Congressional Opposition Surfaces to Lamy's Candidacy for World Trade Organization Head

GENEVA--There is substantial opposition on Capitol Hill to former European Union trade commissioner Pascal Lamy's candidacy to succeed Supachai Panitchpakdi as head of the World Trade Organization, congressional staff have told BNA.

Staffers for Senate Finance Committee Chairman Charles Grassley (R-Iowa) and House Ways and Means Committee Chairman William Thomas (R-Calif.) signaled their displeasure with Lamy late last month during a meeting with administration officials regarding the March 2-4 WTO "mini-ministerial" in Kenya, congressional sources said.

Opposition from Grassley and Thomas could deal a severe blow to the aspirations of Lamy, who is counting on support from the United States and other major developed countries to carry him into the top WTO post.

A spokeswoman for Grassley, however, said the Iowa senator has not taken a position on Lamy's candidacy to be director-general, while a spokeswoman for Thomas would not comment on the issue.

Nevertheless, congressional sources said the two members, the most powerful U.S. legislators on international trade matters, are angry with Lamy over his decision to initiate WTO dispute proceedings to determine whether the United States has fully complied with earlier WTO rulings striking down tax breaks for U.S. exporting firms.

The proceedings were triggered by Lamy last October during his final days as European trade commissioner. WTO members agreed Feb. 17 to the EU's request for a panel to rule on its claims that transitional measures and "grandfathering" provisions under the American Jobs Creation Act of 2004 failed to bring the United States fully in line with past WTO rulings against the foreign sales corporation (FSC) system and its successor, the Extraterritorial Income Exclusion (ETI) Act (33 ITD, 02/18/05) .

"There is some frustration with the way Pascal Lamy handled the FSC-ETI situation," one Senate aide, who asked not to be indentified, said.

Lamy 'Misleading, at Best.'

The aide said many members of Congress expected passage of the American Jobs Creation Act would essentially settle the matter, and felt that Lamy was "misleading, at best" on the subject.

A ruling against the United States would expose U.S. imports to the reimposition of part of the $4 billion in punitive duties the EU was authorized to levy after Congress failed to meet an earlier deadline for withdrawing the tax breaks, which were deemed to constitute an illegal subsidy. The sanctions were suspended on Jan. 21 pending the WTO's ruling on U.S. compliance.

U.S. trade officials and legislators have privately expressed fury with the EU's decision to seek a compliance ruling, arguing that a lot of time and political capital was spend pushing tax reforms through Congress and ensuring U.S. compliance with the WTO ruling.

The officials said the displeasure was voiced during a February visit to Washington by new European Trade Commissioner Peter Mandelson, who met with both Grassley and Thomas to discuss the dispute.

EU officials counter that Brussels made it clear from the start that it could not accept transitional provisions allowing U.S. exporters to continue to benefit from the illegal tax breaks through the end of 2006. More problematic for Brussels are the "grandfathering" provisions allowing continued tax breaks for contracts in effect before Sept. 17, 2003, in particular leasing.

The EU claims this latter provision will allow major U.S. companies such as Boeing, Microsoft, and Caterpillar to benefit from the illegal tax breaks for the duration of the contracts, which can run for many years.

Decision Due by End of Month

The congressional sources said the Bush administration is due to indicate by the end of March which of the four candidates it will back to replace Supachai, whose term ends on Sept. 1.

The other three candidates in the race are Uruguay's former WTO Ambassador Carlos Perez del Castillo, Brazil's current WTO ambassador Luiz Felipe de Seixas Correa, and Mauritius's Foreign Affairs and Trade Minister Jayakrishna Cuttaree.

Under WTO procedures, the chair of the trade body's ruling General Council, Kenya's WTO ambassador Amina Chawahir Mohamed, will start consultations in April to sound out members on their preferred candidate. The candidate attracting the least support will be expected to drop out of the race, with the process continuing until a consensus can be reached on one candidate. A consensus decision on the next WTO director-general is due by the end of May.

The sources said Perez del Castillo appears the most likely to garner the Bush administration's support, more out of a process of default. Seixas Correa's candidacy is opposed by some in Washington angry with what they view as the Brazilian government's obstructionist stand in the Free Trade Area of the Americas negotiations as well as the WTO Doha Round talks, where Brazil heads the Group of 20 developing country alliance on agriculture.

Cuttaree's candidacy is also viewed negatively by some in Congress, particularly among House Republicans, the sources said.