EUROPE

WTO Rules Against U.S. in Tax-Break Case

After winning some highly publicized international trade rulings against the European Union, the United States has lost one to the EU in a case involving a tax break given to encourage U.S. exports.

The EU claimed initial victory this weekend in a complaint it brought at the World Trade Organization against foreign sales corporations, which many U.S. multinationals have established to help reduce their tax burdens. The sales corporations are often located in offshore tax havens and their income is partially exempt from U.S. taxes, provided it comes from the sale of U.S. exports. A WTO panel found that these arrangements illegally subsidize U.S. exports at the expense of other countries' products.

Unless Washington can get the panel's finding overturned, the decision could mean that Congress will have to change the law.

The United States has blasted the EU in recent weeks for failing to change its laws after WTO rulings that Brussels was violating international trade rules with its banana import system and its ban on hormone-treated beef. So far, the EU has elected to accept U.S. sanctions against European exports such as Roquefort cheese rather than change its laws -- as is its right under WTO rules.

European Aerospace Giants Close to Merger

BERLIN -- DaimlerChrysler Aerospace and France's Aerospatiale Matra are close to agreement on a merger that would create the world's second-largest aerospace company after Boeing, a news magazine reported.

Der Spiegel said the plans to fuse the companies are already on the desk of French President Jacques Chirac, who must approve any deal involving the aerospace and defense group Aerospatiale Matra, which is 48 percent state-owned.

Der Spiegel's report is the latest in a flurry of consolidation announcements from Europe's aerospace and defense industry, which has said it hopes to better compete against U.S. giants such as Boeing and Lockheed Martin.

Irish Republicans Confer Over `Crisis'

DUBLIN -- Leading Irish republicans, including Sinn Fein President Gerry Adams, met to discuss Northern Ireland's stalled peace process and said the extent of the crisis should not be underestimated.

Two days after the Irish Republican Army issued a statement that was taken by critics as a veiled threat to resume violence, the national executive of its Sinn Fein political ally met to consider its role in the process. "No one should underestimate the extent of the crisis that we are in now," Sinn Fein's Martin Ferris said, reading from a prepared statement.

Ferris made clear that Sinn Fein was still considering its response to the decision to "park" the peace process until September, when talks will resume under the chairmanship of former U.S. senator George Mitchell.

AFRICA

Envoy Says Ethiopia-Eritrea War Near End

ADDIS ABABA, Ethiopia -- An end to the costly, bloody 14-month border conflict between Ethiopia and Eritrea is in sight, a U.S. envoy said, citing progress in meetings in the past two days with leaders of both countries and an Algerian-led African delegation.

In his first interview after a year of often frustrating shuttle diplomacy, Anthony Lake said he was optimistic but gave few details as to why. "Each side has now made a decision to try to achieve peace, and those decisions have opened the door that I think each of them has decided to go through," said Lake, President Clinton's former national security adviser.

The two Horn of Africa nations have been at war since May 1998 over contested areas of their 620-mile border. Tens of thousands of soldiers and hundreds of civilians have died in the war, and nearly half a million residents on both sides of the border have been driven from their homes.

THE AMERICAS

Nuns Shoot, Kill Intruder in Colombia

BOGOTA, Colombia -- Two Roman Catholic nuns shot and killed a thief who broke into their sanctuary in central Colombia, authorities said. The sharpshooting nuns, who have not been named, blasted the intruder in the head with a .38-caliber Smith & Wesson revolver after they heard strange noises in the corridors of the Sanctuary of the Virgin of Miracles.

Police said the fatal shooting occurred Wednesday night at the cloister in the city of Tunja but gave details only after releasing the two nuns on bail.

ASIA

India Investigating Kashmiri Infiltration

JAMMU, India -- India appointed a panel to investigate the infiltration by Muslim guerrillas in northern Kashmir and kept up artillery fire to push the last infiltrators behind the Line of Control with Pakistan.

Information and Broadcasting Minister Pramod Mahajan said in New Delhi that the cabinet had decided to appoint a committee "to review the events leading up to Pakistani aggression in Kargil and to recommend necessary measures to safeguard national security."

Meanwhile, Pakistan's main opposition Islamic party said it would hold a huge rally today in Lahore to protest against Prime Minister Nawaz Sharif's decision to call for the withdrawal of Muslim militants from northern Kashmir.

U.S. Envoy Leaves China; Talks Constructive

BEIJING -- A senior U.S. envoy left Beijing yesterday after ending talks with Chinese leaders on Taiwan, while China accused Congress of supporting Taiwan in a dispute over statehood.

Assistant Secretary of State Stanley Roth left for Singapore to brief Secretary of State Madeleine K. Albright on his meetings. He said the talks had been constructive but refused to disclose details.

The crisis over Taiwan's call for state-to-state relations enraged China and has aggravated already touchy U.S.-China ties. After more than a year of progress in restarting talks between the mainland and Taiwan, President Clinton's administration has been loath to see the current dispute derail the process. Clinton dispatched envoys to both Taipei and Beijing this week to help defuse the crisis.

QUOTE OF THE DAY

"I see your tears. Your pain. And I beg your pardon. We failed to protect you."

--Bernard Kouchner, the United Nations administrator for Kosovo, who visited Gracko, Yugoslavia, where 14 Serbian farmers were found slain -- Page A1