Lamy and Zoellick set for talks to resolve US tax-breaks row

Date: 28/06/01

By Laurence Frost

TALKS could begin soon between Washington and Brussels to seek a solution to their €4.7 billion trade dispute over company tax havens, after the World Trade Organisation issued a preliminary ruling against the US.

Trade authorities on both sides of the Atlantic have so far refused to discuss their next moves after a WTO panel ruled for the second time against tax breaks offered to US exporters. Washington officials say they are still digesting the detail of the ruling.

But sources say they expect US Trade Representative Robert Zoellick will not wait for the final ruling - expected in August - before exploring settlement possibilities with his EU counterpart, Pascal Lamy. "I don't know of anything scheduled, but put it this way, they're going to talk about this," said one US government official.

The high-stakes dispute threatens to overshadow November's talks on a new WTO trade round in Qatar.

Congress last year approved changes to the law on Foreign Sales Corporations (FSCs) to comply with an earlier WTO ruling against the tax breaks benefiting firms including Boeing and Microsoft. But last week's interim ruling determined the scheme still constitutes an illegal subsidy and violates trade rules. Lamy's refusal to be drawn on the ruling has made it clear he believes the ball is now in the other court. But there are signs Brussels is also very keen to find a settlement. "It's up to the US if they want to sit down and see how we can go about sorting out the problem," said a source close to the Commissioner. "We've always been open to talks on this issue."

Zoellick said this week he had discussed the ruling with Lamy. "If anything, I think it convinces both of us of the reason why we need to work together more closely to get the [trade] round launched," he said. But Lamy's spokesman said yesterday (June 27) he was unaware of any discussion of the ruling between the two trade chiefs.

If its findings are upheld on appeal, the WTO could authorise the EU to impose sanctions worth €4.7 billion on US imports - a move that Zoellick described in May as a "nuclear" option that would have a negative effect on both economies.

Talks could begin soon between Washington and Brussels to seek a solution to their €4.7 billion trade dispute over company tax havens, after the World Trade Organisation issued a preliminary ruling against the US.