The full impact of the World Trade Organization's ruling against the foriegn sales corporation program may not be known for months, but the Office of U.S. Trade Representative is taking a dim view.
"It was a loss for us in terms of the (WTO) panel's ruling," Ron Lorentzen, a spokesman for the agency, said in a telephone interview from Washington Tuesday.
The loss for the United States could be a program designed to create U.S. jobs and a favorable balance of trade. It could also lose money if the WTO imposes sanctions to compensate the European Union, which brought the complaint against the FSC Industry.
So far the V.I. government has made no comment on the issue, despite requests Monday and Tuesday. Late Tuesday, Lt. Gov. Gerard James II's spokesman Michael Burton said, "We're reviewing the report from the U.S. Trade Office and will issue a statement later." James has oversight for FSCs.
Although the WTO ruling that was issued Friday is a confidential "interim" report, it is not expected to change substantially before it is released to all WTO members, probably in late September.
Lorentzen said "we are still going through it with our lawyers" to determine exactly what it all means, but "the bottom line" is that the panel found that the FSC constitutes a tax subsidy which is forbidden under the Agreement of Subsidies and Countervailing Measures governing WTO member nations.
"We're actively considering appealing it," Lorentzen said.
A number of administrative steps must come before an appeal, he said. Written comments on the interim report are due by August 6 and the Dispute Settlement Body of the WTO could consider the matter in October or November. It could be February or March before an appeal is heard — if the U.S. makes an appeal.
Another alternative for the U.S. is to attempt to create another program designed to meet the same goals as the FSC but structured so that it does not violate WTO rules.
"That a possibility" Lorentzen said, "but it's too early to speculate."
Attorney William Green, who works with the national trade organization, the FSC-DISC Tax Association, also thinks a new program is a possibility.
"We've always had something (to aide U.S. exporting) since 1962," he said. First it was Export Trade Corporations, then the Western Hemisphere Trade Corporation, then the domestic International Sales corporation (DISC) and finally, the FSC.
As one program was challenged, it was phased out over a period of years and another was established.
The FSC was created in 1984. It was especially beneficial to the Virgin Islands because exporters were required to establish a presence offshore and the Virgin Islands has been the favorite location. What role it might play in a revised plan is anyone's guess.
According got the European Union, FSCs are responsible for $152 billion in U.S. exports annually, and the collective tax subsidy to them is about $10 billion.
Editors' note: Bernetia Aiken is the manager of a FSC management company.
