Note: Send submissions to mbt@martintittle.com. Questions may be edited, combined, or generalized, and are posted in reverse chronological order.
Subject: Avoidance of Sanctions
February 10, 2004
Are there any exceptions to application of the sanctions?
F.T.
Only one, and it is probably of limited value. Article 4 of Regulation (EC) No. 2193/2003, the legislation that implements the fractional sanctions plan, contains three limitations on application of the sanctions:
"1. Products listed in the Annex for which an import licence with an exemption from or a reduction of duty has been issued prior to the date of entry into force of this Regulation shall not be subject to the additional duty.
"2. Products listed in the Annex for which it can be demonstrated that they are already on their way to the Community on the date of entry into force of this Regulation, and whose destination cannot be changed, shall not be subject to the additional duty.
"3. Products listed in the Annex may be placed under the customs procedure 'processing under customs control' in accordance with the first subparagraph of Article 551(1) of Regulation (EEC) No 2454/93 only where the examination of the economic conditions has taken place in the Customs Code Committee unless the products and operations are mentioned in Annex 76, Part A of that Regulation."
Obviously, there is no way to invoke the second limitation now that December 17, 2003, the date the Regulation was published in the Official Journal of the European Union, has passed.
With respect to the first limitation, however, if a business has import licenses, or customers with import licenses, that qualify for this exemption, it would be possible to forestall the initial impact of sanctions by accelerating sales that are exempt from or subject to reduced duty and delaying non-qualifying transactions. If ETI repeal legislation that qualified for the lifting of sanctions were enacted sometime during March, such a strategy could be significant.
The businesses that can take advantage of this exception are likely already aware of it. However, businesses that have yet to investigate might benefit from a quick check of their records and a canvass of their customers.
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Subject: Application of the Sanctions
January 28, 2004
Thank you very much for your detailed response. I need to have a clear understanding of how the retaliation will affect individual products each month; that is, how the additional duties are allocated to the selected products. Will the EU
a) put 5% more on EACH of as many of the products as necessary (from the products listed in the Annex to Regulation (EC) No. 2193/2003) until the total amount retaliated in March equals the level of US$17 million (that is 5% of US$4 billion),
or will it
b) take the products that are actually imported (from the Annex) in March,
and allocate duties of US$17 million (that is 5% of US$4 billion) equally
on each of the products involved?
Thanks in advance for clarifying this for me.
O.S.
Regarding your paragraph a) and paragraph b) alternatives, neither is exactly correct according to my understanding the Regulation, but a) comes closer than b). First, let me clarify my understanding of the applicable part of the Regulation.
According to Article 2, section 1 of the Regulation, the additional duty that will be applied in March 2004 to each individual product listed in the Annex to the Regulation is 5 percent of its value. The Regulation calls this additional duty an ad valorem duty. According to Black's Law Dictionary, 6th Edition, the term "ad valorem" means "according to value," and an ad valorem duty is one which takes "the form of a percentage on the value of the property." Black's also notes that the opposite of an ad valorem duty is a specific duty, which is a fixed sum imposed "on each article of a class without regard to its value." The Regulation says the additional duty "shall be imposed," which probably means imposition is mandatory, rather than discretionary.
Your paragraph a) raises two interesting questions:
1. What if, during March 2004, the EU imported so many of the products listed in the Annex that adding an additional 5 percent duty to each would exceed 5 percent of US$4.043 billion? The Regulation doesn't address this possibility, so it seems that in this case, the EU would simply collect more than US$17-plus million. If imposition of the 5 percent duty is mandatory, as I have theorized above, then this result could not be mitigated under the Regulation. When I calculated the amount of sanctions that would be collected during March 2004, I assumed that the Annex had been formulated accurately enough that 100 percent duties added to each of the products would, over the period of a year, in fact come very close to US$4.043 billion. However, to the extent that imports of the products in the Annex are greater than the EU anticipated when it formulated the Annex, it would seem that the sanctions amount for March could be greater than 5 percent of US$4.043 billion.
2. On the other hand, what if, during March 2004, the EU imported fewer of the items listed in the Annex than anticipated, such that adding a 5 percent duty on every product yielded less than 5 percent of US$4.043 billion? In this case, it would seem that the EU would simply receive a lower total amount of sanctions for March than it had anticipated and have no authority under the Regulation to change this result.
To sum up, your paragraph a) is probably incorrect because the Regulation does not authorize the EU to add the 5 percent duty on products until, in your words, "the amount retaliated in March equals the level of US$17 million"; rather, it requires that a 5 percent duty be added to each and every import of a product listed in the Annex (subject to the limitations in Article 4) regardless of whether the total collected at the end of the month is more than, less than, or exactly equal to US$17 million.
In my opinion, your paragraph b) option would not be correct because, as noted, the Regulation limits the additional duty in March 2004 to 5 percent of the value of the individual products in the Annex. Therefore, it would not be possible to take US$17 million and "spread it out" over the products that were actually imported during March because that process of allocation could cause the duty applied to one or more individual products to be greater than 5 percent.
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Subject: Level and Application of the Sanctions
January 27, 2004
Some people say that the WTO authorization to impose US$4,043 million in sanctions on US exports is a fixed amount, and others say that it is only an annual limitation. Which side is correct?
Also, in connection with the 5 percent sanctions the EU will begin applying March 1, can the EU impose duties of varied percentages on different products as long as the total sanctions collected in March does not exceed 5 percent of US$4,043 million?
O.S.
To answer your first question, the EU is authorized to impose additional duties of US$4,043 million every year until the U.S. complies with the WTO decision. See WTO, Decision of the Arbitrator, United States -Tax Treatment for "Foreign Sales Corporations" Recourse to Arbitration by the United States under Article 22.6 of the DSU and Article 4.11 of the SCM Agreement, WT/DS108/ARB (Aug. 30, 2002) para. 8.1 ("For the reasons set out above, the Arbitrator determines that . . . the suspension by the European Communities of concessions under the GATT 1994 in the form of the imposition of a 100 per cent ad valorem charge on imports of certain goods from the United States in a maximum amount of $4,043 million per year . . . would constitute appropriate countermeasures within the meaning of Article 4.10 of the SCM Agreement." (emphasis added)).
The answer to your second question is no. According to Article 2, section 1 of Regulation (EC) No. 2193/2003, enacted by the EU Council on December 8, 2003, the sanctions applied in March will all be 5 percent of the ad valorem value of the goods to which they are applied.
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