binding
on all parties. It provides for consultations, Panels and
if necessary, Appellate Body proceedings. WTO members have
agreed that if they believe fellow members are violating
trade rules, they will use the multilateral system of settling
disputes instead of taking action unilaterally. This means
abiding by the agreed procedures and respecting rulings.
The rules are set out in the WTO Dispute Settlement
Understanding (DSU). The DSU emphasises that prompt settlement
of disputes is essential if the WTO is to function effectively.
It sets out in considerable detail the procedures and timetables
to be followed in resolving disputes. If a case runs its
full course to a first ruling, it should not normally take
more than about one year - 15 months if the case is appealed.
Rulings are automatically adopted unless there
is a consensus to reject a ruling - any country wanting
to block a ruling has to persuade all other WTO members
(including its adversary in the case) to share its view.
Although much of the procedure resembles a court or tribunal,
the preferred solution is for the countries concerned to
discuss their problems and settle the dispute by themselves.
For more details of the dispute settlement process,
see the Dispute Settlement section of the WTO website.
1.
Airbus/Boeing
On
6 October 2004, the US requested consultations with Germany,
France, the UK and Spain, and with the EU, on alleged support
to Airbus pursuant to Articles 4, 7 and 30 of the SCM Agreement,
GATT Article XXIII and Article 4 of the DSU. On the same
day, the US abrogated a 1992 agreement on support for large
civil aircraft. The US considered that the EU and the Member
States provide subsidies that are inconsistent with Articles
3.1(a) and 3.2 of the SCM Agreement and GATT Article XVI:1
and that they are causing adverse effects to the US in the
sense of Articles 5(a), 5(c), 6.3(a), 6.3(b), 6.3(c), and
6.4 of the SCM Agreement.
At
the same time, the EU requested consultations with the US
pursuant to Articles 4, 7 and 30 of the SCM Agreement, Article
XXIII of the GATT 1994 and Article 4 of the DSU regarding
subsidies granted to Boeing. The EU considered that the
US Government has been following now for a number of years
a policy of systematic and persistent subsidisation of Boeing
through a number of measures involving, inter alia, paying
research and development costs through NASA, the Department
of Defence, the Department of Commerce and other government
agencies. Moreover, the US Government continues to grant
Boeing around $200m in export subsidies under the Extraterritorial
Income Exclusion Act (the successor to the FSC legislation)
despite a WTO ruling expressly declaring these subsidies
illegal. The latest and most flagrant violation consisted
of massive subsidies in the form, inter alia, of tax reductions
and exemptions and infrastructure support for the development
and production of the Boeing 787. The EU considered that
the above-mentioned subsidies are in violation of Articles
3, 5, and 6 of the SCM Agreement and Article III of the
GATT 1994.
Consultations
were held in Geneva on 5 November 2004. On 11 January 2005,
the US and the EU agreed to suspend WTO action for three
months pending discussions toward the conclusion of a new
bilateral agreement on subsidies for large civil aircraft.
On
31 May 2005, the US made an official request to the WTO
for the establishment of a Panel to investigate its claims
into EU aircraft subsidies. The EU responded on 1 June by
requesting a Panel to investigate US subsidies, including
that provided for research and development projects.
The
UK regrets the position the US has taken in this case. We
have always said that we prefer a negotiated settlement
to a WTO case. Any settlement needs to be balanced and there
must be something on offer from the US. The UK supports
the Commission’s approach to date and stands ready to work
with the Commission and partners towards a successful out
come.
The affect of the above US legislation
(passed in 2000) is to allow for collected anti-dumping
and countervailing duties to be paid direct to the domestic
industry that petitioned for the anti-dumping/countervailing
investigation to take place.
The WTO ruled in the EU’s (a number
of other WTO members including Japan and Canada also took
simultaneous cases against the US) favour finding
the Byrd amendment to be WTO incompatible and that
the United States should repeal the legislation. The WTO
decided that a “reasonable period” for the US to repeal
the legislation was 27 December 2003. Regrettably, the US
did not comply with the 27 December 2003 deadline, and still
has not done so. In accordance with DSU rules complaining WTO
members, including the EU, have been authorised to retaliate
against the US for its continued failure to comply with
the earlier WTO ruling. The extent to which the EU (and
others) is authorised to retaliate was determined by a WTO
arbitrator in August 2004. The Arbitrator determined that
for each year in which the US continues not to comply with
the WTO ruling the EU should be entitled to retaliate up
to an amount equalling 72% in value of the US disbursements
to its domestic industry arising from anti-dumping or countervailing
duties imposed on EU goods under the Byrd Act in the preceding
year. Accordingly, the amount of EU retaliation will vary
from year to year dependant on the level of disbursements
made by the US to its industry.
The EU has therefore adopted a
Council Regulation, which became effective on 1 May 2005,
and which introduces retaliatory measures against the US
by means of an increase in import tariffs of 15% on an identified
range of products of US origin upon their entry to the EU.
It is hoped that the US will move towards compliance with
the WTO ruling as a consequence of this EU action (Canada
has also retaliated and the other complainant countries
are considering their position). The European Commission
consulted with EU Member States on the list of products
that may be subject to retaliation. The DTI consulted extensively
in May and November 2004 and the UK comments to the Commission
reflected the views expressed by industry. The Commission
has taken Member States comments into account and has produced
two final lists of products, Annex I and Annex II, to the
Regulation. Annex I applies from 1 May 2005. In addition,
as the level of disbursements delivered under the terms
of Byrd in the US is variable, and is expected to rise this
year, the Commission intends to draw as necessary from Annex
II to increase the level of retaliation to the appropriate
level. Should it prove necessary to augment the number of
goods against which the retaliatory measures will apply
by adding goods from the Annex II list, the Commission will
draw items from Annex II in the order they appear
in the Annex II. Details of both Annexes are included in
the document below.
We are keeping everyone who has
told us that they have an interest in this issue informed
by e-mail.
The following documents are available
for download
Annex 1 & 2 Retaliation List
(48kb)
Council
Regulation
(77kb)
Foreign
Sales Corporations (FSCs)
The
EU has suspended with effect from 1 January 2005 the additional
customs duties levied on certain imports from the United
States. The EU took these steps to reflect the measures
taken by the United States to amend its FSC regime. The
UK welcomes progress in dealing with the issue of FSCs.
A
copy of the Council Regulation suspending the additional
duties is available for
download (50kb).
The
EU has concerns that the US may remain outside its obligations
to comply fully with the earlier WTO ruling on the illegal
FSC regime. The EU has therefore decided to refer these
concerns back to the WTO.
Should
the WTO find that the US remains outside its obligation
to comply with the earlier WTO ruling the UK hopes that
it will be possible for the EU and for the US to reach an
acceptable solution. However, it is possible that a “scaled-down”
level of additional duties could be imposed at a future
date on those goods covered by the annex to the attached
Council Regulation. Traders may wish to be aware of the
possibility of additional duties being applied later.
We
are keeping everyone who has told us that they have an interest
in this issue informed by e-mail.
Background:
1. The US
Foreign Sales Corporations (FSC) scheme allows US manufacturers
to avoid tax by subcontracting their export operations to
shell companies – known as FSCs – based in tax havens.
2. In 1998,
with EU challenged the US FSC legislation as an illegal
export subsidy in the WTO, and (eventually) won.
3. Following,
a further WTO Panel and Appellate Body ruling that the US’s
first attempt at complying with the findings of the original
WTO ruling still amounted to a breach of the WTO Agreement
on Subsidies and Countervailing Measures, the EU agreed
to hold back to
allow Congress to deliberate on how to comply with the WTO’s
findings.
4. In April
2003, in order to preserve its rights under the WTO Dispute
Settlement Understanding, the EU notified the WTO of its
intention to retaliate against the US should it continue
to fail to comply with the WTO’s
ruling. The US sought an arbitrator’s ruling on the level of
retaliation proposed by the EU. On 7 May 2003 the WTO arbitrator
accepted the EU's argument that the operation of the FSC
scheme was worth $4 billion per annum to US industry,
and that the EU could therefore levy retaliatory tariffs
against US goods up to that value. The EU could, under WTO
rules, have retaliated some time ago.
5. On 8
December 2003, the Commission adopted Council Regulation
(EC) No 2193/ 2003 which allowed the EU to implement a fraction
of the EU's authorised level of retaliation - $200million
in extra tariffs from 1 March 2004, and increasing by 1%
each month for twelve months.
6. From
1 January 2005 the US legislation on FSCs changed. This
in turn enabled the EU to suspend its retaliatory duties.
However, the EU continued to have concerns about so-called
“grandfathering rights” on certain commercial arrangements
and this issue also acerbated concerns about the transitional
period for the phase out of FSCs in general. It is for these
reasons that the EU referred the issues of FSCs back to
the WTO.
2. GMOs
The
US, Canada, Argentina have brought a dispute case against
the EU alleging that the EU has since October 1998 (a) suspended
existing applications for approval of GM products; (b) failed
to consider new approval applications; and (c) maintained
national bans in some Member States.
A panel
was established in March 2004 and is not now due to report
until August 2005. Other
WTO members have notified their interest in this case as
third parties. WTO Panel experts are examining a whole range
of issues. When the report of the panel becomes public this
page will be updated.
4. US methodology for calculating
anti-dumping margins (so-called “zeroing”)
The EU has challenged the way in
which the United States applies a “zeroing methodology”
in calculating anti-dumping duties. That is to say that
the US disregards negative dumping margins when determining
the level of alleged injury caused to US industry. Consultations
failed to resolve the issue and the US has added further
cases to the existing list of measures determined under
the zeroing methodology. The EU has requested the establishment
of a WTO Disputes Panel to consider the EU’s complaint.
The WTO panel is due to report
this summer.
5. Cotton
Brazil first complained about US
cotton subsidies in September 2002 and a panel was established
in March 2003. Brazil has argued that it could become a
much larger exporter of cotton but has been hampered by
unfair US cotton subsidies that breach international trade
rules and boost US cotton production and exports while lowering
world cotton prices.
The panel report ruled against
the US and the dispute has now gone to appeal under the
terms of the DSU.
6. Sugar
In July 2003, Australia, Brazil
and Thailand made their first formal request for a dispute
settlement panel to examine the EU sugar regime. They claimed
the EU’s export subsidies were in excess of limits set for
the EU in WTO Agreements.
The
Panel report ruled against the EU and the dispute has now
gone to appeal under the terms of the DSU.
7. Trademarks & geographical indications
Australia
and the US requested a panel to determine whether EU Regulation
No 2081/92 is contrary to the WTO TRIPs
agreement. The Panel report ruled against the EU and the
EU will amend its legislation to become WTO compliant.
8. Beef Hormones
Following an earlier Panel ruling
against the EU in a case brought by the US and Canada against
the EU’s ban on the use of beef hormones in stockfarming,
the EU adopted Regulation 2003/74/EC, which addresses this
issue.
However, the US and Canada maintain
that the EU is still not within WTO compliance, and continues
to apply retaliatory measures in the form of increased tariffs
on imports to the US of certain EU-origin goods. They have
refused to address this issue through the usual means (Article
21.5 of the DSU). The EU has therefore requested a Panel
to determine whether the continuation of these retaliatory
measures constitutes a breach on behalf of Canada and the
US of their WTO obligations.
The UK has not been targeted specifically
by the US and Canadian retaliatory measures.
9. Frozen Chicken Cuts
On 11 October 2002, Brazil requested consultations with the
EU concerning EC Commission Regulation No. 1223/2002 ("Regulation
No. 1223/2002"), of 8 July 2002, which provides a new
description of frozen boneless chicken cuts under the EC
Combined Nomenclature ("CN") code 0207.14.10.
According to Brazil, this new description includes a salt
content to the product that did not exist before and subjects
the imports of these products to a higher tariff than that
applicable to salted meat (CN code 0210) in the EC's Schedules
under the GATT 1994.
The Panel report, circulated on
30 May 2005 upheld these claims, and the
dispute has now gone to appeal under the terms of the DSU.
10. EU Customs Procedures
The US alleges that the EU’s Custom regime is not being consistently
applied throughout the Community. A Panel was convened on
30 May 2005.
For further details contact:
Andy
weller
Tel: 0207 215 2321
Fax: 020 7215 2325
Email andy.weller@dti.gsi.gov.uk
Toni Woodger
Tel: 020 7215 2326
Fax: 020 7215 2235
Email toni.woodger@dti.gsi.gov.uk
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