The US must abolish a law that has allowed the government to hand out almost US$500 million in import duties to companies such as US Steel Corp and Hershey Foods Corp, the WTO said.
The WTO ruling, the latest US defeat at the Geneva-based arbiter, may strain international trade relations that are already being tested over issues from US steel tariffs and farm subsidies to a EU ban on genetically modified food.
The decision backs a complaint brought by the EU, Canada and nine other governments, which said the so-called Byrd Amendment unfairly protects US companies by sheltering them behind tariffs and then letting them pocket customs duties. The US vowed to appeal the decision, which confirms an interim July 17 ruling.
"The ruling flies in the face of the authority of Congress to determine how funds collected under the laws of the United States should be used," Senator Robert C. Byrd, who sponsored the law in 2000 to benefit steelmakers, said in a statement. "It is an appalling ruling."
The EU said the Byrd Amendment encourages US companies to bring trade cases against foreign competitors by rewarding them with direct payments if they win. Yesterday's ruling isn't retroactive, so the companies won't have to return money they have collected so far to the US government.
It's another victory by the Europeans over the US at the WTO, the organization that sets the rules and adjudicates disputes in global trade. Last week, a WTO panel awarded the largest damages in the organization's history, permitting the EU to levy tariffs on more than US$4 billion of US exports because of an illegal tax break for US exporters. US Trade Representative Robert Zoellick last year said if the EU levied the duties in the tax case, it would be akin to dropping a "nuclear bomb" on the trans-Atlantic trade relationship.
Zoellick spokesman Richard Mills said the US would appeal the Byrd Amendment ruling.
The Bush administration will argue that nothing in WTO rules prohibits the US Congress from determining how duties collected in unfair-trade cases must be used, a US trade official told reporters.
So far, the US Customs Service has paid more than US$200 million to companies. The agency is in the process of distributing an additional US$270 million that it's collected.
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