INTRODUCTION

Initial Proceedings

On 20 March 2000, the Dispute Settlement Body (DSB) adopted the Panel and Appellate Body reports in this dispute. The DSB recommended, in particular, that the United States bring into conformity the measures found to be inconsistent with its obligations under the Agreement on Subsidies and Countervailing Measures (SCM Agreement) and the Agreement on Agriculture and that the United States withdraw the FSC subsidies “at the latest with effect from 1October 2000”. On 12 October 2000, the DSB agreed2 to accede to a request by the United States that the DSB modify the time-period in this dispute so as to expire on 1 November 2000. On 15 November 2000, the President of the United States signed into law an Act of the United States Congress entitled the “FSC Repeal and Extraterritorial Income Exclusion Act of 2000” (the “ETI Act”). With the enactment of this legislation, the United States considered that it had implemented the DSB's recommendations and rulings in the dispute and that the legislation was consistent with the United States’ WTO obligations.

On 17 November 2000 the European Communities had recourse to Article 21.5 of the Understanding on Rules and Procedures Governing the Settlement of Disputes (the “DSU”), considering that the United States had failed to withdraw the subsidies as required by Article 4.7 of the SCM Agreement and had thus failed to comply with the DSB recommendations and rulings. The Panel established under Article 21.5 of the DSU (the “Compliance Panel”) found the ETI Act to be in violation of United States obligations under the SCM Agreement, the Agreement on Agriculture and Article III:4 of the GATT 1994. The Appellate Body upheld these conclusions. The reports of the Compliance Panel and the Appellate Body were adopted by the DSB on 29 January 2002.

Request for Arbitration and Selection of the Arbitrator

On 2 October 2000, the parties informed the DSB of their Understanding on “Agreed Procedures under Articles 21 and 22 of the Dispute Settlement Understanding (DSU) and Article 4 of the SCM Agreement applicable in the followup to the United States – Tax Treatment for ‘Foreign Sales Corporations’ dispute”, concluded between the parties on 29 September 2000.