WORLD TRADE WT/DS108/1
G/SCM/D18/1
ORGANIZATION G/L/212
28November 1997
(97-5232)
Original: English
UNITED STATES -TAX TREATMENT FOR
"FOREIGN SALES CORPORATIONS"
Request forConsultations bytheEuropean Communities
Thefollowing communication, dated 18November 1997, fromthePermanent Delegation of
theEuropean Commission tothePermanent Mission oftheUnited States andtotheDispute Settlement
Body, iscirculated inaccordance withArticle 4.4oftheDSU.
_______________
TheEuropean Communities wish toconvey totheUnited States ofAmerica arequest for
consultations under Article 4ofthe"Understanding onRules andProcedures Governing theSettlement
ofDisputes "(hereinafter alsoreferred toasthe"Understanding"), Article XXIII:1 GATT 1994, and
Article 4oftheAgreement onSubsidies andCountervailing Measures (ASCM) withrespect to
Sections 921-927 oftheInternal Revenue Code andrelated measures establishing special taxtreatment
for"Foreign Sales Corporations" (FSC).
TheEuropean Communities wishtoexpress theirconcern withtheapparent lackofconformity
oftheabove provisions withtheobligations oftheUnited States ofAmerica under GATT 1994 and
theASCM. Inparticular, theCommunities 'concerns relate tothefollowing:
- theexemptions fromtheUnited States direct (income) taxesofaportion ofFSCincome
related toexports andofdividends distributed toUnited States parent companies
constitute export subsidies contrary toArticle XVIGATT 1994 andArticle 3.1(a) of
theASCM;
- therequirement thatthetaxexemption under theFSCscheme islimited toreceipts
fromtheexport ofproducts having atleast50%United States origin bymarket value
provides treatment lessfavourable toimported products thanisaccorded tolike
United States products contrary toArticle III:4GATT 1994 andalsoconstitutes a
subsidy contingent upon theuseofdomestic over imported goods contrary to
Article 3.1(b) oftheASCM.
- Therefore, theEuropean Communities request consultations withtheUnited States
todiscussthematterwithaviewtofindingamutuallysatisfactorysolutioninaccordance
withArticle 4oftheUnderstanding.