The European Union  (EU) may retaliate with additional trade tariffs against the U.S. if it does not outlaw foreign sales corporations (FSC’s), John Richardson, interim ambassador of the European Commission Delegation to the U.S., told GlobalFax last week.

Mr. Richardson spoke to students and foreign diplomats at the Sam Nunn School of International Affairs at Georgia Tech about the common values and cultural differences between the U.S. and the EU.

The World Trade Organization (WTO), an international body dealing with the rules of trade between countries, found that FSC’s provide “illegal export subsidies,” exclusively reducing the tax liability of U.S. companies that use them. The organization estimated $2.5 billion is provided annually by these subsidies and said they are to be abolished by October 2000.

Following his speech he said that the U.S. “can conform to WTO regulations, or compensate the EU, or there will be retaliation by the EU by way of trade tariffs. Conformation would be the best decision the U.S. could make.”

FSC’s are tax incentives for U.S. companies to export their goods and can save companies from 15 to 32% tax savings on income made from exports. They are set up in a U.S. possession such as Guam or the Virgin Islands, or in one of several countries such as Jamaica and Barbados that have FSC-friendly legislation. The corporations have been especially valuable to small- or medium-sized companies that need the export revenue.

“The ball is in the U.S. court now,” said Mr. Richardson.

In a separate telephone interview, Bill Green, general counsel for the FSC/DISC Tax Association (FDTA) in New York said his organization is taking “a let’s-wait-and-see approach. We want to look at alternative legislation and it is our understanding that Congress will not eliminate FSC’s until there is replacement legislation.”

Mr. Green continued: “Just because it is illegal to the WTO doesn’t mean it’s illegal for U.S. taxpayers. We need some clarification of what kind of export activities can be tolerated by the WTO.”

Mr. Richardson’s address was presented by Georgia Tech’s European Union Center.

The European Union Center may be reached at (404) 385-0600.