*EPF309 07/14/2004
House Vote on Tobacco Could Imperil Fix For U.S. WTO Violations
(EU sanctions on U.S. exports to continue until tax issue resolved) (500)

By Berta Gomez
Washington File Staff Writer

Washington -- A vote in the House of Representatives to block buyout payments to tobacco farmers could affect eventual passage of a separate corporate tax bill that would eliminate U.S. export tax breaks ruled illegal by the World Trade Organization (WTO).

The proposed buyout of tobacco farmers was included in a measure approved by the House June 17 to overhaul the corporate tax code and place the United States in compliance with WTO rules. The buyout, which garnered much-needed support from tobacco-state legislators, authorized $9.6 billion for tobacco farmers in exchange for ending existing government price supports.

But in a July 13 voice vote during consideration of a separate agriculture-spending bill, the House approved an amendment that would prevent the U.S. Department of Agriculture (USDA) from using any of its funds for the tobacco buyout.

"There's never a good time to spend $10 billion bailing out the tobacco industry, but in the midst of a war, a deficit, and an economic recovery, this is the worst time," said Representative Jeff Flake, the Arizona Republican who sponsored the amendment.

The House later passed the $83.7 billion agriculture bill, 389-31. The measure would provide funding for most operations of USDA and the Food and Drug Administration (FDA) for fiscal year 2005, which begins October 1.

The House vote was one of several steps that must be taken in the legislative process. For a bill to become law the House and Senate must approve identical versions of the legislation and then send it to the president for his signature or veto.

Congressional aides told reporters they believed the amendment to ban funding for the tobacco buyout would likely be dropped when House and Senate negotiators meet to reconcile their differences on agriculture spending.

However, the tobacco buyout itself will still be up for discussion during House-Senate negotiations on the corporate tax measure. The Senate's version of the tax overhaul passed May 11 does not include a tobacco buyout. Some senators have warned that they will approve the buyout only if it is combined with new federal regulation of tobacco products by the FDA.

The tax bill would repeal a U.S. law giving tax breaks to certain exports; the WTO has ruled against the law, the Extraterritorial Income Act (ETI), as amounting to illegal export subsidies. ETI is successor to the decades-old Foreign Sales Corporation, which was also ruled a WTO violation.

After repeated European Union (EU) challenges to the U.S. export tax breaks, the WTO authorized the EU to impose sanctions for U.S. noncompliance amounting to $4 billion a year. The EU began March 1 imposing tariffs of 5 percent and is prepared to increase the level by one percentage point a month up to 17 percent. The rate went up to 9 percent July 1.

(The Washington File is a product of the Bureau of International Information Programs, U.S. Department of State. Web site: http://usinfo.state.gov)

Return to Public File Main Page

Return to Public Table of Contents