*EPF213 11/14/00
House Passes Bill to Reform Export Tax Breaks Challenged by EU
(Focus of dispute shifting back to WTO in Geneva) (540)
By Bruce Odessey
Washington File Staff Writer
Washington -- The House of Representatives has given final passage to a bill that provides the U.S. response to a World Trade Organization (WTO) ruling against U.S. Foreign Sales Corporation (FSC) tax breaks, which were successfully challenged by the European Union (EU).
After the House voted 316-72 to approve the measure November 14, clearing it for President Clinton's signature, U.S. Trade Representative Charlene Barshefsky praised Congress.
"The strong bipartisan support to pass the FSC repeal and replacement legislation demonstrates the United States' commitment to abide by its WTO obligations," Barshefsky said.
"The legislation fully addresses the WTO panel's findings and should put an end to this matter," she said.
Nevertheless, the EU has long expressed dissatisfaction with the U.S. remedy and intends to seek WTO authority to impose retaliatory tariffs against U.S. imports. That request likely will come at the November 17 meeting of the WTO Dispute Settlement Body in Geneva.
A press release from Barshefsky's office reiterated the September U.S.-EU agreement on how to proceed in the WTO after Congress passed the FSC bill. First, a WTO panel would determine whether the remedy satisfies U.S. obligations in the WTO, and then either side could appeal that decision. Only if the United States were still found at the end of the appeals process to be violating its obligations would a WTO group arbitrate the level of EU sanctions.
In a separate statement Treasury Deputy Secretary Stuart Eizenstat supported the administration view that the U.S. remedy should be found WTO-compliant.
Because of the procedural agreement, he said, "enactment of this legislation will avoid an immediate confrontation with the EU by ensuring that the World Trade Organization must review the new law before any decision authorizing retaliation may be made.
"We plan to continue working with the EU to manage this dispute responsibly and to avoid any escalation of tensions that could harm our strong bilateral relationship," Eizenstat said, "and we remain open to further discussions with the EU about resolving this dispute."
The United States missed the original October 1 WTO deadline and a November 1 extended deadline to submit its proposed remedy. The Senate passed the final bill November 1, but Republican House leaders refused to act at that time because Clinton had threatened to block broader tax legislation. The House finally acted on the second day of a "lame duck" post-election session even though the other tax issues remain unresolved.
At issue is the FSC program, which excludes from U.S. income taxes certain export income earned by foreign subsidiaries of U.S. companies. A WTO dispute-settlement panel, upheld by the Appellate Body, ruled that FSC amounted to an export subsidy in violation of WTO agreements on subsidies and agriculture.
The bill would repeal the FSC program. It would alter the U.S. tax regime to exclude from U.S. tax a certain portion of a corporation's foreign sales income -- without regard to whether the income derived from exports.
(The Washington File is a product of the Office of International Information Programs, U.S. Department of State. Web site: http://usinfo.state.gov)
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