COMMISSION OF THE EUROPEAN COMMUNITIES. Proposal for a COUNCIL REGULATION

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1 COMMISSION OF THE EUROPEAN COMMUNITIES Brussels, COM(2003) 661 final 2003/0264 (ACC) Proposal for a COUNCIL REGULATION establishing additional customs duties on imports of certain products originating in the United States of America (presented by the Commission)

2 EXPLANATORY MEMORANDUM The history of this case goes back to 1971 to the Domestic International Sales Corporation (DISC) scheme, which was declared an illegal export subsidy by a GATT panel in 1976 (the panel ruling was adopted in 1981). The US replaced the DISC scheme with the FSC scheme in At the time the EU contested the legality of the FSC but did not pursue it due to the opening of the Uruguay Round trade negotiations. Following further complaints by EU companies, and in view of the increasing amount of FSC subsidies being granted by the US, the EU resumed bilateral contacts with the US in Since no progress was made, the EU requested a WTO panel to pronounce itself on the dispute. The Panel in its report of October 1999, found the FSC to constitute an illegal export subsidy under both the Subsidies Agreement and (in relation to agricultural products) the Agriculture Agreement. The US appealed against the Panel Ruling but the Appellate Body confirmed the panel findings on the illegality of the FSC scheme. The US was then given until 1 October 2000 (extended to 1 November 2000) to withdraw the FSC scheme. In an effort to comply, on 15 November 2000, President Clinton signed the FSC Repeal and Extraterritorial Income Exclusion Act of 2000 (ETI Act) into law. The ETI Act, however, did not modify the substance of the export subsidy scheme and as a result on 17 November 2000, the EU launched a further panel proceeding on compliance and at the same time presented a request for countermeasures for an amount of US $ 4,043 million. While the compliance panel was established in December 2000, it was agreed that, during the compliance procedure, the arbitration procedure on the amount of countermeasures would be suspended and that it would be automatically reactivated upon adoption by the WTO of the Appellate Body s findings. On 20 August 2001, the WTO compliance panel examining the ETI Act issued its report in full support of the EU. In particular, the panel found that the ETI Act also constituted a prohibited export subsidy under WTO rules and that it did not amount to withdrawal of the FSC subsidy. The US appealed but in January 2002 the WTO Appellate Body once more confirmed the panel findings. Consequently, on 28 January 2002 the panel and Appellate Body reports were adopted and the arbitration procedure was reactivated. The report of the arbitrators was originally due on 29 March 2002 (60 days from adoption of the reports) but, upon the initiative of the arbitrators, it was delayed until the end of August On 30 August 2002 the WTO arbitrators authorised the EU to impose sanctions at the level of US $ 4,043 million by increasing the customs duties on certain selected products up to 100%. On 13 September the Commission published a Notice in the Official Journal containing a list of products proposed to be covered by any retaliatory measures. In line with WTO practice, the list was set at a higher level than the amount set by the arbitrator in order to allow for exclusion of products following the consultation of interested parties. The aim of the public consultation, which lasted 60 days, was to minimise the negative consequences that any eventual sanctions could create to EU interests; in that respect, the Commission had included in the list products on which the US import share was low (below 20% import share) i.e. products on which the EC is not substantially dependent for its supply on the US. Following the public consultation procedure, the Commission consulted Member States and agreement was reached on a final list of products of an equivalent value to the level of permitted countermeasures which was notified to the WTO. Finally, on 7 May 2003, at a special DSB meeting, the EC was authorised by the DSB to impose countermeasures. 2

3 Within the list notified to the WTO there were four products which had been transferred from the steel countermeasures list (Regulation 1031/2002, OJ L 157 of 15 June 2002). These products are excluded from the application of this Regulation to avoid a potential double imposition of countermeasures on the same products. It is considered that the imposition, in stages, of additional import duties of up to 100% ad valorem, on all imports of the US origin products covered by the WTO authorisation is an appropriate countermeasure in view of the US failure to implement the DSB recommendations. However, a gradual approach to the imposition of countermeasures both in terms of timing and level is considered preferable. The application to all the products in the list (excluding the four products from the steel list, see above) of initially a low level of duties (5%) which is to be increased monthly up to the level of 17% is, therefore, foreseen. Thereafter, the Commission will present a proposal to the Council for further action in the light of developments. On these selected products, the tariff bindings granted by the Community to the US shall be suspended from 1 March 2004 and such suspension shall be notified to the WTO by that date. The above timing would allow the US to comply with the WTO ruling before the countermeasures are actually imposed. The suspension of tariff bindings shall be temporary and shall only be applied until such time as the WTO inconsistent measure has been removed. The Commission will make a proposal for the repeal of the Regulation even before the countermeasures are applied on 1 March 2004 in case the US has fully complied with the WTO rulings and recommendations before that date. 3

4 Proposal for a COUNCIL REGULATION 2003/0264 (ACC) establishing additional customs duties on imports of certain products originating in the United States of America THE COUNCIL OF THE EUROPEAN UNION, Having regard to the Treaty establishing the European Community, and in particular Article 133 thereof, Having regard to the proposal from the Commission 1, Whereas: (1) On 20 March 2000, at the request of the European Communities, the WTO Dispute Settlement Body (DSB) adopted the panel and the Appellate Body reports which established that the tax treatment of Foreign Sales Corporations (FSC) by the United States of America constituted a prohibited export subsidy under the WTO Agreement. (2) On 15 November 2000, the United States of America enacted the FSC Repeal and Extraterritorial Income Exclusion Act of On 29 January 2002, the DSB adopted the panel and Appellate Body reports which established that the above Act also constituted a prohibited export subsidy under the WTO and that it did not amount to withdrawal of the FSC subsidy. Consequently, on 7 May 2003, the European Communities was authorised by the DSB to impose countermeasures up to a level of US$ 4,043 million in the form of additional 100% ad valorem duties on certain products originating in the United States of America. (3) It is considered that, initially, the imposition in stages of additional import duties of up to a 17% ad valorem on imports of selected products originating in the United States of America is an appropriate countermeasure, in view of the failure of the United States of America to implement the DSB recommendations. After the above mentioned level of additional duties is reached, the Commission shall present a proposal to the Council for further action in the light of developments. (4) In respect of these selected products, the tariff concessions of the Community should be suspended from 1 March The suspension of tariff bindings should be temporary and shall only be applied until such time as the WTO inconsistent measure has been removed. The origin of any product to which this Regulation applies shall be determined in accordance with the provisions of (EEC) Regulation N 2913/ OJ C [ ], [ ], p. [ ]. Council Regulation (EEC) No 2913/92 establishing the Community Customs Code (OJ L 302, , p. 1), as last amended by (EC) Regulation N 2700/2000 (OJ L 311 of , p. 17). 4

5 (5) Products for which an import licence with an exemption from, or a reduction of, duty has been issued prior to the date of entry into force of this regulation should not be subject to these additional customs duties. (6) Products for which it can be proved that they have been exported from the United States of America to the Community prior to the date of first application of the additional customs duties should not be subject to these additional customs duties. (7) Products affected by the suspension of concessions should be placed under the customs procedure processing under customs control only pursuant to an examination in the Committee of the Customs Code 3. HAS ADOPTED THIS REGULATION: Article 1 The tariff concessions of the Community are hereby suspended as from 1 March 2004 in respect of products originating in the United States of America listed in the Annex to this Regulation. Article 2 1. An ad valorem duty additional to the customs duty applicable under Council Regulation (EEC) No. 2913/92 shall be imposed on the products originating in the United States of America listed in the Annex to this Regulation, as follows: 5% from 1 March 2004 to 31 March 2004 inclusive 6% from 1 April 2004 to 30 April 2004 inclusive 7% from 1 May 2004 to 31 May 2004 inclusive 8% from 1 June 2004 to 30 June 2004 inclusive 9% from 1 July 2004 to 31 July 2004 inclusive 10% from 1 August 2004 to 31 August 2004 inclusive 11% from 1 September 2004 to 30 September 2004 inclusive 12% from 1 October 2004 to 31 October 2004 inclusive 13% from 1 November 2004 to 30 November 2004 inclusive 14% from 1 December 2004 to 31 December 2004 inclusive 3 Commission Regulation (EEC) No 2454/93 of 2 July 1993 laying down provisions for the implementation of Council Regulation (EEC) No 2913/92 establishing the Community Customs Code (OJ L 253, , p. 1), as last amended by (EC) Regulation N 1335/2003 (OJ L 187 of , p. 16). 5

6 15% from 1 January 2005 to 31 January 2005 inclusive 16% from 1 February 2005 to 28 February 2005 inclusive 17% from 1 March After 1 March 2005, the Commission shall present a proposal to the Council for the revision of the Regulation in the light of developments. 3. The origin of any product to which this Regulation applies shall be determined in accordance with the provisions of Council Regulation (EEC) N 2913/92. Article 3 The Council shall decide on the repeal of this Regulation once the United States of America have fully implemented the recommendation of the WTO Dispute Settlement Body. Article 4 1. Products listed in the Annex for which an import licence with an exemption from or a reduction of duty has been issued prior to the date of entry into force of this regulation shall not be subject to the additional duty. 2. Products listed in the Annex for which it can be demonstrated that they are already on their way to the Community on the date of entry into force of this Regulation, and whose destination cannot be changed, shall not be subject to the additional duty. 3. Products listed in the Annex may be placed under the customs procedure processing under customs control in accordance with Article 551(1) first subparagraph of Commission Regulation (EEC) n 2454/93 only where the examination of the economic conditions has taken place in the Committee of the Customs Code unless the products and operations are mentioned in Annex 76, Part A of that Regulation. Article 5 This Regulation shall enter into force on the day of its publication in the Official Journal of the European Union. This Regulation shall be binding in its entirety and directly applicable in all Member States. Done at Brussels, [ ] For the Council The President [...] 6

7 ANNEX The products on which additional duties are to apply are identified by their eight-digit CN codes. The description of these codes can be found in Annex I to Council Regulation (EEC) No. 2658/87 on the tariff and statistical nomenclature and on the Common Customs Tariff (as last amended by Commission Regulation (EC) No. 1832/2002, OJ L 290, , p. 1). The description of the two-digit CN Chapters is given for information purposes only. CN Chapters Description chapter 1 Live animals Meat and edible meat offal Dairy produce; birds' eggs; natural honey; edible products of animal origin, not elsewhere specified or included Products of animal origin not elsewhere specified or included

8 7 Products of animal origin not elsewhere specified or included Edible fruit and nuts; peel of citrus fruits or melons 10 Cereals Products of the milling industry; malt; starches; inulin; wheat gluten Oil seeds and oleaginous fruits; miscellaneous grains; seeds and fruit; industrial or medical plants; straw and fodder

9 Animal or vegetable fats and oils and their cleavage products; prepared edible fats; animal or vegetable waxes Preparations of meat, of fish or of crustaceans, molluscs or other aquatic invertebrates Sugars and sugar confectionery Preparations of cereals, flour, starch or milk; pastrycooks' products

10 20 Preparations of vegetables, fruit, nuts or other parts of plants Miscellaneous edible preparations Residues and waste from the food industries; prepared animal fodder Essential oils and resinoids; perfumery, cosmetic or toilet preparations Soap, organic surface-active agents, washing preparations, lubricating preparations, artificial waxes, prepared waxes, polishing or scouring preparations, candles and similar articles, modelling pastes, dental waxes and dental preparations with a basis of plaster Albuminoidal substances; modified starches; glues; enzymes

11 41 Raw hides and skins (other than furskins) and leather Articles of leather; saddlery and harness; travel goods, handbags and similar containers; articles of animal gut (other than silk-worm gut) Furskins and artificial fur; manufactures thereof Wood and articles of wood; wood charcoal

12 Paper and paperboard; articles of paper pulp, of paper or of paperboard

13 49 Printed books, newspapers, pictures and other products of the printing industry; manuscripts, typescripts and plans 52 Cotton Man-made filaments Carpets and other textile floor coverings Articles of apparel and clothing accessories, knitted or crocheted

14 Articles of apparel and clothing accessories, not knitted or crocheted

15 63 Other made-up textile articles; sets; worn clothing and worn textile articles; rags Footwear, gaiters and the like; parts of such articles 69 Ceramic products

16 70 Glass and glassware Natural or cultured pearls, precious or semi-precious stones, precious metals, metals clad with precious metal, and articles thereof; imitation jewellery; coins 72 Iron and steel

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18 73 Articles of iron or steel Copper and articles thereof

19 76 Aluminium and articles thereof Tools, implements, cutlery, spoons and forks, of base metal; parts thereof of base metal Miscellaneous articles of base metal Nuclear reactors, boilers, machinery and mechanical appliances; parts thereof

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21 Electrical machinery and equipment and parts thereof; sound recorders and reproducers, television image and sound recorders and reproducers, and parts and accessories of such articles

22 Toys, games and sports requisites; parts and accessories thereof

23 FINANCIAL STATEMENT DATE October 2003 APPROPRIATIONS: 1. BUDGET HEADING: TITLE: COUNCIL REGULATION establishing additional customs duties on imports of certain products originating in the United States of America 3. LEGAL BASIS: Article AIMS: Suspend tariff bindings on certain US products as a result of the US failure to implement DSB recommendations with regards to the FSC/ETI dipsute 5. FINANCIAL IMPLICATIONS 12 MONTH PERIOD 5.0 EXPENDITURE - CHARGED TO THE EC BUDGET (REFUNDS/INTERVENTIONS) - NATIONAL AUTHORITIES - OTHER 5.1 REVENUE - OWN RESOURCES OF THE EC (LEVIES/CUSTOMS DUTIES) - NATIONAL (EUR million) CURRENT FINANCIAL YEAR 2003 (EUR million) FOLLOWING FINANCIAL YEAR 2004 (EUR million) Nil Nil Nil 290 million Nil 290 million ESTIMATED EXPENDITURE Nil Nil ESTIMATED REVENUE 290 million 614 million 5.2 METHOD OF CALCULATION: Estimated maximum revenue increase through additional duties on certain US products multiplied by trade value 6.0 CAN THE PROJECT BE FINANCED FROM APPROPRIATIONS ENTERED IN THE RELEVANT CHAPTER OF THE CURRENT BUDGET? 6.1 CAN THE PROJECT BE FINANCED BY TRANSFER BETWEEN CHAPTERS OF THE CURRENT BUDGET? Not Applicable Not Applicable 6.2 WILL A SUPPLEMENTARY BUDGET BE NECESSARY? NO 6.3 WILL APPROPRIATIONS NEED TO BE ENTERED IN FUTURE BUDGETS? NO OBSERVATIONS: The suspension of tariff bindings shall be temporary and shall only be applied until such time as the WTO inconsistent measure has been removed. 23