The European Union asked the World Trade Organization on Friday for authorization to impose as much as $4 billion in sanctions against the United States over U.S. Foreign Sales Corporations, according to the Reuters news agency.
The action comes just days after the House of Representatives passed legislation that effectively ended tax breaks for U.S. exporters using foreign sales corporations in the country’s territories. The U.S. Senate passed the bill just before it adjourned two weeks ago.
The Virgin Islands stands to lose about $10 million annually in revenues from FSCs once the legislation is signed into law by President Clinton, as is widely expected.
But the EU has already made clear that it feels the new law does not comply with WTO free trade rules, and Reuters reported that U.S. Ambassador Rita Hayes said Friday the United States would request WTO arbitration on the request for sanctions.
At a news conference in Geneva, the U.S. trade envoy said the administration believed its new legislation does comply with the WTO, which ruled earlier this year that the FSC program was an illegal export subsidy.
“Quite obviously the United States will reject the EU's contention that it is entitled to suspend $4 billion dollars worth of tariff reductions as a result of this dispute and will request arbitration,'' Reuters quoted Hayes as saying.
