The European Union raised the stakes in the biggest dispute to hit the World Trade Organisation (WTO) yesterday, with an ultimatum to the US over a long-running battle about corporate tax breaks.
Brussels is giving the US Congress until the end of September to repeal the Foreign Sales Corporations provision, which benefits big exporters such as Microsoft and Boeing, or face sanctions worth $4 billion - the biggest retaliation package in WTO history.
The European Commission announced the deadline hours before the WTO gave its final approval to the list of 1,800 US products targeted by the EU, which means Brussels now only needs the approval of EU member-states to impose sanctions.
The EU won the right to retaliate two years ago, after a WTO panel found the US provision - a tax scheme that amounts to a rebate on exports - represented an illegal export subsidy.
Washington has vowed to comply with the ruling but Congress has yet to start debating two proposals for revising the law.
Mr Pascal Lamy, the EU trade commissioner, said: "The Commission will review the situation in the autumn and if there is no sign that compliance is on the way at that time, it would start the legislative procedure for the adoption of counter-measures by January 1st, 2004."
EU trade officials want to see significant progress in Congress by the end of the fiscal year on September 30th, though they left open the prospect of a climb-down by saying revised legislation would not necessarily have to be in place by then.
"If all they have to do is finalise the last details [of the new law] we are not going to impose the counter-measures," one of Mr Lamy's aides said.
The EU's move comes at a critical time for the international trade system, with negotiators trying to inject fresh momentum into the stalled Doha talks disputes between the US and the EU still to be resolved.
Washington and Brussels had signalled their determination to boost co-operation on the trade front. But yesterday's ultimatum is likely to damage the recent thaw and could lead the US to adopt a more aggressive stance. - (Financial Times Service)
