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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 against 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, ranging from textiles and foodstuffs to automotive parts and steel.
The announcement comes 30 days after a WTO panel affirmed previous judgments that the U.S. Foreign Sales Corporation 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 corporate heavyweights 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 dispute settlement body at Tuesday's meeting.
EU legislation means the retaliatory measures, suspended in January 2005, 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, as I am sure all will agree, not insignificant," the EU said.
The United States said it was pleased the WTO's appellate body found that Washington "has in large part withdrawn the prohibited subsidies."
But the U.S. gave no indication of whether it would implement the WTO's recommendations before the deadline. Instead, it blamed the European Union for taking the trade body's attention away from more important matters.
"One might wonder why the EC used the time and resources of the panel, appellate body, secretariat and members in this fashion," the United States told the dispute settlement body.
Washington has repealed the so-called FSC law and says it has fallen into line with previous WTO rulings, but the appeal body in February upheld that transitional provisions under the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 still violated 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 that the tax advantages from the jobs creation act will benefit airplane maker Boeing alone by at least $615 million over the next decade.
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