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. Last Updated: 07/27/2016

U.S. Loses $4Bln WTO Ruling

GENEVA -- The European Union won approval Friday to slap a record $4 billion in sanctions on the United States over illegal U.S. export tax breaks, scoring a key victory against its giant trading partner.

The award, by a special panel of arbitrators at the World Trade Organization, crowned a five-year feud over the U.S. scheme and comes at a time when EU-U.S. trade ties are under the cloud of another bitter battle over steel.

But in a sign neither side wants the disputes to get out of hand, the European Union said it would hold off from sanctions as it watched the progress Washington made in scrapping the scheme.

The United States said President George W. Bush was working with Congress to comply with WTO rules and saw the sanctions ruling being made irrelevant by its efforts to change the law.

"We find that the amount of $4.043 billion can be considered to be a reasonable approximation of the actual value of the subsidy," the WTO panel said in an announcement that had been anxiously awaited by both sides for months.

The finding is by far the highest level of retaliation authorized since the Geneva-based international trade organization was established in January 1995.

The Foreign Sales Corp., as the scheme is called, has benefited such firms as Boeing and Microsoft.

The $4.043 billion figure met exactly the EU calculations for trade losses it said companies in the 15-state bloc were suffering as a result of the disputed tax concessions.

U.S. officials had argued that just under $1.1 billion would be a fairer sum.

But the panel said that on the basis of figures provided by the United States, it calculated the annual damage to the EU at $3.74 billion, while the EU's numbers pointed to $5.33 billion -- suggesting it could have awarded Brussels even more.

"We are satisfied by today's decision that makes the cost of noncompliance with the WTO crystal clear," EU Trade Commissioner Pascal Lamy said in a statement.

"The arbitrators have endorsed the EU's request, i.e. they have given us an amount of potential countermeasures which will create a major incentive for the U.S. to eliminate this huge illegal export subsidy," he said.

His U.S. counterpart was unhappy.

"I'm disappointed the [WTO] arbitrator did not accept the lower figure put forward by the United States," U.S. Trade Representative Robert Zoellick said in a statement.

"I believe that today's findings will ultimately be rendered moot by U.S. compliance with the WTO's recommendations and rulings in this dispute," he added.

Commission trade official Nikos Zaimis said the European Union sought fast implementation of the WTO ruling.

"We know that they [United States] have [congressional] elections in November. This is an important date for the future. Of course, we would like to see the U.S. comply before that date," he told a news conference.

The disputes, including one over steel that is still rumbling on, have come at a time when both the EU and the United States are supposed to be leading global liberalization trade talks.

WTO chief Mike Moore, who stepped down Sunday, called on both sides to work out their differences.

"I urge both parties to continue to cooperate and work towards resolving this dispute and the others between them in an amicable and constructive fashion," he said.

"The EU and the United States are among the most important members of this organization and both hold a special responsibility to ensure the continued health and soundness of [the] WTO and [the] global trading system," he said.

The EU has said that before taking any sanctions action, it will consult with European industry on what goods it will hit. It has hinted it is prepared to stay its hand as long as Washington is making efforts to revise its laws.

European External Affairs Commissioner Chris Patten said the EU was concerned about minimizing the fallout from the trade disputes.

There have been calls by some U.S. congressmen for the administration to hit back over losing the FSC case by challenging parts of the complicated EU tax laws that they say help European exporters.

In a bid to hold off EU retaliation, there have been moves in the U.S. Congress on an alternative bill to aid exporters. But Boeing and other beneficiaries of the scheme oppose the proposals, which say that they do not go far enough.