COMMENT ON PROGRAM 69

Transcription

1 ON PROGRAM 69 COMMENT Knick-Knack Paddy Whack Leave the FSC Alone: An Analysis of the WTO Panel Ruling That the U.S. Foreign Sales Corporation Program is an Illegal Export Subsidy Under Gatt I. INTRODUCTION For nearly thirty years the United States and Europe, as major players in the game of international trade, 1 have charged each other with violations of obligations under the General Agreements on Tariffs and Trade (GATT). 2 Several significant actions have stemmed from European challenges to various provisions of the U.S. Internal Revenue Code relating to exports. After more than a decade of bickering, Europe pressured the United States to reform one of its export tax incentives, the Domestic International Sales Corporation (DISC, pronounced disk ) legislation, 3 by successfully arguing to the GATT dispute tribunal that DISC constituted an export subsidy in violation of the GATT. 4 Although the United States has never wavered from the position that its legislation does not contravene the GATT, it enacted the Foreign Sales Corporation (FSC, pronounced fisk ) legislation in 1984 to replace the DISC and meet its obligations under the GATT. 5 Not surprisingly, Europe has now challenged 1. See Peter D. Sutherland, Globalization and the Uruguay Round, in THE URUGUAY ROUND AND BEYOND 143, 152 (Jagdish Bhagwati & Mathias Hirsch eds. 1998). The U.S., European Union (EU) and Japan are considered to be major players in the WTO. Id. 2. General Agreement on Tariffs and Trade, Oct. 30, 1947, 61 Stat. A-11, T.I.A.S. No. 1700, 55 U.N.T.S. 194 [hereinafter GATT]. [GATT] is a multilateral agreement among countries providing a framework for the conduct of international trade. BHAGIRATH LAL DAS, AN INTRODUCTION TO THE WTO AGREEMENTS 1 (1998). 3. See Revenue Act of 1971, Pub. L. No , 85 Stat. 497, 535 (1971) (codified as amended at I.R.C (1982 & Supp. III 1985)); see Ronald D. Sernau, The Foreign Sales Corporation Legislation: A $10 Billion Boondoggle, 71 CORNELL L. REV. 1181, 1181 (1986); see Tax Legislation, Dec. 8, 1981, GATT B.I.S.D. (28th Supp.) at 114 (1982); see also infra Part II.A. 4. See Sernau, supra note 3, at See Tax Reform Act of 1984, Pub. L. No , , 98 Stat (1984) (codified at I.R.C ); see also Jeffrey F. Ryan, An 69

2 70 NEW ENGLAND LAW REVIEW [Vol. 35:1 the FSC program. In the intervening years both disputes and retaliatory trade measures have increased between the United States and Europe, creating a dangerously competitive international battlefield. Europe was never satisfied with the United States efforts to reform its export tax legislation 6 and disgruntled traders on both sides of the Atlantic felt the tension simmering beneath the surface. Now, this long-standing disagreement has resulted in a major trade decision. In a challenge brought by the European Union (EU), 7 under a newly created dispute resolution process, the World Trade Organization (WTO) 8 ruled that the United States operates an illegal tax subsidy under its Foreign Sales Corporation (FSC) program and demanded that the United States revoke the program and amend its legislation. 9 The United States invoked the new appellate procedure in the WTO, but the trading partners are still working toward a final resolution. 10 The dispute not only echoes some of the earlier DISC arguments, but also brings into question how differences in fundamental tax policy between two major trading partners can be harmonized. 11 In an increasingly unified global economy, major differences in tax systems have been seen Analysis of GATT-Compatibility of the New Foreign Sales Corporation, 26 SANTA CLARA L. REV. 693, 702 (1986). 6. In GATT council meetings as early as 1984, the year of the FSC s birth, the European Community requested that the United States explain how the FSC program conforms to GATT. See Ryan, supra note 5, at See Treaty on European Union, Feb. 7, 1992, 31 I.L.M In 1951, France and Germany organized the European Coal and Steel Community. See Treaty Establishing the European Coal and Steel Community, Apr. 18, 1951, 261 U.N.T.S. 140; see also Paul B. Stephan, The New International Law--Legitimacy, Accountability, Authority, and Freedom in the New Global Order, 70 U. COLO. L. REV. 1555, 1572 (1999). Then in 1957, the Treaty of Rome included the European Coal and Steel Community in the newly created European Economic Community which was combined with the European Atomic Energy Committee to form the European Communities (EC). See Treaty Establishing the European Economic Community, Mar. 25, 1957, 298 U.N.T.S. 11; Treaty Establishing the European Atomic Energy Community, Mar. 25, 1957, 298 U.N.T.S. 167; see also Stephan, supra at These communities existed separately until the Maastricht Treaty combined them into the EU. See id. at See Agreement Establishing the World Trade Organization, Apr. 15, 1994, 33 I.L.M. 1125, 1144; see also Marrakesh Agreement Establishing the World Trade Organization, Apr. 15, 1994, reprinted in THE LEGAL TEXTS: THE RESULTS OF THE URUGUAY ROUND OF MULTILATERAL TRADE NEGOTIATIONS 4 (Cambridge University Press 1999) [hereinafter WTO Agreement]. The WTO was created to address the shortcomings of GATT. See JALIL KASTO, THE FUNCTION AND FUTURE OF THE WORLD TRADE ORGANIZATION: INTERNATIONAL TRADE LAW BETWEEN GATT AND WTO 1 (1996). 9. See infra Part IV.B. notes and accompanying text. 10. See infra Part V.E. notes and accompanying text. 11. See infra Part V.C. notes and accompanying text.

3 2000] U.S. FOREIGN SALES CORPORATION PROGRAM 71 as distorting obstacles to fair trade. 12 The WTO panel decision and its treatment on appeal provides an important substantive interpretation of taxation on international trade. It also tests the effectiveness and credibility of the WTO s new dispute resolution mechanism designed to promote a transparent rule of law approach to resolving issues, replacing the former practices of strong-arm, behind-the-scenes, rivalries and intransigence. 13 This Comment will first trace the development of the FSC program from its predecessor, the DISC. 14 It will define the FSC program, describing the tax benefits it affords U.S. exporters. 15 Part III will examine the process of this dispute under the new GATT procedures promulgated after the Uruguay Round of Multilateral Negotiations, and will describe the specific GATT obligations and definitions under which this dispute was brought. 16 Part IV will present both the procedural and substantive findings of the WTO. 17 Part V will provide an analysis of this decision with respect to the varying tax policies and practices of the United States and EU. 18 Finally, this Comment will assess the status of formal dispute resolution in international tax and trade, discuss the U.S. appeal and address possible U.S. legislative changes. 19 This Comment will suggest that fundamental differences in tax systems cannot be adequately reconciled by the current dispute resolution mechanism. Further, if the United States makes substantial changes to its tax code either by revoking the FSC program or setting up consumption-based taxes, then both national and international economic problems will be created See infra Parts V.A-B. notes and accompanying text. 13. See Renato Ruggiero, Whither the Trade System Next?, in THE URUGUAY ROUND AND BEYOND 123, 131 (Jagdish Bhagwati & Mathias Hirsch eds., 1998). In the increasingly global economy the policy debate is shifting away from traditional arguments over tariffs towards non-tariff barriers related to fundamental differences between economic systems-investments rules, anti-trust and competition laws, taxation, and labour, environmental and cultural policies. Id. at 133 (emphasis added). 14. See infra Part II.A. notes and accompanying text. 15. See infra Part II.B. notes and accompanying text. 16. See infra Parts III.A-B. notes and accompanying text. 17. See infra Parts IV.A-B. notes and accompanying text. 18. See infra Parts V.A-B. notes and accompanying text. 19. See infra Parts V.C.-VII. notes and accompanying text. 20. See infra Parts V-VII. notes and accompanying text.

4 72 NEW ENGLAND LAW REVIEW [Vol. 35:1 II. BACKGROUND A. DISC to FSC: The U.S. Tries to Equalize the International Trade Playing Field In 1971 the Domestic International Sales Corporation (DISC) legislation was introduced 21 as part of an effort to address a diminishing trade surplus. 22 Previously, the United States had taxed domestic corporations profits from export sales on a current basis, while the profits of foreign subsidiaries of U.S. corporations, which were not engaged in U.S. trade or business, remained untaxed until repatriated. 23 Foreign exporters subject to the territorial tax system 24 could set up profitable operations in low or zero-rate tax havens beyond the territorial limits of their home countries, to incur a substantially lower tax burden than a similarly situated U.S.- based exporter who had to pay taxes as soon as profits were repatriated. 25 To address this discrepancy and provide an inducement for increasing U.S. exports, Congress initiated the DISC program. 26 Under the legislation, a DISC was entitled to tax benefits on its export income, but did not have to be incorporated in a foreign jurisdiction. 27 The DISC allowed deferral on part of DISC income because the profits were not taxed to the DISC, but were taxed to the shareholders upon distribution. 28 The DISC was intended to produce a tax effect on exports similar to the practices in Europe, 29 but the EC 30 objected to the DISC and challenged it as violating 21. See Revenue Act of 1971, Pub. L. No , 85 Stat. 497, 535 (1971) (codified as amended at I.R.C (1982 & Supp. III 1985)). 22. See Phillip L. Jelsma, The Making of a Subsidy, 1984: The Tax and International Trade Implications of the Foreign Sales Corporation Legislation, 38 STAN. L. REV. 1327, (1986). 23. See id. at See infra Part V.A. 25. See Jelsma, supra note 22, at See id. [T]he DISC was created to meet the dual goals of stimulating United States exports and removing a perceived disadvantage facing United States corporations involved in exportation. Ryan, supra note 5, at DISC legislation was embodied in I.R.C (1982); see also Neal J. Block et al., Transition From DISC to a Foreign Sales Corporation: Tax and Other Considerations, 19 INT L LAW. 343, (1985). 28. See Ryan, supra note 5, at 697. A DISC itself [was] not subject to tax, but... [a percentage] of its income generally was taxed... to its corporate and noncorporate shareholders, respectively, as a deemed distribution. Block, supra note 27, at 344 n See Jelsma, supra note 22, at The EU and EC are used interchangeably in this Comment due to their interchangeable use in many international writings, and their common genesis from several international agreements. See supra note 7.

5 2000] U.S. FOREIGN SALES CORPORATION PROGRAM 73 the GATT in United States - Income Tax Legislation (DISC). 31 The EC succeeded in having the DISC declared an illegal export subsidy under the GATT. 32 This decision caused the United States to amend the DISC legislation, replacing the DISC program with the FSC program. 33 It is interesting to note that many of the arguments that were brought forward in the DISC challenge are the same as those raised in the current dispute. 34 B. The Foreign Sales Corporation: A Vehicle for Promoting U.S. Exports A Foreign Sales Corporation (FSC) is an entity formed by U.S. corporations to take advantage of certain tax benefits realized by exporting through the FSC. 35 FSCs were created under the Tax Reform Act of in order to meet the GATT requirements 37 by satisfying elements to establish bona fide foreign economic substance: foreign presence, foreign management and foreign economic processes GATT B.I.S.D. (23rd Supp.) at (1977). 32. See Ryan, supra note 5, at See id. at See infra notes and accompanying text. In December of 1981, the GATT Council adopted the 1976 Panel Reports (which included the ruling on the DISC case) subject to certain qualifications, referred to as the 1981 GATT Qualifier. See Ryan, supra note 5, at 701. For a detailed discussion of the DISC case, see The GATT Qualifier: Its Validity as a Tax Standard and Its Effect on DISC and DISC Alternatives, 16 CORNELL INT L L.J. 469 (1983) (discussing the GATT Qualifier in relation to the DISC program as it clarifies the 1981 Understanding which adopted the panel decision on the DISC case). 35. See Kevin R. Shaney, The Basic Requirements for Having and Operating [sic] Foreign Sales Corporations, 14 COLO. LAW. 1613, 1613 (1985). 36. See id. at 1613 & n.1. The FSC legislation, embodied in 921 through 927 of the Internal Revenue Code, was a response to the European Community s objection to the DISC, the FSC predecessor, as constituting an illegal export subsidy contrary to GATT rules. See WALTER H. DIAMOND, FOREIGN SALES CORPORATION: FINAL IRS REGULATIONS AND HOST GOVERNMENT INCENTIVES vii (1987). 37. One of the major problems with the DISC program was the fact that there were no foreign presence requirements. See Ryan, supra note 5, at 698. DISC violated the GATT rules because it provided long term deferral of direct tax on income derived from economic processes located inside the United States. Sernau, supra note 3, at See I.R.C (1994); see also Shaney, supra note 35, at There are four basic requirements for FSC qualification. They are: (1) maintain a foreign presence; (2) have economic substance; (3) employ foreign management and economic processes giving use to foreign trading income; and (4) use arm s length pricing methods. DIAMOND, supra note 36, at ix. A FSC is a corporation that is organized under the laws of any U.S. possession (or laws of any foreign country as long as there is an agreement between the U.S. and that foreign country) that has fewer than 25 shareholders, has a board of directors with at least one

6 74 NEW ENGLAND LAW REVIEW [Vol. 35:1 Under the GATT rules, an exporting country is not required to tax economic events [occurring] outside its territorial limits. 39 The foreign presence requirements include incorporating in a qualifying location outside the United States, maintaining an office and permanent books in a qualifying location, and having a board of directors with at least one non- U.S. resident. 40 The foreign management requirements include holding all shareholder and board of directors meetings outside the United States and maintaining the FSC bank account outside the United States. 41 The Foreign Economic Processes (FEP) requirements include sales activities participation and direct costs tests. 42 To promote the sale of U.S. products abroad, an FSC is granted special tax benefits, 43 including an exemption from tax on a portion of the FSC s foreign trade income. 44 The foreign presence requirement is usually satisfied by incorporating offshore subsidiaries 45 in foreign locations that are most often chosen non-u.s. resident, and maintains an office and separate books at a location in a foreign country (again, subject to agreements between countries) or in a U.S. possession. See I.R.C. 922(a)(1) (1994). 39. Ryan, supra note 5, at 707. GATT requires that trade, rather than fiscal implications, be the focal point of a taxation system. Id. at 706. See also Block, supra note 27, at See Shaney, supra note 35, at See id. 42. See id. The sales participation encompasses solicitation, negotiation and contracting. See id. In order for a FSC to satisfy the direct costs test, it has two options. The first is to incur foreign direct costs in one or more of five categories of activities. See id. at 1615; see also infra note 43. These must be foreign trading gross receipts (FTGR) relating to exportation and must equal or exceed 50% of the total direct costs of such activities. See Shaney, supra note 35 at The second option is to incur foreign direct costs attributable to two categories of the specified activities equal to or exceeding 85% of the total direct costs for those categories. See id. 43. See Block, supra note 27, at 343. FSCs allow U.S. exporters to exempt as much as 15% of export earnings from federal income tax. See Paul Magnusson, U.S. Exporters Get the Word: Guilty, BUS. WK., Aug. 16, 1999, at See Block, supra note 27, at 345. Foreign Trade Income is the gross income of a FSC attributable to foreign trading gross receipts [FTGR]. I.R.C. 923(b) (1994). These gross receipts include receipts from the sale or exchange of export property, the lease or rental of export property, services related to sale, exchange, lease or rental of export property, engineering or architectural services for the FSC location or managerial services for an unrelated FSC that furthers the gross receipts of the original FSC. See I.R.C. 924(a) (1994). 45. Magnusson, supra note 43, at 42. The word offshore was used in the 1930s to refer to islands off the shore of the United States where businessmen started conducting international affairs to take advantage of the islands tax or regulatory advantages. Now, however, the term offshore refers to any jurisdiction, even if on a mainland, that has an advantageous tax structure for transactions executed in those locations. See Dianna P. Kempe, The Role of Offshore Jurisdictions in International Finance, in Doing Business Worldwide D-1, D-2 (1998).

7 2000] U.S. FOREIGN SALES CORPORATION PROGRAM 75 because they offer internal tax incentives. 46 Such incentives sometimes include a one-hundred percent tax exemption on foreign trade income or a one-hundred percent income tax rebate provision. 47 The FSC program has helped many U.S. exporters defer or limit their total tax liability and be competitive in the global trade arena. 48 The United States takes the position that the FSC is necessary to level the international trade playing field because European countries have an export subsidy in the form of valueadded tax (VAT) rebates built into their tax structure. 49 The United States argues that the FSC program is merely a move toward the territorial tax systems long-employed by other members of the WTO. 50 The EU takes the position that the FSC, as a financial benefit available only to U.S. exporters, amounts to a subsidy distorting international trade. 51 As a subsidy, the FSC would then constitute a violation of trade treaty obligations. In 1997, the EU filed an action challenging the U.S. FSC program under the new GATT dispute settlement procedures in the WTO treaties finalized in III. DISPUTE RESOLUTION IN THE WTO A. Uruguay Round Brings Important Procedural Changes to the GATT Dispute Settlement Procedure From 1986 to 1994 the Uruguay Round of Multilateral Trade Negotiations 53 took place and led to the adoption of several agreements 54 includ- 46. See Shaney, supra note 35, at A number of countries and U.S. possessions have enacted special FSC legislation or have taxing regimes that eliminate or greatly reduce local taxation of the FSC. Id. 47. See DIAMOND, supra note 36, at xii-xiv. The U.S. Virgin Islands are especially popular for FSCs as well as Barbados and Jamaica. See id. Other qualifying locations are the Bahamas, Bermuda, Guam and the Philippines. See id. 48. See Magnusson, supra note 43, at See id. 50. See infra Part V.B. 51. See infra Part III.B. 52. See infra Part III.A. 53. Final Act Embodying the Results of the Uruguay Round of Multilateral Trade Negotiations, Apr. 15, 1994, LEGAL INSTRUMENTS--RESULTS OF THE URUGUAY ROUND vol. 1 (1994), 33 I.L.M (1994); see also Final Act Embodying the Results of the Uruguay Round of Multilateral Trade Negotiations, Apr. 15, 1994, reprinted in THE LEGAL TEXTS: THE RESULTS OF THE URUGUAY ROUND OF MULTILATERAL TRADE NEGOTIATIONS 1 (Cambridge University Press 1999); Uruguay Round Agreements Act, Pub. L. No , 108 Stat (1994) (codified at 19 U.S.C (1994)) [hereinafter URAA]; Judith H. Bello & Alan F. Holmer, U.S. Trade Law and Policy Series No. 24: Dispute Resolution in the New World Trade Organization: Concerns and Net Benefits, reprinted in HARVEY M. APPLEBAUM & LYN M. SCHLITT, THE GATT, THE WTO AND THE

8 76 NEW ENGLAND LAW REVIEW [Vol. 35:1 ing the Understanding on Rules and Procedures Governing the Settlement of Disputes (DSU), 55 which reformed the slow and often ineffective dispute settlement procedure that had developed under the GATT. 56 The 1994 agreements also included an expanded agreement on subsidies, redefining certain benefits that member countries can grant without violating general provisions of the GATT and distorting trade. 57 Reforms in the dispute settlement procedure were badly needed. In prior disputes, the defending country whose trade practice was being questioned could delay the settlement process almost indefinitely. 58 The new proce- URUGUAY ROUND AGREEMENTS ACT UNDERSTANDING THE FUNDAMENTAL CHANGES, 461, 464 (1994). 54. See GRAHAM DUNKLEY, THE FREE TRADE ADVENTURE: THE URUGUAY ROUND AND GLOBALISM A CRITIQUE 49 (1997). The Final Act of the Uruguay Round... [is] actually a rather messy conglomeration of 19 agreements, 8 understandings, 24 ministerial decisions and 3 declarations. Id. 55. See Understanding on Rules and Procedures Governing the Settlement of Disputes, Apr. 15, 1994, art. 22, Marrakesh Agreement Establishing the World Trade Organization, Annex 2, 33 I.L.M (1994) [hereinafter DSU]; Understanding on Rules and Procedures Governing the Settlement of Disputes, Apr. 15, 1994, Annex 2, reprinted in THE LEGAL TEXTS: THE RESULTS OF THE URUGUAY ROUND OF MULTILATERAL TRADE NEGOTIATIONS 354 (Cambridge Univ. Press 1999). 56. See Debra P. Steger & Susan M. Hainsworth, New Directions in International Trade Law: WTO Dispute Settlement, in DISPUTE RESOLUTION IN THE WTO 28, (1998). 57. See Agreement on Subsidies and Countervailing Measures, Apr. 15, 1994, Marrakesh Agreement Establishing the World Trade Organization, Annex IA, Legal Instruments-Results of the Uruguay Round vol. 27; 33 I.L.M (1994); Agreement on Subsidies and Countervailing Measures, Apr. 15, 1994, reprinted in HARVEY M. APPLEBAUM & LYN M. SCHLITT, THE GATT, THE WTO AND THE URUGUAY ROUND AGREEMENTS ACT: UNDERSTANDING THE FUNDAMENTAL CHANGES 87 (1995); Agreement on Subsidies and Countervailing Measures, Apr. 15, 1994, Annex 1A, reprinted in THE LEGAL TEXTS: THE RESULTS OF THE URUGUAY ROUND OF MULTILATERAL TRADE NEGOTIATIONS 231 (Cambridge Univ. Press 1999) [hereinafter SCM Agreement]; discussion infra Part III.B. 58. See Bello & Holmer, supra note 53, at 462. [T]he party whose measures were challenged could simply drag out the bilateral discussions.... The panel phase of the process was easily extended by fractious disputants or scheduling problems with the panelists. Id. The United States used this delay tactic in 1989 when the EC challenged section 337 of the Tariff Act of 1930 as violating the GATT. See United States - Section 337 of Tariff Act of 1930, Nov. 7, 1989, GATT B.I.S.D. (36th Supp.) at 345 (1990). The United States did not want to amend the section until the Uruguay Round was completed. See generally F. David Foster & Joel Davidow, GATT and Reform of U.S. Section 337, 30 INT L LAW. 97 (1996) (examining the background and amendments of section 337 and suggesting that the reform of the GATT dispute settlement process does not weaken U.S. sovereignty).

9 2000] U.S. FOREIGN SALES CORPORATION PROGRAM 77 dural requirements include specific rules on requesting and holding consultations, more definite time frames, establishment of the Dispute Settlement Body (DSB), establishment of an impartial panel if the parties fail to reach a settlement within sixty days of consultations, and opportunity for review by an Appellate Body charged with creating a coherent body of trade law. 59 The new requirements also include specific requirements that the losing party must implement a panel s recommendations within a reasonable time frame, and if the losing party fails to implement the panel s recommendations, retaliatory measures may be authorized through the WTO. 60 However, unilateral actions are prohibited. 61 The enforcement provisions are considered to be especially important because not only did they address the delay issue, but were also seen as a move toward effective multilateral enforcement of the trade obligations covered in multilateral treaties. 62 Prior to the 1994 treaties, which were codified in U.S. law as the Uruguay Round Agreements Act (URAA), the United States had often acted unilaterally using 301 of the 1974 Trade Act to impose tariffs on foreign imports that the United States had determined were unfair 63 because they benefited from subsidization or other distorting mechanisms that the U.S. believed would constitute treaty violations. Thus, the United States used domestic law to enforce GATT provisions. 64 The United States was one of the chief supporters of a stronger multilateral dispute settlement system, despite its use of domestic enforcement, because the United States had been perceived as an international scofflaw and did not want to appear self-interested. 65 The effectiveness of the new dispute resolution procedure is still to be 59. See Steger & Hainsworth, supra note 56, at See id.; see also Bello & Holmer, supra note 53, at 465. A [WTO] dispute settlement panel or appellate body ruling... creates an obligation under international law to comply with the ruling s recommendation that the member country make its law consistent with the Uruguay Round Agreements. Robert A. Green, Antilegalistic Approaches to Resolving Disputes Between Governments: A Comparison of the International Tax and Trade Regimes, 23 YALE J. INT L L. 79, 86 (1998). 61. See Steger & Hainsworth, supra note 56, at 30-31; see also Bello & Holmer, supra note 53, at See John H. Jackson, The WTO Dispute Settlement Understanding - Misunderstandings on the Nature of Legal Obligation, in DISPUTE RESOLUTION IN THE WTO 69, (1998). 63. See Bello & Holmer, supra note 53, at See id. If a foreign government breached a trade agreement or acted in a way that impaired U.S. benefits under a trade agreement, then 301 authorized an increase in tariffs or restriction in the quantity of that nation s imports. See id. at Id. at 468.

10 78 NEW ENGLAND LAW REVIEW [Vol. 35:1 determined because the procedural changes have taken effect relatively recently. 66 One significant problem is that the WTO Agreement, although a model of democracy on paper, does not reflect the underlying reality that decisions can be made in closed groups or outside the framework of the WTO. 67 Policy issues, such as differing perspectives on human rights, labor standards, environmental protection and allegiance to socialist or capitalist practices, become trade-related issues. Although the trading system should be expanded, retaliation by economic sanctions is seen as the only peaceful way to deal with unfair competition advantages. 68 A narrow, competitive view of trade interests may lead to disputes between the major players along with retaliatory measures as seen in the past. The WTO is supposed to help integrate international trade by providing a pla t- form for developing a new global trade agenda, improving international economic cooperation, and promoting the development of economies in transition. 69 The question is, how this can be achieved by an organization now inundated with dispute settlement proceedings? 70 B. The New Definition of Subsidy The substantive Agreement from the Uruguay Round central to this Comment is the Agreement on Subsidies and Countervailing Measures (SCM Agreement). 71 The Agreement provides a definition of subsidies and expands the concept of prohibited subsides. 72 The SCM Agreement 66. See generally Robert E. Hudec, The New WTO Dispute Settlement Procedure: An Overview of the First Three Years, 8 MINN. J. GLOBAL TRADE 1 (1999) (suggesting that there are problems with the WTO dispute resolution procedure, for example, deadlines are too tight, caseloads are too great, and panelists are not qualified). 67. See Rubens Ricupero, Integration of Developing Countries into the Multilateral Trading System, in THE URUGUAY ROUND AND BEYOND 9, (Jagdish Bhagwati & Mathias Hirsch eds. 1998). The system will be strained because although the WTO is based upon the assumption that all members are equal, the reality is otherwise. See id. 68. See id. at See Sutherland, supra note 1, at See Ricupero, supra note 67, at 32. Dispute settlement has become the major business of the WTO. Id. 71. See SCM Agreement, supra note 57. The SCM Agreement constitutes an important amplification of the rights and obligations in an area historically sensitive within the GATT. See Terence P. Stewart, The Countervailing Duty Law and the Subsidies Code: A Domestic Counsel s Perspective, in HARVEY M. APPLEBAUM & LYN M. SCHLITT, THE GATT, THE WTO AND THE URUGUAY ROUND AGREEMENTS ACT: UNDERSTANDING THE FUNDAMENTAL CHANGES 263, 265 (1995). 72. See Stewart, supra note 71, at 265.

11 2000] U.S. FOREIGN SALES CORPORATION PROGRAM 79 does not condemn government subsidization, 73 but provides a stricter definition of subsidy. 74 Not all subsidies violate the Agreement, which allows exception[s] for green-light or non-actionable subsidies. 75 The SCM Agreement s tighter definition of subsidy carries with it an annex listing export subsidies, which expressly includes tax incentives tied to exports. 76 It is under this new definition of subsidy that the EU based its complaint that the U.S. FSC program is an actionable subsidy Mark D. Herlach & David A. Codevilla, Major Changes in U.S. Countervailing Duty Law: A Guide to the Basics, in HARVEY M. APPLEBAUM & LYN M. SCHLITT, THE GATT, THE WTO AND THE URUGUAY ROUND AGREEMENTS ACT: UNDERSTANDING THE FUNDAMENTAL CHANGES 53, 57 (1995). 74. See id. 75. Id. The green-light exceptions list three categories of non-actionable subsidies: assistance to industrial research, assistance to disadvantaged regions, and assistance for meeting environmental requirements. See 19 U.S.C. 1677(5B)(A)-(D) (1994 & Supp. IV 1999); see also DAS, supra note 2, at 49. A non-actionable subsidy is one that is permitted. See id. 76. See SCM Agreement, Annex I, Illustrative List of Export Subsidies, 33 I.L.M (1994); see also SCM Agreement, Annex I, Illustrative List of Export Subsidies, reprinted in THE LEGAL TEXTS: THE RESULTS OF THE URUGUAY ROUND OF MULTILATERAL TRADE NEGOTIATIONS 265 (Cambridge Univ. Press 1999); SCM Agreement, Annex I, Illustrative List of Export Subsidies, reprinted in HARVEY M. APPLEBAUM & LYN M. SCHLITT, THE GATT, THE WTO AND THE URUGUAY ROUND AGREEMENTS ACT: UNDERSTANDING THE FUNDAMENTAL CHANGES 87, (1995). The list provides: (a) The provision by governments of direct subsidies to a firm or an industry contingent upon export performance. (b) Currency retention schemes or any similar practices which involve a bonus on exports. (c) Internal transport and freight charges on export shipments, provided or mandated by governments, on terms more favourable than for domestic shipments. (d) The provision by governments or their agencies either directly or indirectly through government-mandated schemes, of imported or domestic products or services for use in the production of exported goods, on terms or conditions more favourable than for provision of like or directly competitive products or services for use in the production of goods for domestic consumption, if (in the case of products) such terms or conditions are more favourable than those commercially available on world markets to their exporters. (e) The full or partial exemption remission, or deferral specifically related to exports, of direct taxes or social welfare charges paid or payable by industrial or commercial enterprises. (f) The allowance of special deductions directly related to exports or export performance, over and above those granted in respect to production for domestic consumption, in the calculation of the base on which direct taxes are charged. Id. (citations omitted). 77. See infra Part IV.A.

12 80 NEW ENGLAND LAW REVIEW [Vol. 35:1 IV. THE FINDINGS OF THE WORLD TRADE ORGANIZATION PANEL REGARDING U.S. FOREIGN SALES CORPORATIONS The panel addressed significant procedural issues as well as substantive issues in this decision. The panel s application of the new DSU procedural rules in this case may help clarify and expedite subsequent disputes; therefore, the next section of this Comment presents both procedural and substantive issues. 78 A. Procedural Findings The United States put forward four contentions regarding the procedural aspects of this dispute and requested dismissal of the EU s complaint. The WTO panel struck down all of these contentions. 79 The panel also made specific procedural findings in relation to the EU s allegations under the Agreement on Agriculture (AA). 80 The procedural arguments and findings are discussed below. 1. The EC Met the Requirements for Consultations Under the SCM Agreement The United States first procedural argument was that the EC 81 did not meet the requirements set forth under SCM Agreement Article 4.2 because it failed to include a statement of available evidence in its request for consultations. 82 Article 4 of the SCM Agreement provides for consultations as a remedy when a WTO member country believes that another member 78. See infra Parts IV.A-B. 79. See infra Parts IV.A See Final Act Embodying the Results of the Uruguay Round of Multilateral Trade Negotiations, Annex 1A, Agreements on Trade in Goods, Agreement on Agriculture, 33 I.L.M (1994); see also Marrakesh Agreement Establishing the World Trade Organization, Annex 1A, Multilateral Agreements on Trade in Goods, Agreement on Agriculture, reprinted in THE LEGAL TEXTS: THE RESULTS OF THE URUGUAY ROUND OF MULTILATERAL TRADE NEGOTIATIONS 33 (Cambridge Univ. Press 1999) [hereinafter AA]. The Marrakesh Meeting or Uruguay Round adopted a new agreement on agriculture which sought to improve the conditions and expectations of agricultural trade. See KASTO, supra note 8, at 69. The important features of the agreement are market access through fairly imposed tariffs, reduction of governmental aids, and fairness in competition by reducing government subsidies. See id. at The core of the AA includes increases in market access, reduction in export subsidies, and limits on domestic support systems. See DUNKLEY, supra note 54, at 54; see also infra Part IV.A See supra note See GATT Secretariat, United States - Tax Treatment for Foreign Sales Corporations, WT/DS108/R (Oct. 8, 1999) at 7.1 [hereinafter FSC Case], in 13 BERNAN S ANNOTATED REPORTER, WORLD TRADE ORGANIZATION DISPUTE SETTLEMENT DECISIONS 125, 373 (2000).

13 2000] U.S. FOREIGN SALES CORPORATION PROGRAM 81 is granting a prohibited subsidy. 83 It further states: [a] request for consultations... shall include a statement of available evidence with regard to the existence and nature of the subsidy in question. 84 The panel stated that the ordinary meaning of these SCM Agreement provisions requires an expression in words of the facts at its disposal at the time it requests consultations; 85 and further that the complaining member must identify, but need not annex, the available evidence. 86 The panel noted that the evidence the EC relied on was of the U.S. Internal Revenue Code, 87 but recognized that although the EC had referred to secondary sources in its original submission, the panel concluded that it was not in a position to determine whether the EC had these materials at its disposal or whether the EC realized they would rely upon them. 88 The panel went on to determine that even if the EC s request for consultations did not include a statement of available evidence, 89 the EC s claims under Article 3 of the SCM Agreement need not be dismissed because they found no provisions in the DSU or SCM Agreement Article 4 requiring the panel to dismiss a claim in this situation. 90 The panel further concluded that since the United States did not bring up this alleged failure of the EC when it first received the request for consultations, they could not successfully argue before the panel that their due process rights had been abridged The WTO Dispute Settlement Procedure is the Proper Forum to Resolve This Type of Disagreement The next procedural argument advanced by the United States was that since this was a disagreement over transfer pricing and fundamental tax policy, 92 the EC should have first brought their complaint to the Organization for Economic Cooperation and Development (OECD) or to processes under bilateral tax treaties. 93 The United States relied on language refer- 83. See SCM Agreement Article 4.1, APPLEBAUM & SCHLITT, supra note 57, at 87; see also SCM Agreement Article 4.1, THE LEGAL TEXTS, supra note 55, at SCM Agreement Article 4.2, APPLEBAUM & SCHLITT, supra note 57, at 87; see also SCM Agreement Article 4.1, THE LEGAL TEXTS, supra note 57, at FSC Case, supra note 82, at See id. 87. See id. at See id. 89. See id. at See id. 91. See FSC Case, supra note 82, at See id. at The United States refers to sections of the EC complaint involving FSC administrative pricing, and therefore sees this as a transferpricing dispute. See id. 93. Both the U.S. and EU are members of the OECD, an organization which

14 82 NEW ENGLAND LAW REVIEW [Vol. 35:1 ring to bilateral tax treaties in footnote 59 to item (e) of the Illustrative List of Export Subsidies, which provides: The Members recognize that deferral need not amount to an export subsidy where, for example, appropriate interest charges are collected. The Members reaffirm the principle that prices for goods in transactions between exporting enterprises and foreign buyers under their [sic] or under the same control [sic] should for tax purposes be the prices which would be charged between independent enterprises acting at arm s length. Any Member may draw the attention of another Member to administrative or other practices which may contravene this principle and which result in a significant saving of direct taxes in export transactions. In such circumstances the Members shall normally attempt to resolve their differences using the facilities of existing bilateral tax treaties or other specific international mechanisms, without prejudice to the rights and obligations of Members under GATT 1994, including the right of consultation created in the preceding sentence. 94 The panel had four responses to this argument: 1) even if footnote 59 requires Members to seek resolution through alternative tax fora, it does not circumvent the right of a Member to resort to WTO dispute settlement at any time under GATT Article XXIII, DSU, and Article 4 of the SCM Agreement; 95 2) any restriction on the Member s ability to pursue WTO dispute settlement would prejudice... the rights and obligations of Members under GATT 1994; 96 3) if footnote 59 had been intended to require a Member to exhaust all alternatives before pursuing dispute settlement, then it would have been listed as a special or additional dispute settlement provision in Appendix 2 of the DSU along with the other special provisions; 97 4) the issues of whether the OECD or proceedings under creates a multilateral framework for resolving such issues. See David A. Wirth, Public Participation in International Processes: Environmental Case Studies at the National and International Levels, 7 COLO. J. INT L ENVTL. L. & POL Y 1, (1996). The original members of the OECD were Austria, Belgium, Canada, Denmark, France, the Federal Republic of Germany, Greece, Iceland, Ireland, Italy, Luxembourg, the Netherlands, Norway, Portugal, Spain, Sweden, Switzerland, Turkey, the United Kingdom, and the United States. Australia, Finland, Mexico, Japan, and New Zealand later became OECD members in 1971, 1969, 1994, 1964, and 1973 respectively. See id. at 14 n SCM Agreement Annex 1, Illustrative List of Export Subsidies, n.59, supra note 76 (emphasis added). 95. FSC Case, supra note 82, at Id. at 7.19; see also SCM Agreement Annex 1, Illustrative List of Export Subsidies, n.59, supra note See FSC Case, supra note 82, at 7.20.

15 2000] U.S. FOREIGN SALES CORPORATION PROGRAM 83 bilateral tax treaties have the appropriate mechanisms for resolving disagreements, or whether the EC may have already attempted to resolve the present issue in the OECD need not be answered due to the panel s conclusion that footnote 59 does not require a Member to resort to alternative tax fora before utilizing the WTO dispute settlement process. 98 Since this conclusion interprets a fundamental general procedural requirement under the new DSU, it is appropriate for appeal to the new Appellate Body The EC s Request for the Establishment of a Panel was Sufficiently Precise The United States further contended that the EC s request for establishment of a panel did not comply with Article 6.2 of the DSU, 100 which provides that the request shall indicate whether consultations were held, identify the specific measures at issue and provide a brief summary of the legal basis of the complaint sufficient to present the problem clearly. 101 The United States argued that the request was not specific enough because it failed to identify the scheduled agricultural products in question. 102 The panel addressed the importance of closely examining the request for establishment of a panel pursuant to the Appellate Body s explanation in two previous cases, 103 European Communities - Bananas 104 and European Communities - Computer Equipment. 105 The panel concluded that the EC s panel request was sufficiently precise because it stated that the EC 98. See id. at 7.21 (emphasis added). 99. See infra Part V.E See FSC Case, supra note 82, at Id. at 7.25 (quoting DSU Article 6.2, I.L.M., supra note 55, at 1154); see also DSU Article 6.2, THE LEGAL TEXTS, supra note 55, at See id. at 7.23; see also infra Part IV.B See FSC Case, supra note 82, at See GATT Secretariat, European Communities Regime for the Importation, Sale and Distribution of Bananas, Report of the Appellate Body, WT/DS27/AB/R (Sept. 9, 1997) at 142 (requiring that the panel request be sufficiently precise because it is a reference for the panel pursuant to Article 7 of the DSU and it puts the defending party on notice as to the legal basis of the complaint). See id.; see also European Communities - Regime for the Importation, Sale and Distribution of Bananas, in 4 BERNAN S ANNOTATED REPORTER, WORLD TRADE ORGANIZATION DISPUTE SETTLEMENT DECISIONS 63, 77 (1998) See GATT Secretariat, European Communities - Customs Classification of Certain Computer Equipment, WT/DS62/AB/R (June 22, 1998). In order to comply with Article 6.2 of the DSU it may be necessary to identify the products subject to the measure in dispute in order to identify the specific measures at issue. See id. at 67; see also European Communities - Customs Classification of Certain Computer Equipment, in 6 BERNAN S ANNOTATED REPORTER, WORLD TRADE ORGANIZATION DISPUTE SETTLEMENT DECISIONS 207, 227 (1999).

16 84 NEW ENGLAND LAW REVIEW [Vol. 35:1 considered the FSC an export subsidy and that the United States had not complied with the AA thereby putting the United States on notice that the EC alleged violations with respect to all agricultural products rather than just to specific categories. 106 The panel went on to state that if a violation depends upon product-specific information, 107 and a complainant uses broad terms, as here, then it must be prepared to present evidence in order to sustain its argument and prevail on the merits The EC s Request for the Establishment of a Panel did Properly Identify the Related Measures The final procedural argument brought by the United States was that the related measures mentioned in the EC s panel request were not specifically identified before the EC s first panel submission, and therefore could not be before the panel. 109 The panel concluded that the primary legal instruments regarding the tax treatment in dispute were in the U.S. Internal Revenue Code and no other legal instruments needed to be examined that were not identified by the time of the EC s first submission to the panel Article 10.3 of the Agreement on Agriculture Shifts the Burden of Proof to the Defending Member Only for Scheduled Agricultural Products Normally, in the dispute settlement process the Member alleging a violation of a WTO agreement has the burden of presenting evidence and sufficient argument to support the presumption of a violation. 111 However, the panel noted that in relation to claims of export subsidies of products brought under the Agreement in Agriculture, Article 10.3 has the effect of shifting the burden of proof to the defending Member. 112 Article 10.3 states: [a]ny Member which claims that any quantity exported in excess of a reduction commitment level is not subsidized must establish that no export subsidy, whether listed in Article 9 or not, has been granted 106. See FSC Case, supra note 82, at 7.29 (emphasis added) Id. at See id See id. at The EC requested a panel with respect to Sections of the Internal Revenue Code and related measures establishing special tax treatment for Foreign Sales Corporations (FSC). Id. at 7.31 (quoting EC Panel Request, WT/DS108/2 (July 9, 1998)) (emphasis added) See id. at Other Internal Revenue Code sections examined by the panel were 951(e) and 245(c), but these were included in the EC s first submission and therefore the U.S. s procedural objection do not apply to them. See id. at 7.34 n See id. at See FSC Case, supra note 82, at 7.134,

17 2000] U.S. FOREIGN SALES CORPORATION PROGRAM 85 in respect of the quantity of exports in question. 113 The panel concluded that once the EC has established that the United States has exported a quantity of agricultural product in excess of its reduction commitment level, the United States then has the burden of proving either that the FSC is not an export subsidy or that FSC benefits are not granted in excess of its reduction commitment level, or both. 114 Although this conclusion seems straightforward, the two parties disagreed over which agricultural products are subject to the reduction commitment level and it was for the panel to resolve this aspect of the dispute. 115 The United States claimed that only scheduled products are subject to a reduction commitment level, whereas the EC claimed that both scheduled and unscheduled products are subject to a reduction commitment level. 116 The panel note[d] that the title of Article 10 is Prevention of Circumvention of Export Subsidy Commitments, 117 and Article 10.3 focuses on reduction commitment levels, whereas Article 10.1 focuses on circumvention of export subsidy commitments. 118 The panel thought that such distinctions within the same Article were for the purpose of separating export subsidy commitments, which relate to both scheduled and unscheduled products, from reduction commitments, which relate only to scheduled products. 119 The panel further supported this distinction by pointing out that Article 3, entitled Incorporation of Concessions and Commitments, deals with both scheduled and unscheduled products, would have referred to reduction commitments rather than just commitments if reduction commitments are to be applied to both scheduled and unscheduled products. 120 The panel concluded that under Article 10.3 of the Agreement on Agriculture, the burden is shifted to the defending 113. Agreement on Agriculture, Article 10.3, quoted in FSC Case, supra note 82, at The Agreement on Agriculture creates limits on the amount of export subsidies that a country can provide. Article 2.3 states that Members cannot provide subsidies in excess of the quantity commitment levels specified in that Member s Schedules. The commitment levels in Member Schedules are formula reductions of export subsides over a six-year period. See Kevin J. Brosch, The Uruguay Round Agreement on Agriculture, in HARVEY M. APPLEBAUM & LYN M. SCHLITT, THE GATT, THE WTO AND THE URUGUAY ROUND AGREEMENTS ACT: UNDERSTANDING THE FUNDAMENTAL CHANGES 865, (1995) See FSC Case, supra note 82, at See id. at Reduction commitment means that a Member committed to reduce the quantity of a product getting Article 9.1 export subsidies during the implementation period. See id. at See id. at Id. at Id See id FSC Case, supra note 82, at

18 86 NEW ENGLAND LAW REVIEW [Vol. 35:1 Member (here, the United States) to prove that there is no export subsidy in excess of its reduction commitment in relation to scheduled products. 121 The panel further concluded that the burden remains on the complaining Member (here, the EC) to prove that export subsidies have been granted in relation to unscheduled products. 122 B. Substantive Findings 1. A Subsidy Exists The EC 123 contended that the FSC scheme constituted a subsidy under Article 1.1 of the SCM Agreement. 124 Both the EC and the panel focused on specific defining language in the treaty: does the device result in a financial contribution by a government, 125 including an indirect contribution to exports through foregone revenue that is otherwise due, 126 under which a benefit is thereby conferred. 127 The panel first concluded that 121. See id See id. at See supra note See SCM Agreement Article 1.1(a)(1), supra note 57; see also FSC Case, supra note 82, at SCM Agreement Article 1.1(a)(1), supra note 57; see also FSC Case, supra note 82, at See SCM Agreement Article 1.1(a)(1)(ii), supra note 57; see also FSC Case, supra note 82, at SCM Agreement Article 1.1(b), supra note 57; see also FSC Case, supra note 82, at The Article provides in full: 1.1 For the purpose of this Agreement, a subsidy shall be deemed to exist if: (a)(1) there is a financial contribution by a government or any public body within the territory of a Member (referred to in this Agreement as government ), i.e. where: (i) a government practice involves a direct transfer of funds (e.g. grants, loans, and equity infusion) potential direct transfers of funds or liability (e.g. loan guarantees); (ii) a government revenue that is otherwise due is foregone or not collected (e.g. fiscal incentives such as tax credits); (iii) a government provides goods or services other than general infrastructure or purchases goods; (iv) a government makes payments to a funding mechanism, or entrusts or directs a private body to carry out one or more of the type of functions illustrated in (i) to (iii) above which would normally be vested in the government and the practice, in no real sense, differs from practices normally followed by governments; or (a)(2) there is any form of income or price support in the sense of Article XVI of GATT 1994: and

19 2000] U.S. FOREIGN SALES CORPORATION PROGRAM 87 whether taxes are due to a government is determined by reference to that government s tax regime. 128 The United States argued that because there is no obligation to impose taxes or duties under the WTO, the exemption of such income from taxation cannot constitute a subsidy The panel responded to this argument by pointing out that although every Member is free not to levy taxes on a general sector of the economy, a tax provision that is affirmatively enacted may be examined for consistency. 130 It held that the proper method of determining whether taxes otherwise due are foregone, is to compare the tax treatment a Member applies in a certain trade-related situation with the general tax regime otherwise applied by that Member. 131 This was done in a prior case, Indonesia - Certain Measures Affecting the Automobile Industry, 132 where the panel determined that even though Indonesia had no WTO obligation to impose duties, revenue was foregone when it was otherwise due, because Indonesia had imposed a general taxation system including luxury and import duties, but did not collect such duties on automobiles. 133 The panel formed the issue in these terms: whether, if the FSC scheme did not exist, revenue would be due which is foregone by reason of that scheme. 134 They note that this is a but-for test, 135 and point to U.S. Treasury Regulations under the U.S. unilateral trade remedy legislation, where the United States itself uses a but-for test to determine whether a subsidy exists. 136 (b) a benefit is thereby conferred. SCM Agreement Article 1.1, supra note See FSC Case, supra note 82, at Id. at See id Id WT/DS54/R, WT/DS55/R, WT/DS59/R, WT/DS64/R (July 2, 1998) at See id FSC Case, supra note 82, at Id. at The panel set up the standard for their determination to reference the defending Member s own tax regime in regard to whether in the absence of the program in question, tax revenue would be collected. See id. at See id. at The panel refers to the U.S. Code of Federal Regulations concerning countervailing duties which states: In the case of a program that provides for a full or partial exemption or remission of a direct tax (e.g., an income tax), or a reduction in the base used to calculate a direct tax, a benefit exists to the extent that the tax paid by a firm as a result of the program is less than the tax the firm would have paid in the absence of the program.

20 88 NEW ENGLAND LAW REVIEW [Vol. 35:1 The panel next addressed the United States argument that the phrase otherwise due should be read in light of the 1981 Understanding. 137 That understanding, according to the United States, distinguishes foreign source income from domestic source income, so that an exemption of foreign source income from a general income tax does not constitute foregone revenue that is otherwise due under Article 1.1(a)(ii) of the SCM Agreement. 138 First, the panel determined that the 1981 Understanding is a part of GATT It interpreted the GATT 1994 language, other decisions of the CONTRACTING PARTIES to GATT 1947, 140 as broad enough to encompass the 1981 Understanding. 141 However, the panel went on to note that it must be a binding legal instrument in order for a decision to fall within the GATT. 142 The next question became whether the 1981 Understanding was a formal legal text that had a binding effect generally applicable to all contracting parties. 143 The panel concluded that since the 1981 Understanding itself does not indicate its legal status, the circumstances of its adoption needed to be examined. 144 Of particular importance to the panel was a statement made by the Chairman of the Council 145 that the adoption of these reports together with the understanding does not affect the rights and obligations of contracting parties under the General Agreement. 146 The panel considered this statement evidence that the 1981 Understanding was not to be legally binding on all contracting parties, 147 and further noted that two of the three delegations which spoke before the adoption of the Understanding referred to the Chairman s statement C.F.R (a)(1) (1999) In the 1981 Understanding, GATT formally adopted the 1976 panel reports on the Tax Legislation Cases which included the DISC case. See Ryan, supra note 5, at 701; see also supra note 34 and accompanying text See FSC Case, supra note 82, at See id. at WTO Agreement, Annex 1 A(1)(b)(iv), supra note 8, at See FSC Case, supra note 82, at See id. at See id. at 7.63 & See id. at See GATT 1947 Council of Representatives, Report on Work Since the Thirty-Seventh Sess., GATT Doc. L/5414 (Nov. 12, 1982) cited in FSC Case, supra note 82, at n.629. The General Council, comprised of Representatives of all Member-States of the WTO, meets to carry out its functions of administrative and policy review, and to discharge of the judicial function of the DSB under the WTO. See KASTO, supra note 8, at FSC Case, supra note 82, at 7.68 & n.632 (footnote omitted) See id. at See id. at 7.70.