The EU, alongside six WTO members (Brazil, Canada, India, Korea, Japan and Mexico), today received WTO authorisation to impose retaliatory measures against the US for failing to bring its legislation into conformity with its international trade obligations. This was a formal step before retaliatory measures could be imposed. These measures will take the form of additional import duties on wide variety of US products from an indicative list approved by the WTO that includes machinery, foodstuffs, textiles and paper products. The EU has urged the US to avoid retaliation by complying with its international obligations.

The Continued Dumping and Subsidy Offset Act of 2000 (the ‘Byrd Amendment’) mandates the distribution of anti-dumping and countervailing duties to the US companies that brought or supported the complaints. It creates an undue incentive for US industries to seek the imposition of duties on imported goods, improving their competitive position and assisting them in the form of cash payments. The WTO ruled that this constituted a double penalty on non-US competitors; it ruled the Byrd Amendment illegal in January 2003.

A total of US $ 231 million was distributed in 2001 and around US $ 330 million in 2002. Information published indicates that distribution for 2003 would amount to about US $ 240 million.

If the US does not bring its legislation into conformity with its international obligations the EU would impose retaliatory measures early in 2005.

Ahead of the elimination of textiles and clothing quotas on 1 January 2005, EU and Chinese officials and representatives of Chinese and European industry held the second meeting of the Textiles Trade Dialogue in Beijing today. Talks covered questions related to market access, production and investments. The Textiles Trade Dialogue was established on 6 May 2004 during the visit of Chinese Premier Wen Jiabao to Brussels. On that occasion, the EU announced the setting up of a WTO-compatible monitoring system of Chinese textiles from 1 January 2005 to ensure a smooth transition to a quota-free trade. Today’s discussions are a concrete implementation of this decision and a continuation of talks at a technical level.

The textiles trade dialogue between China and the EU is intended to address, in a spirit of cooperation and dialogue, matters of common interest in the textiles and clothing trade area. Among these issues is the critical question of how to ensure that trade in textiles and clothing proceeds smoothly after the elimination of quotas on 1 January 2005. The EU believes that textiles trade growth after the removal of quotas should be progressive rather than sudden, because a surge in Chinese exports to the EU, coupled with decreasing prices, could have severe consequences on third country suppliers to the EU. This is particularly true for small and vulnerable developing countries heavily reliant on textile exports.

During the meeting, officials examined trade statistics, market access issues, production and investment conditions, possibilities of EU China cooperation, and trade after the end of quotas. The EU had earlier indicated that, in order to follow closely imports of the most sensitive textiles and clothing products, it would establish a WTO-compatible monitoring system for Chinese textiles imports. Such scheme will help to ensure a smooth transition to a quota-free system as from 1 January 2005.

Background:

In 2003, EU-China bilateral trade amounted to €135 billion and China overtook Switzerland as EU’s second trading partner behind the US (it overtook Japan in 2002).

China is the EU’s largest supplier of textiles and clothing products. In 2003 such imports from China represented €12.3 bn or 17.5 % of total EU imports in this sector. This was an increase of 8.3 % over 2002, 18 % over 2001, and 156 % over 1995. At present, imports from China still subject to WTO quotas represent 12 % of China’s total textile and clothing exports to the EU.

The WTO Agreement on Textile and Clothing (ATC), which established a ten year period for the elimination of the quotas, will expire on 31 December 2004. From 1st January 2005 trade in textile and clothing products will not be subject to any quantitative restrictions. The EU has already eliminated 56 bilateral quotas in 2002 under the third stage of integration of the ATC.

Following the progressive removal of quotas, EU textiles imports subject to quotas represent only 20 % of total EU textile and clothing products, and the majority of these quotas are not very highly utilised and therefore do not have a very constraining effect.

The European Commission welcomed the signature, by the US President of the Bill repealing the illegal FSC/ETI export subsidies, which thus becomes US law. This is the latest act in an effort from the US to comply with several WTO rulings which had found the legislation in question to provide illegal subsidies to US exporters to the tune of $US 4 billion per year. The law, however, provides that FSC/ETI benefits will still be available to US exporters up to the end of 2006 and in some cases for an unlimited period thereafter.

The US law, which applies only as from next year, provides for a 2-year transitional period; during that period FSC/ETI benefits of more than $US 4 billion and $US 3 billion in 2005 and in 2006 respectively will still be available to US exporters. Furthermore, FSC/ETI benefits will continue to be available without any limitations to all exporters who have entered binding contracts before 17 September 2003 under the so-called grandfathering clause, favouring producers of large capital goods which have long delivery times.

The Commission will now propose to the Council to suspend the sanctions currently in place, as from 1 January 2005, date when the US repeal bill will enter into force. The Commission will also go to the WTO dispute settlement system as regards the WTO compliance of the new legislation.

Background:

The WTO 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 was given until 1 November 2000 to withdraw the FSC scheme.

On 15 November 2000, President Clinton signed the ETI Act, which meant to replace the FSC. The ETI Act, however, did not modify the substance of the export subsidy scheme and as a result the EU challenged it before the WTO. In January 2002, the WTO confirmed that the ETI Act also constituted a prohibited export subsidy and that the US had not, therefore, complied with its previous ruling.

On 7 May 2003 the WTO endorsed the EU request for countermeasures for a level roughly equal to the estimated annual US subsidy (i.e. US$ 4 billion).

The Council Regulation imposing countermeasures was published on 17 December 2003 in OJ L 328 p.3. With the clear objective of obtaining withdrawal of the US measures, it provided for a gradual imposition of countermeasures as from 1 March 2004 at the level of 5%, followed by automatic, monthly increases of 1% up to a ceiling of 17% to be reached in March 2005. The current level is 12%. The targeted products cover a wide variety of sectors (e.g. steel, textiles, paper) with the exception of the civil aircraft sector.