(Info for case anal.) FOREIGN SALES CORPORATION 2004

President Bush signed a law repealing U.S. export tax breaks that were ruled illegal by the World Trade Organization (WTO) and have prompted retaliatory trade sanctions by the European Union (EU). In an October 22 statement, the White House said that the president had signed into law the "American Jobs Creation Act of 2004," which repeals the disputed Extraterritorial Income Act (ETI), provides other tax breaks for business and reforms U.S. tobacco subsidies. The WTO has ruled repeatedly that the ETI and its predecessor, the Foreign Sales Corporation (FSC) program, were de facto export subsidies that violate international trade rules.

Earlier efforts to resolve the EU/U.S. dispute failed, and the WTO authorized the EU to impose tariffs of up to $4 billion on U.S. exports. The EU began in March to impose tariffs of 5 percent on a range of U.S. products and said the rate would increase by one percentage point per month up to 17 percent. As of October 1, the tariff rate was 12 percent. The House of Representatives voted 280-141 on October 7 to pass the measure repealing FSC/ETI provisions. The Senate voted 69-17 in favor of the bill October 11, completing congressional action and sending the measure to the president for his signature. EU officials have said they will lift the retaliatory tariffs as soon as the United States complies with WTO rules, but it remains unclear whether they will accept the new law as fully satisfying U.S. obligations.