WTO Panel Backs EU Tariffs on Networking Equipment

European Union nations may continue to impose tariffs on U.S. computer-networking equipment exports ahead of a July 1, 2000, deadline for eliminating all such tariffs, a trade arbitration appeals panel has ruled.

The ruling of a World Trade Organization appeals board is a blow to companies including California-based Cisco Systems Inc. and Bay Networks Inc., as well as New Hampshire-based Cabletron Systems, which want to sell their products at lower prices in the lucrative European market.

The decision, revealed in an EU document obtained Thursday by Bloomberg News, “reversed all the substantial findings” of an earlier ruling that favored the U.S. The EU appealed the ruling by the Geneva-based trade arbiter in February.

“We are disappointed with the appellate body’s report,” said Jay Ziegler, spokesman for the Office of the U.S. Trade Representative. “However, the commercial impact will be limited because the EU eliminated tariffs across all these products by the year 2000.”

The tariff dispute dates to 1994, when the EU agreed to cut its tariff rates on all types of computer equipment.

British and Irish customs authorities subsequently began to reclassify networking equipment as telecommunications equipment and reclassified one type of computer as a television receiver. Tariffs almost doubled on these products as a result. Since 1995, other EU member states have reclassified and raised tariffs.

Cisco Systems, the world’s largest maker of data networking equipment, derived 29% of its bookings from Europe for the quarter ended in April.

Cisco’s European business, which grew rapidly last year, has already slowed in recent months as large businesses diverted spending to prepare for the switch to a single currency.

Officials at San Jose-based Cisco couldn’t immediately be reached for comment.

Analysts said that while the decision isn’t good news for Cisco or other U.S. exporters, its effect on the company’s European sales will be minimal.

“Any tariff would be a problem,” said Jim Wade, an analyst at BT Alex. Brown. Still, there isn’t a lot of competition from European companies that might undercut Cisco’s prices, Wade said.

“Europe has been a strong market for Cisco,” tariffs notwithstanding, Wade said.

French telecom giant Alcatel Alsthom now gets much of the networking equipment it sells through distribution agreements with Cisco and Xylan Corp., a Calabasas-based maker of powerful computer switches.

In 1997, the EU agreed to eliminate tariffs on all electronics products by July 1, 2000. The U.S. hasn’t yet benefited from the agreement because the EU has continued to impose higher interim tariff rates for much of the equipment.

The U.S. took its case to the WTO in November 1996. A settlement dispute body of the organization established a panel in February 1997 to look at the complaint and those against Ireland and the Britain.

The WTO appellate body, among its arguments, said the issue of the proper classification of products should be handled by the World Customs Organization rather than the WTO. The body also said the U.S. complaint failed to deal with the 15-nation EU as a customs union.