U.S.-European Union Disputes in the World Trade Organization

Report for Congress
U.S. - European Union
Disputes in the
World Trade Organization
Updated May 27, 2003
Raymond J. Ahearn
Specialist in International Trade and Finance
Foreign Affairs, Defense and Trade Division
Jeanne J. Grimmett
Legislative Attorney
American Law Division

Congressional Research Service ˜ The Library of Congress

U.S. - European Union Disputes in the
World Trade Organization
Summary
U.S.-EU relations have been affected by a number of trade disputes in recent
years. While the majority of trade disputes do get resolved, attempts to settle some
of the disputes have been met with refusal or inability by one or another of the parties
to comply in a timely manner with the World Trade Organization (WTO) panel
rulings. The 108^th Congress inherits several of these disputes where the WTO has
ruled that U.S. laws violate trade obligations. Absent U.S. compliance through
legislative action, the EU could in some cases decide to retaliate against U.S. exports
this year or next. In the meantime, the EU remains in non-compliance with its WTO
obligations to allow imports of beef treated with hormones. Beyond raising U.S.-EU
trade tensions, non-compliance by a key WTO member arguably weakens the
credibility and authority of the WTO and its dispute settlement process.
The initiation and resolution of disputes under WTO agreements is carried out
under the Uruguay Round Dispute Settlement Understanding (DSU), considered a
cornerstone of the WTO system. The WTO dispute settlement process has a more
quasi-judicial orientation than the quasi-diplomatic orientation of the prior GATT
system, in which negotiation and conciliation generally prevailed over multilateral
enforcement of rules. The DSU provides for virtually automatic establishment of
panels, adoption of panel and appellate reports and, where requested, authorization
to impose retaliatory measures; deadlines are set out for various stages of the process.
These features ensure that complaints are heard and promote implementation of
WTO rulings, thus making available to all WTO Members the means to clarify trade
rules and redress trade injury. At the same time, the process continues to retain
certain diplomatic elements in that its primary aim is to “secure a positive solution
to a dispute,” with the preferred outcome being a “solution mutually acceptable to the
parties to the dispute and consistent with the covered agreements.” Opportunities for
settlement are provided at a number of points in a procedure.
U.S. and EU instances of longstanding non-compliance have for the most part
not involved routine commercial disputes over trade or customs regulations, but
rather tax policy and internal national regulation, particularly of social and health
matters. While ambiguity in WTO agreements may give rise to disputes in these
difficult areas, the automatic features of the DSU also allow parties to pursue such
cases through the full dispute process, even though it may be evident from the outset
that implementation of an adverse WTO ruling may be subject to overwhelming
domestic opposition in the defending country. To deal with the problem of non-
compliance in difficult cases, both Washington and Brussels may need to give greater
attention to a number of concerns and policy considerations, including choice of
cases initiated, limitations on panel decisions, role of mediation and conciliation, and
adoption of remedies that are trade liberalizing. Assuming that some disputes are not
well-suited for the DSU process, greater efforts may be needed to settle differences
through bilateral negotiations and political compromises, through mediation, or by
agreeing to arbitration from an outside (i.e., non-WTO) party. This report will be
updated periodically. For more on the WTO dispute settlement process and U.S.-EU
Trade Relations, see CRS Report RS20088 and CRS Issue Brief IB10087.

Contents
WTO Dispute Settlement Process.....................................2
Consultations (Art. 4)......................................3
Establishing a Dispute Panel (Arts. 6, 8)........................4
Panel Procedures (Arts. 12, 15)...............................4
Adoption of Panel Reports/Appellate Review (Arts. 16, 17, 20).....4
Implementation of Panel and Appellate Body Reports (Art. 21)......4
Compliance Panels (Art. 21.5)................................5
Compensation and Suspension of Concessions (Art. 22)...........5
Overview of U.S. – EU Disputes in the WTO............................5
U.S. Complaints Against the EU..............................6
EU Complaints Against the United States.......................7
Non-Compliance in Selected Cases...................................10
Beef Hormone Dispute.........................................10
Export Subsidy Dispute........................................11
Concerns and Policy Considerations..................................13

U.S. - European Union Disputes in the
World Trade Organization
Introduction
This report discusses disputes in the World Trade Organization (WTO) between
the United States and the European Union (EU). The report begins with an overview
of the issues to be addressed, and continues with a brief description of the WTO
dispute settlement process, a summary of U.S.-EU dispute settlement history, and a
review of issues arising from cases of longstanding non-compliance. The report
concludes with a discussion of continuing concerns and policy considerations.
The 108^th Congress inherits several U.S.-EU disputes where the WTO has ruled
that U.S. laws violate world trade obligations. In some cases, barring abolition or
significant modification of the statutes in question, the EU could decide to retaliate
against U.S. exports this year or next. The largest threat involves a WTO ruling that
a U.S. export tax benefit is an illegal subsidy. Other cases in which original WTO
compliance deadlines passed without needed action by the United States include a
dispute over the Antidumping Act of 1916, which provides a private right of action
and criminal penalties against dumping; a copyright dispute where the U.S. was
found to have violated royalty rights of EU musicians; and a trademark dispute with
implications for a Cuban rum trademark. At the same time, the EU has not yet
complied in a case finding its beef hormone directive to violate WTO obligations,
choosing instead to accept retaliatory tariffs originally imposed by the United States
in 1999.
Bills were introduced in the 107^th Congress to comply with some of these WTO
decisions, but, with the exception of the establishment of a Treasury Department fund
for WTO settlements in the Trade Act of 2002, legislation was not acted upon. In the
108th Congress, discussions are continuing on compliance legislation in the export
subsidy dispute, with bills introduced in April and May 2003. House and Senate
legislation to repeal the 1916 Antidumping Act and the challenged trademark
provision has also been introduced. In addition, funds were recently appropriated for
the settlement of the music licensing dispute, and the Executive Branch has taken
initial compliance action in a recent case faulting a Commerce Department
countervailing duty methodology.
As an international organization intended to ensure that trade between countries
flows more easily, predictably and freely, the World Trade Organization (WTO)
serves as a forum for international trade negotiations and the settlement of disputes.
The United States and the European Union (EU), accounting for over 40% of world
trade, are arguably the two most important members of the WTO. Cooperation and
joint leadership between the two partners have historically been the key to all
previous efforts to liberalize world trade on a multilateral basis, including the

creation of the General Agreement on Tariffs and Trade (GATT) in 1948 and the
WTO in 1995.
U.S.-EU efforts to provide leadership to the world economy in recent years,
however, have been affected by a number of trade disputes. These disputes have
absorbed a large amount of time and energy of key policymakers, making efforts to
pursue common interests and objectives, such as the successful completion of the
current WTO Doha Development Round, more difficult. Moreover, in cases
involving beef hormones, bananas, export tax benefits, and other trade laws, attempts
to settle disputes have met with refusal or inability by one side or the other to comply
in a timely manner with the WTO panel rulings.
The WTO dispute settlement system is viewed by WTO Members as “a central
element in providing security and predictability to the multilateral trading system.”¹
Non-compliance with WTO panel and Appellate Body rulings by a key Member
arguably weakens the credibility and authority of the WTO and serves as a poor
model for the rest of the world. Why should we comply with WTO panel decisions
if the United States or EU do not have to, other countries may ask. Non-compliance
may also diminish the perceived value of negotiating new trade agreements, as well
as increase the attractiveness of retaliation as an enforcement mechanism. At the
same time, focusing on the underlying causes of non-compliance may reveal the
limitations of the WTO dispute process and the ultimate outcomes that can
realistically be expected in certain types of cases.
WTO Dispute Settlement Process
Settlement of trade disputes from 1948-1995 in the GATT, the predecessor
organization to the WTO, was based on a blend of two different philosophies. The
first was a “diplomatic” view that favored conciliation and problem-solving over
legal precision in determining which country was right or wrong. The second was
a more judicial and “rules-oriented” approach that attempted to provide a more
binding process with sanctions as an enforcement mechanism.²
Today’s WTO Understanding on Rules and Procedures Governing the
Settlement of Disputes (Dispute Settlement Understanding or DSU), one of the
agreements that emerged from the GATT Uruguay Round (1986-1994), tilts more
towards a judicial model. U.S. negotiators had advocated this approach during the
Round, supported by a statutory trade negotiating mandate in the Omnibus Trade and
Competitiveness Act of 1988 to strengthen GATT dispute settlement procedures.

¹ WTO Understanding on Rules and Procedures Governing the Settlement of Disputes
(DSU), Art. 3.2.
² Jackson, John H. The World Trading System; Law and Policy of International Economic
Relations. The MIT Press, Cambridge, Mass. 1989. pp. 85- 88. Barfield, Claude E. Free
Trade, Sovereignty, Democracy: The Future of the World Trade Organization, The AEI
Press, Washington, D.C. 2001. 245p.

The DSU, which went into effect January 1, 1995, continues past GATT dispute
practice, but also contains several features aimed at making the system more rigorous
and automatic. In contrast to the old GATT system, in which a member could block
decisions at any step of the process, the DSU provides that panels will be established
and reports by WTO panels and the Appellate Body will be adopted unless there is
a consensus among WTO members against taking such action. In addition, where the
losing party does not comply with its WTO obligations within a reasonable time
period, and the complaining party requests authorization to impose a retaliatory
measure, the request will be granted absent the same negative consensus. Deadlines
have also been established for each stage of the four-step dispute process:
consultations; panel deliberations; appellate review; and implementation of
compliance measures.³ The DSU is administered by the WTO Dispute Settlement
Body (DSB), which is composed of all WTO Members.
Members are required under the DSU to first determine if invoking DSU
procedures “would be fruitful” in a given case.⁴ The aim of the process is “to secure
a positive solution to a dispute,” the preferred outcome being “a solution mutually
acceptable to the parties to the dispute and consistent with the covered agreements”;
absent such a solution, the primary objective of the process is withdrawal of an
offending measure, with compensation and retaliation being avenues of last resort.⁵
Where retaliation is requested by the prevailing party, the defending party has a right
to have the amount arbitrated to determine if the level proposed is substantially
equivalent to the level of trade damage. However, compensation and retaliation are
considered temporary measures under the DSU, pending full compliance. Where the
defending party does take action to comply and the prevailing party questions
whether the action is sufficient, a compliance panel may be established to determine
whether the measure fulfills WTO obligations. The DSU also discourages unilateral
actions in WTO-related trade disputes, requiring WTO Members to resolve such
disputes using DSU procedures, and to observe DSU provisions when determining
whether a WTO violation has occurred or trade injury exists, determining what is a
reasonable time to comply, and taking any retaliatory measures.
The steps in the WTO dispute process are as follows:
Consultations (Art. 4). If a WTO Member requests consultations with
another Member under a WTO agreement, the latter must generally respond within
10 days and enter into consultations within 30 days. If the dispute is not resolved
within 60 days after receipt of the request to consult, the complaining party may
request a panel. The complainant may request a panel earlier if the defending
Member has failed to enter into consultations or if the disputants agree that
consultations have been unsuccessful.

³ For an overview, see CRS Report RS20088, Dispute Settlement in the World Trade
Organization: An Overview, by Jeanne J. Grimmett.
⁴ DSU, Art. 3.7.
⁵ Id.

Establishing a Dispute Panel (Arts. 6, 8). If a panel is requested, the DSB
must establish it at the second DSB meeting at which the request appears as an
agenda item, unless it decides by consensus not to do so. The panel is generally
composed of 3 persons. The Secretariat proposes the names of panelists to the
disputants, who may not oppose them except for “compelling reasons.” If there is
no agreement on panelists within 20 days from the date the panel is established, the
WTO Director, at the request of either disputing party, appoints the panelists.
Panel Procedures (Arts. 12, 15). After considering written and oral
arguments, the panel issues the descriptive part of its report (facts and argument) to
the disputing parties. After considering any comments, the panel submits this portion
along with its findings and conclusions to the disputing parties as an interim report.
Absent further party comments, the interim report is considered to be the final report
and is circulated promptly to WTO Members.
A panel must generally circulate its report to the disputants within 6 months of
the date the panel is composed, but may take longer if needed. The period from panel
establishment to circulation of the report to all Members should not exceed 9 months.
Adoption of Panel Reports/Appellate Review (Arts. 16, 17, 20).
Within 60 days after a panel report is circulated to WTO Members, the report is to
be adopted at a DSB meeting unless a party to the dispute appeals the report or the
DSB decides by consensus not to adopt it. Within 60 days of being notified of an
appeal (extendable to 90 days), the Appellate Body must issue a report that upholds,
reverses, or modifies the panel report. An appellate report is to be adopted by the
DSB, and unconditionally accepted by the disputing parties, unless the DSB decides
by consensus not to adopt it within 30 days after circulation to Members.
The period of time from the date the panel is established to the date the DSB
considers the panel report for adoption is not to exceed 9 months (12 months where
the report is appealed) unless otherwise agreed by the disputing parties.
Implementation of Panel and Appellate Body Reports (Art. 21).
Thirty days after the panel and any Appellate Body reports are adopted, the Member
must inform the DSB how it will implement the WTO ruling. If it is “impracticable”
to comply immediately, the Member will have a “reasonable period of time” to do
so. The period will be: (1) that proposed by the Member and approved by the DSB;
(2) absent approval, the period mutually agreed by the disputing parties within 45
days after the date of adoption of the report or reports; or (3) failing agreement, the
period determined by binding arbitration. Arbitration is to be completed within 90
days after the reports are adopted. To aid in determining a compliance period, the
DSU gives the arbitrator a non-binding guideline of 15 months from the date of
adoption.
The period of time from the date the panel is established to the date the
compliance period is determined is not to exceed 15 months unless the disputing
parties agree otherwise. If the panel or the Appellate Body has extended its time, the
additional period is to be added to these overall deadlines. In such case, the total
time is not to exceed 18 months, unless the disputing parties agree that exceptional
circumstances warrant an extension.

Compliance Panels (Art. 21.5). Where there is disagreement as to whether
a Member has complied in a case, a panel may be convened to resolve the dispute.
The compliance panel has 90 days to issue its report, which may then be appealed.
Compensation and Suspension of Concessions (Art. 22). In the event
the defending party fails to comply with the WTO recommendations and rulings
within the compliance period, the party must, upon request, enter into negotiations
with the prevailing party on a compensation agreement within 20 days after the
expiration of this period; if negotiations fail, the prevailing party may request
authorization from the DSB to retaliate.
If requested, the DSB is to grant the authorization within 30 days after the
compliance period expires unless it decides by consensus not to do so.⁶ The
defending Member may request arbitration on the level of retaliation or whether the
prevailing Member has followed DSU rules in formulating a proposal for cross-
retaliation; the arbitration is to be completed within 60 days after the compliance
period expires. Once a retaliatory measure is imposed, it may remain in effect only
until the offending measure is removed or the disputing parties otherwise resolve the
dispute.
Overview of U.S. – EU Disputes in the WTO
From 1995 through the end of 2002, the United States and the EU filed 51
complaints against each other under the Dispute Settlement Understanding. The
cases are almost equally divided: 26 have been filed by the United States against the
EU or one of its Member States, and 25 have been filed by the EU against the United
States. For the most part, the United States or the EU, as the case may be, has been
the sole complainant in the case. The 51 complaints constitute 18.3% of the total
number of complaints filed between January 1, 1995, the date the WTO Agreement⁷
entered into force, and December 31, 2002.

⁶ The DSU does not make clear how it is to be determined whether a losing Member has
complied with WTO rulings so that compensation and authorization to impose
countermeasures may be requested before the end of the stated 30-day period. As noted
above, Article 21.5 provides for panels to make this determination if a disagreement arises
as to whether a Member has complied, but, other than stating that the panel’s work should
be completed within 90 days, the DSU does not clearly integrate the compliance process into
an overall WTO dispute proceeding. This ambiguity has given rise to the problem of
“sequencing,” which refers to the timing of compliance panel proceedings and requests to
impose countermeasures. The issue, which first arose in the implementation phase of the
U.S.-EU banana dispute, has been taken up in WTO discussions and negotiations of
revisions to the DSU. Absent clarifications in the DSU, however, sequencing problems
have generally been resolved on an ad hoc basis through bilateral agreements between
disputing parties. Parties ordinarily agree that a compliance panel is to complete its work
before the prevailing party will pursue approval of its authorization request. See generally
Rhodes, “The Article 25.1/22 Problem: Clarification through Bilateral Agreements?” 3 J.
Int’l Econ. L. 553 (2002).
⁷ These statistics and information regarding the current status of the cases discussed here are
(continued...)

In general, the EU has brought a relatively steady number of cases each year,
while the number of cases brought annually by the United States reached a peak in
1998 and has fallen to one case in each of 2000, 2001, and 2002. The EU caseload
against the United States may be viewed as somewhat heavier than the U.S. caseload
against the EU because a number of the cases filed by the United States against the
EU or its Member States involve the same or similar subject matter; moreover, the
EU has pursued a greater number of cases through the full panel process. The
following chart shows the variations in actual complaints filed:
U.S. asEU as
Year Complainant Complainant
199520
199633
199764
199885
199944
200015
200112
200212
Source: WTO dispute settlement statistics [http://www.wto.org]
U.S. Complaints Against the EU.Of the 26 complaints filed by the United
States against the European Union or specific EU countries, 13 are currently listed
by the WTO Secretariat as remaining in the consultative stage and thus do not appear
to have a definitive solution. In all of these cases, the 60-day consultation period in
the DSU has passed. These cases allege, in reverse chronological order: Safeguards
Agreement and GATT violations stemming from the EU tariff-rate quota on U.S.
corn gluten feed briefly imposed while the U.S. maintained its three-year safeguard
on wheat gluten; the EU’s failure to protect trademarks and geographic indications
for agricultural products in violation of the Agreement on Trade-Related Intellectual
Property (TRIPS); French and EU subsidies to develop a flight management system
related to Airbus; export subsidies resulting from income tax treatment of exports by
various EU members; and EU export subsidies on processed cheese. In addition,
there are two outstanding complaints related to the now settled dispute over EU’s
banana import regime.

⁷ (...continued)
derived from the WTO Secretariat’s electronically-published Update of WTO Dispute
Settlement Cases and chronology of disputes, [http://www.wto.org/english/tratop_e/
dispute_e/dispu_e.htm]. While the European Communities (EC) is the WTO member body
for the 15 European Union member states, the term European Union or EU is used in this
discussion when referring to the EU’s WTO participation.

Seven complaints filed by the United States were settled either through
consultations or before a panel had begun its work. Since settlement of a case must
be mutually agreed by the disputing parties, the United States apparently achieved a
satisfactory solution in these situations. Two of these cases dealt with customs duties
on rice and grain, respectively, and five involved intellectual property issues. In four
of these either a panel had been requested or else a panel was established or later
suspended.
Five of the cases brought by the United States were taken through the full panel
process. Two were won by the United States: beef hormones and bananas. Three
of the cases were lost on appeal, each of these dealing with customs classification of
computer equipment.
The EU eventually complied in the successful challenge to the EU’s banana
import regime, though two and one-half years had passed from the end of the original
compliance deadline (January 1, 1999) before a settlement was reached. Maintaining
that the EU had not complied by this deadline, the United States requested
authorization to impose sanctions on EU products under Article 22 of the DSU. In
April 1999, the WTO authorized the United States to suspend $191.4 million in trade
concessions, an arbitrated amount reflecting the level of trade injury suffered by the
United States. The United States imposed 100% ad valorem duties on EU products
in this amount shortly thereafter and, following a compliance panel proceeding,
protracted negotiations between the EU, the United States and Ecuador, and the
institution of new EU measures, the EU eventually complied. The United States
suspended the increased duties July 1, 2001. The case also focused attention on the
DSU itself, with the EU challenging U.S. domestic procedures and countermeasures
under Section 301 of the Trade Act of 1974 as violative of DSU requirements.
In contrast, the EU chose to accept retaliation in the beef hormone case, in
which the United States had obtained panel and appellate reports finding that the
EU’s ban on imports of meat from animals to which certain growth hormones were
administered violated the WTO Agreement on Sanitary and Phytosanitary Measures.
When the EU had not complied by May 13, 1999, the end of the arbitrated
compliance period, the United States again sought authorization to impose sanctions
on EU products. In July 1999, the United States was authorized to suspend
concessions in the arbitrated amount of $116.8 million, and shortly thereafter
imposed 100% ad valorem duties on certain EU items. Absent compliance by the
EU, these duties still remain in place.
Currently pending is a U.S. complaint regarding the EU’s provisional steel
safeguards instituted after the Bush Administration imposed safeguards on steel
imports in March 2002. A panel was established in September 2002, but panelists
have not yet been named.
EU Complaints Against the United States. Of the 25 cases brought by
the EU against the United States, seven cases are listed by the WTO Secretariat as
remaining in consultations; in each of these the 60-day DSU consultation period has
ended without a panel being requested. The most recent of these are disputes over
sunset reviews of antidumping and countervailing duties on steel products from
France and Germany, and a sunset review of antidumping duties on seamless pipe

from Italy. The older disputes involve the Section 301 carousel retaliation provision,
which generally requires the United States Trade Representative (USTR) to revise
lists of products against which trade sanctions are imposed; Section 337 of the Tariff
Act, which authorizes border measures against infringing imports and was amended
in 1994 after a successful GATT challenge by the European Communities; the U.S.
harbor maintenance tax; an import ban on poultry products; and antidumping
measures on solid urea from the former German Democratic Republic.
In five cases, the dispute was either settled through consultations or an
established panel was allowed to lapse. Two of these involved U.S. rules of origin
for textiles, and a third involved pre-WTO retaliatory measures taken by the United
States against the EC beef hormone directive. When the U.S. removed its tariff
increases in July 1996, the EU decided not to pursue its earlier panel request in this
third case. The two remaining cases challenged U.S. measures imposed for foreign
policy purposes and were controversial for this reason. The challenged statutes were
the Cuban Liberty and Democratic Solidarity Act (Helms-Burton Act), which
imposed additional sanctions on Cuba and on individuals dealing in property
confiscated by Cuba, and the Massachusetts state law that imposed procurement
sanctions on firms doing business in Burma. After a panel was established in the
Helms-Burton Act case and the United States suggested that it might invoke WTO
national security exceptions in its defense, the dispute was resolved by bilateral
agreement between the United States and the EU. The Burma panel was allowed to
lapse in February 2000 as lower federal courts in the United States ruled the state law
unconstitutional. The Supreme Court eventually held that the statute was preempted
by a federal statute imposing sanctions on Burma.⁸
Thirteen of the 25 cases have been pursued by the EU through the full panel
process or are currently before a panel. Two of these, each involving challenges to
Section 301 and instituted in response to U.S. actions in the banana case, had mixed
results for the EU; the United States did not need to take action in these cases.⁹ The
EU prevailed in nine others. To date the United States has complied in two of these
cases (wheat gluten safeguards and a countervailing duty order on U.K. steel
products), and has taken action aimed at compliance in several others.
Two cases are currently at the panel stage, both dealing with safeguards. In the
first case, a challenge to the steel safeguards imposed in March 2002, a final panel
report adverse to the United States was issued May 2, 2003; the United States has
stated that it will appeal the report, which is expected to be circulated to WTO

⁸ Crosby v. National Foreign Trade Council, 530 U.S. 363 (2000). The Burma case
illustrates that in some situations parallel domestic and international legal proceedings may
be initiated with respect to a governmental measure and that, if the domestic judicial
proceeding is successful, the WTO claim may be abandoned. While federal law prohibits
private rights of action against the United States and individual States and their political
subdivisions for alleged WTO violations, 19 U.S.C. § 3512(c), a constitutional challenge
was still possible with respect to the state Burma law.
⁹ See generally Jackson and Grane, “The Saga Continues: An Update on the Banana
Dispute and Its Procedural Offspring,” 4 J. Int’l Econ. L. 581 (2001).

Members as a whole in July 2003.¹⁰ In the second, a challenge to U.S. safeguards
on line pipe and wire rod, panelists have not been named; the panel may have
become moot, however, since the safeguards in question expired in early March

2003.

Of the seven cases in which the United States has not yet fully complied, one
involves a tax statute (the Extraterritorial Income Exclusion (ETI) Act); two involve
intellectual property issues (music licensing and protection for trademarks belonging
to businesses whose property was confiscated by the Cuban government); and four
deal with trade remedies. The ETI Act was passed to comply with an earlier WTO
ruling finding that the U.S. Foreign Sales Corporation statute was a prohibited export
subsidy. The trade remedy challenges involve the Antidumping Act of 1916, which
provides a private right of action and criminal penalties for dumping; a
countervailing duty (CVD) order on German steel products; a set of 12 CVD orders
on EU steel products; and the Continued Dumping Subsidy Offset Act of 2002
(CDSOA) or Byrd Amendment, which provides for the disbursement of antidumping
and countervailing duties to producers and interested parties in the underlying
antidumping and CVD proceedings.
In three of the seven cases (ETI, music licensing, and the Antidumping Act of
1916), U.S. compliance deadlines have passed; in one (trademark protection), the
compliance deadline will expire at the end of June 2003. The Administration, in its
FY2004 budget proposal, has called for repeal of the ETI statute and stated an intent
to work with Congress for statutory reform of international tax rules. As discussed
below, other legislative proposals and options are also being considered, with bills
recently introduced in the House and Senate. Legislation has also been introduced
in the current Congress to repeal the 1916 Antidumping Act (H.R. 1073
(Sensenbrenner); S. 1080 (Hatch/Leahy); and S. 1155 (Grassley)). Three bills that
would repeal the challenged trademark provision in connection with removal of the
U.S. trade embargo with Cuba have also been introduced (H.R. 188 (Serrano); S. 403
(Baucus); and H.R. 1698 (Paul)).
In the music licensing case, the disputing parties agreed to have the level of
trade injury determined in an arbitration under Article 25 of the DSU, which provides
for binding arbitration as an alternative means of dispute settlement. This option,
which resulted in an arbitral award of $1.1 million annually, was agreed to after the
United States had not implemented the earlier WTO ruling by the end of the
arbitrated compliance period (July 2001). Congress established a judgment fund for
the payment of such WTO awards in the Trade Act of 2002, but has yet to
appropriate funds for it. In P.L. 108-11, the emergency wartime supplemental
appropriations act, however, Congress appropriated $3.3 million for “a one-time
only, lump-sum payment” to the European Communities to cover three years of trade
injury in the case.¹¹

¹⁰ “WTO Panel Issues Final Ruling Condemning U.S. Steel Safeguard ,” 20 Int’l Trade Rep.
812 (BNA 2003); “WTO Issues Final Panel Finding U.S. Steel Safeguard in Violation of
Rules,” Inside U.S. Trade, May 9, 2003, at 11.
¹¹ See H.Rept. 108-76 at 92.

The compliance process is in its early stages in some of the more recent cases.
The United States has begun to comply with rulings in the challenge to the multiple
CVD orders on EU steel products with the issuance of a Commerce Department
notice March 21, 2003, announcing a proposed revision of the privatization
methodology at issue in the case.¹² The United States and the EU have negotiated a
compliance deadline of November 8, 2003, in the proceeding.¹³ The compliance
period in the CDSOA dispute is currently being arbitrated.¹⁴
Non-Compliance in Selected Cases
While the majority of U.S.-EU disputes do get resolved satisfactorily, a number
of cases are currently testing the implementation articles of the DSU. Two of the
more difficult of these cases – beef hormones and the ETI Act export subsidy – do
not involve routine commercial disputes over trade or customs regulations, but rather
tax policy and internal national regulation, particularly of social and health matters.
These kinds of disputes, involving what are normally considered domestic policy
issues, appear to be the most difficult to resolve and may raise broader questions such
as whether the WTO is the proper forum for resolving these kinds of disputes.
Beef Hormone Dispute
The beef hormone dispute dates to 1989, when the EU instituted a ban on the
sale, distribution and importation of hormone-treated beef.¹⁵ In challenging the ban
under the new DSU in 1996, the United States argued that it violated the Uruguay
Round Agreement on the Application of Sanitary and Phytosanitary Measures (SPS
Agreement). While the provisions of the SPS Agreement recognize the right of
WTO members to adopt measures to protect human, animal, or plant life or health,
they also require that these measures be founded on scientific evidence and applied
only to the extent to achieve public health goals. The United States argued that the
EU ban was instituted without sufficient scientific evidence, and that it constituted
a disguised trade barrier.

¹² Dep’t of Commerce, “Notice of Proposed Modification of Agency Practice Under Section

123 of the Uruguay Round Agreements Act and Request for Public Comment,” 68 Fed. Reg.

13897 (2003).

¹³ WTO, Update of WTO Dispute Settlement Cases (May 1, 2003), at 152.
¹⁴ Id. While the Bush Administration has proposed repeal of the CDSOA in its FY2004
budget request (allowing, however, disbursements for FY 2003), 70 Senators have written
to the President urging negotiations with U.S. trading partners aimed at recognition of a
right to disburse antidumping and countervailing duties in the manner prescribed by the
statute “prior to any attempt to change our laws.” “U.S. Trading Partners Welcome Bush
Proposal to Rescind Byrd Amendment,” 20 Int’l Trade Rep. 255 (BNA 2003); “Two-Thirds
of Senate Defends Byrd Law, Casting Doubt on Repeal,” Inside U.S. Trade, February 7,
2003, at 21. Other options are also being explored. See, e.g., “Draft Senate Bill Would
Repeal Byrd Law, Create TAA Trust Fund,” Inside U.S. Trade, April 11, 2003, at 1.
¹⁵ For further information, see CRS Report 98-861, U.S. European Agricultural Trade: Food
Safety and Biotechnology Issues, by Charles E. Hanrahan.

WTO panels agreed with the U.S. argument and gave the EU time to bring its
hormone measure into compliance with SPS rules. The EU, however, argued that
none of the scientific reports established beyond reasonable doubt that the
consumption of beef treated with hormones was safe for human health. The EU also
claimed that a judgment about the level of protection was a value judgment that only
it could make. Occurrences of “mad cow disease” in several EU countries and the
outbreak of foot-and-mouth disease in the United Kingdom also contributed to
making many Europeans more risk averse on this issue. As noted earlier, the US in
1999 imposed 100% ad valorem tariffs on $116.8 million in EU exports, an amount
of retaliation that is still in effect.
Food safety concerns are not limited to the beef hormone case, however, with
the United States having recently filed a complaint in the WTO requesting
consultations with the EU regarding its restrictions on products containing
genetically-modified organisms (GMOs). The EU has imposed a moratorium on
approval of GMO products while it implements regulations requiring traceability and
labeling. Some EU countries have also adopted a policy of banning such products,
though the EU has indicated that it would seek to prohibit individual countries from
maintaining their bans once EU regulations are in place. The United States views the
moratorium and import bans, which significantly affect exports of U.S. agricultural
products to Europe and, it is alleged, to developing countries as well, as not being
scientifically-based as is required under the SPS Agreement and has expressed doubts
as to the feasibility of the proposed regulatory scheme. Members of Congress have
been calling for the initiation of a dispute settlement proceeding, with the EU
strongly defending its practices and urging the United States to allow the EU
regulatory regime to be fully implemented.¹⁶ The United States filed its WTO
complaint May 13, 2003, with Canada and Argentina initiating separate actions. A
complaining country may request a panel if its dispute with the EU is not resolved
within 60 days of its consultations request.
In Europe, GMOs are an issue of great public sensitivity. Several food safety
crises in the late 1990s heightened public fears about biotechnology and reduced
public confidence in the ability of government agencies to police such activities. Nor
have such technologies found much favor within the European agricultural sector that
still places major emphasis on maintaining family farms. Given these sensitivities
and preferences, it is uncertain whether the EU would comply with a WTO decision
that lifted the moratorium directly or indirectly. The issue has been further
complicated by both U.S. and European efforts to persuade other countries to adopt
their approaches towards biotechnology in foods and agriculture.¹⁷
Export Subsidy Dispute
How the United States taxes export earnings has been the focus of a dispute
with Europe since the 1970s. The current dispute is a product of multiple factors:

¹⁶ See generally “Consumers in Europe Resist Gene-Altered Foods,” N.Y. Times, February

11, 2003, at A3.

¹⁷ The Atlantic Council of the United States, Risk and Reward: U.S.-EU Regulatory
Cooperation on Food Safety and the Environment, Policy Paper, November 2002, pp. 10-16.

technical GATT and WTO rulings, EU efforts to gain diplomatic leverage over the
United States on trade issues, and complex distributional issues making it hard for
Congress to craft a WTO compatible solution.
The FSC/ETI controversy involves EU charges that these provisions are an
export subsidy that contravene various WTO agreements, particularly the Agreement
on Subsidies and Countervailing Measures (SCM Agreement) and the Agreement on
Agriculture. WTO panels have agreed with the EU complaint, rejecting the U.S.
argument that it had negotiated exemptions to its taxation of exports in the late 1970s
and early 1980s. After the FSC replacement statute was ruled non-compliant with
world trade obligations, a WTO arbitrator, in an award circulated in August 2002,
determined that the EU could impose 100% punitive tariffs on $4.04 billion of U.S.
exports to Europe. On May 7, 2003, the EU formally requested and received
authorization from the WTO to impose the retaliatory measures.¹⁸ EU Trade
Commissioner Lamy stated the same day that he was “encouraged” by U.S. efforts
to “ensure repeal” of the statute during the current fiscal year and that the European
Commission “will review the situation in the autumn, and if there is no sign that
compliance is on the way at that time, it would then start the legislative procedure for
the adoption of countermeasures by 1 January 2004.”¹⁹
Although the FSC was enacted in 1984, the EU did not challenge the provision
until 1997. Many on the U.S. side maintain the EU challenge was motivated by a
desire to create negotiating leverage on trade issues, not by complaints from
European companies that they were being disadvantaged by the subsidy. Perhaps the
EU thought that winning a case that involved a very large amount of trade could
forestall U.S. challenges against a variety of EU practices, as well as help settle other
trade disputes.
U.S. policymakers remain divided over how best to comply with the WTO
ruling, which has raised complex issues involving the U.S. tax code. Some in the
Senate would like to see a negotiated solution, perhaps by amending the SCM
Agreement in a way that would permit some exemption of export earnings from
corporate tax. Legislation proposed in the House to repeal the ETI and provide other
tax benefits was introduced by House Ways and Means Committee Chairman
Thomas in the 107^th Congress (H.R. 5095), but was opposed by a number of large
exporting companies, and was not acted upon. In 2003, the President called for
repeal of the ETI statute along with revision to the U.S. international tax rules in his
FY 2004 budget proposal and discussions have continued to take place in Congress
on replacement legislation. On April 11, 2003, Congressmen Rangel and Crane
introduced legislation (H.R. 1769) that would repeal the current statute, provide
transition relief, and create a new tax deduction for income attributable to U.S.
production activities. A companion Senate bill (S. 970 (Hollings)) was introduced

¹⁸ WTO News, Dispute Settlement Body, May 7, 2003, [http://www.wto.org/english/
news_e/news03_e/dsb_7may03_e.htm] .
¹⁹ “Foreign Sales Corporations: Following WTO authorisation to apply countermeasures of
up to $4 billion, EU expects US to ensure compliance with WTO rules before the beginning
of next year,” IP/03/652, May 7, 2003, [http://europa.eu.int/comm/press_room/ index_en.
htm].

May 1, 2003. Chairman Thomas is also expected to introduce replacement
legislation in the current session.²⁰
Concerns and Policy Considerations
The credibility of the WTO depends on a prompt, effective, and fair dispute
settlement mechanism. Non-compliance by either the U.S. or EU of a WTO ruling
arguably thwarts this objective. To deal with the problem of non-compliance, both
Washington and Brussels may have to give greater attention to a number of concerns
and policy considerations, including choice of cases initiated, limitations of panel
decisions, the role of mediation and conciliation, and the adoption of remedies that
are trade liberalizing.
Both the U.S. and EU have brought complaints to the WTO that may have been
motivated more by a desire to score points with domestic political interests or to
bolster negotiating leverage on other trade disputes than to redress serious trade
problems. Some cases have been initiated even when it is probable that the defendant
would be unable to implement a losing panel decision due to overwhelming domestic
political opposition. Greater sensitivity on the part of policy makers on the selection
of cases to initiate in the future could prevent the WTO dispute process from being
used and arguably weakened in this manner.
In the area of some of the most bitter U.S.-EU disagreements, the WTO may
be asked to rule on very complex issues that touch sensitive domestic social and
environmental concerns directly. If the applicable WTO agreements are vague or
ambiguous, it is legitimate to question whether WTO panels should be in the
business of clarifying rules where scant U.S.-EU substantive consensus exists.
Moreover, Bush Administration trade officials have expressed concerns that some
panel rulings “legislate new obligations” that were not agreed to in multilateral
negotiations. Under these circumstances, some type of politically agreed upon
compromise may be viewed as preferable to a quasi-judicial WTO ruling pending
efforts to clarify the rules in subsequent multilateral negotiations.
Assuming that some disputes with a highly charged political content are not well
suited for the panel and appellate body process, greater efforts could be made to get
the contending parties to settle their differences through bilateral negotiations,
through mediation, or by agreeing to arbitration from an outside (i.e., non-WTO)
party.²¹ While the DSU does afford opportunities for mediation and conciliation,
some observers argue that these provisions can be greatly strengthened and made
mandatory in highly divisive cases. Similarly, Washington and Brussels could try to
strengthen the role of the “early warning system” that was established in 1999 as

²⁰ “Thomas Predicts Work on Bush Tax Plan May Delay ETI Bill; Amendment in Works,”

20 Int’l Trade Rep. 346 (BNA 2003).

²¹ Bilateral negotiations, for example, helped bridge the gap between the sides on how best
to protect personal data when transferred across borders. See CRS Report RS20823, The
EU-U.S. “Safe Harbor” Agreement on Personal Data Privacy, by Martin A. Weiss.

means of identifying and preventing future disputes stemming from legislative and
regulatory proposals which threaten to create problems for the other side.
The fact that the EU elected to accept retaliation rather than comply with the
WTO beef hormone ruling raises other concerns about WTO remedies. While
accepting retaliatory measures may be an option for managing a dispute with
domestic implementation difficulties, the remedy (trade sanctions) fundamentally
conflicts with the goal of trade liberalization. Moreover, trade sanctions raise
political tensions and impose economic costs not only on foreign producers, but also
on domestic importers, consumers, and firms dependent on those imports subject to
punitive tariffs. Retaliation often hardens the resolve of the offending party to
maintain its WTO-illegal policy or law than to change it. Thus, when retaliation is
accepted for an extended period, the utility of the remedy as a means of exerting
pressure on the losing party to comply fully may diminish.²²
Some critics of retaliation have suggested making compensation the only WTO
remedy for non-compliance. Compensation, in turn, could be implemented through
a monetary fine on the offending country or the offending country could agree to
reduce its own trade barriers by an amount equivalent to its trade barrier.²³
WTO Members are currently negotiating possible revisions to the WTO Dispute
Settlement Understanding in the Doha Development Round, facing a deadline of
May 2003. The United States has recently proposed revisions that would give
disputing parties greater control over the process, with additional avenues for
settlement. It is unclear at this point how successful the dispute settlement
negotiations will be and whether any revisions that are adopted will serve to defuse
the types of US-EU disputes that have stalled at the compliance phase. Moreover,
regardless of revisions to the DSU, rulings that require statutory changes may as a
rule prove more difficult to implement than those involving the exercise of
authorities already granted. As long as the DSU allows Members to resort to the full

²² Congressional concern over the ineffectual nature of retaliation in the US-EU beef
hormone case (as well as in the now-settled U.S. challenge to the EU’s banana import
regime) led to enactment in 2000 of the so-called “carousel” retaliation statute, which directs
the United States Trade Representative periodically to revise the lists of imports subject to
trade retaliation in a case brought under Section 301 of the Trade Act of 1974 unless the
USTR determines that implementation of WTO obligations is imminent or the USTR and
the Section 301 petitioner agree that revision is unnecessary. Both the beef hormone and
banana cases were initially brought as Section 301 actions and were each in the monitoring
phase of the USTR’s investigation, as required under § 306 of the Act, when the statute was
passed.
The USTR began implementation of the carousel provision shortly after it was enacted
but to date has not revised the retaliation list in the beef hormone case. The EU quickly
challenged the carousel provision in the WTO, arguing, among other things, that it requires
unilateral suspension of (or threats to suspend) WTO concessions or obligations other than
those whose suspension has been authorized by the DSB. The case remains in consultations,
with the issue having been raised in the ongoing review of the DSU begun under a Uruguay
Round mandate. See generally CRS Report RS20715, Trade Retaliation: The “Carousel”
Approach, by Lenore Sek.
²³ Barfield, Claude, E., p. 130.

WTO dispute process for disputes of their choosing, Members will have the option
of following this route when they believe that pursuing a WTO case best fulfills their
various policy goals. It remains unclear whether past experience as to the types of
WTO cases that may realistically be expected to result in compliance will serve as
a significant factor in decisions as to which cases Members will initiate in the future.