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Brussels, 2 October 2000

EU and US reach agreement on procedures for handling Foreign Sales Corporations (FSC) dispute

Following meetings last week in Brussels, the EU and US have agreed on procedures for handling the Foreign Sales Corporation (FSC) dispute. Pascal Lamy, European Trade Commissioner, welcomed the agreement. He said: "The agreement reached today reflects our common desire to handle trade disputes in a pragmatic and non-confrontational manner. Our priority is to resolve disputes, not exacerbate them. We disagree on the replacement FSC system which, in our view, remains incompatible with the WTO findings. We have agreed on how to handle this - but in doing so, fully protecting the EU's rights and interests in the WTO."

The EU remains of the view that the draft US FSC replacement legislation, which should be implemented on or by 1 October, does not comply with the WTO's recommendations. However, the EU prefers to avoid escalation of the dispute at this stage, whilst of course fully preserving its rights under the WTO Dispute Settlement Understanding.

One of the key elements of the EU-US agreement is that the two sides agree that a WTO panel would review the compatibility of the FSC replacement legislation, if adopted. The EU would not be obliged to go to sanctions before the panel reports. In parallel, the EU would seek the necessary WTO authorisation to impose sanctions in a timely fashion, in order to preserve its WTO rights.

In addition, the US would ask the WTO Dispute Settlement Body to postpone the 1 October deadline until 1 November, delaying any further procedural steps until later in the month.

The EU remains committed to managing trade disputes effectively and in a non-confrontational manner. The agreement differs sharply from the US approach taken during the banana dispute in 1998-99. In that instance, the WTO's determination of the legality of the EU regime did not pre-date the US decision to impose sanctions.

The details of the agreement will be communicated to the WTO in Geneva shortly.

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