By Pete Kasperowicz

Bridge News

WASHINGTON (B)--A major conflict between U.S. agricultural and industrial interests may be on the horizon, as the two sides are split over how to best resolve three outstanding World Trade Organization disputes with the European Union, according to U.S. sources.

The three disputes involve the EU's discriminatory beef and banana import regimes, and another fight over a discriminatory U.S. tax law.

On one side, U.S. industry giants such as General Electric Co.; Caterpillar, Inc.; and Eastman Kodak Co. have urged the Clinton Administration to resolve these disputes as part of a single package.

According to one source, these companies and others think it will be difficult to comply with the WTO ruling against a U.S. tax law that grants over $2 billion in tax benefits to U.S. industry. Therefore, they think it would be easier to seek trade-offs with the EU in a package that also resolves the EU's difficulty in implementing WTO rulings against its beef and banana import regimes, the source said.

Many U.S. industrial firms see this linkage as natural, based on their belief that the EU launched its case against the U.S. tax law in order to retaliate against the U.S. cases on beef and bananas.

Specifically, the heads of 14 U.S. companies that benefit from the tax law urged U.S. Trade Representative Charlene Barshefsky in a Nov. 23 letter to resolve all three disputes together, and warned

against a "partial settlement" of these disputes by addressing only the beef and banana cases. Signatories to the letter were the chairmen and chief executive officers of Caterpillar; GE, Kodak; United Technologies Corp.; Monsanto Co.; Rockwell, Walt Disney Co.; Attachmate Corp.; Dow Corning Corp.; General Dynamics; Electro Scientific Industries; BMC Software, Inc.; Motorola, Inc.; and Applied Materials.

A separate but similar letter was sent by Lucent Technologies on Nov. 29. "We would be deeply concerned if the U.S. and EU were to reach a comprehensive agreement in the next few weeks resolving a number of bilateral differences, but leave (the tax case) dangling as an unresolved issue," the letter said.

Sources said the U.S. has still not made clear whether it could agree to resolving all three disputes as part of one package.

Despite this push from U.S. industrial firms and the EU, U.S. farm interests will resist linking the disputes, according to a farm industry source. U.S. cattle ranchers in particular fear that while linking all three disputes might let the U.S. maintain some elements of its tax law, it might also let the EU maintain some elements of its discriminatory beef import regime, he said.

As a result, agricultural interests are expected to seek the support of like-minded members of Congress, and to begin thinking of strategies that will ensure separate resolutions of the three WTO disputes, sources said.

In the tax case, the EU successfully challenged a U.S. law that grants over $2 billion in tax benefits to major U.S. industrial exporters by allowing them to set up foreign sales corporations (FSCs) overseas. Companies can deduct from their tax bill revenue generated by the sales activities of these FSCs. While the U.S. said it would appeal the decision, losing this appeal would most likely put the U.S. in a position to comply with the ruling by next October.

The tax law is worth millions of dollars to major U.S. exporters; for example, the law gave Boeing a $130 million tax break last year.

In the other cases, the U.S. successfully argued that the EU is unfairly banning U.S. beef treated with growth hormones, and is unfairly discriminating against Latin American bananas that are marketed by the US. As the EU has not implemented these rulings, the U.S. has imposed 100% tariffs on over $300 million worth of EU products.

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