Friday September 1 3:51 PM ET Administration To Push Tax-Breaks
By MARCY GORDON, AP Business Writer
WASHINGTON (AP) - Over European objections, the Clinton administration will continue to push for enactment of legislation creating new tax breaks for U.S. companies that export goods or make them abroad, a senior administration official said Friday.
The remarks came soon after the European Union rejected the U.S. proposal as failing to rectify a violation of World Trade Organization rules, raising the specter of a potential trade war.
``We are disappointed with (the Europeans') response to our proposal, with the continued unwillingness of the EU to negotiate with us and with their unwillingness to provide any constructive suggestions,'' the official who spoke on condition of anonymity told reporters in a conference call.
``It is critical'' to press ahead with the legislation to meet an Oct. 1 deadline for U.S. tax compliance set by the World Trade Organization, he said.
That body ruled in February that the current U.S. program, giving $4.1 billion in annual tax breaks to some 6,000 American companies that set up export subsidiaries in offshore tax havens, is an illegal export subsidy. In making the ruling, the WTO agreed with the EU's earlier claims.
The Foreign Sales Corporation program, created in 1984, enables the U.S. companies, including Microsoft, Boeing, General Motors and United Technologies, to reduce income taxes by 15 percent by creating export subsidiaries in offshore tax havens such as the Virgin Islands and Barbados. It was designed to offset an EU tax rebate given to European companies for products sold overseas.
The WTO gave the United States an Oct. 1 deadline to comply or face possible EU retaliation in the form of higher tariffs or other trade sanctions.
To replace the offshore tax program, the Clinton administration and key lawmakers came up with the new legislation, which would create new tax breaks applied equally to exports by U.S. companies and products they manufacture abroad.
The bipartisan proposal would satisfy the WTO's objections by creating a new system of taxes to replace a special exception, lawmakers and administration officials say.
It cleared the House Ways and Means Committee by a 34-1 vote on July 27, and the administration wants to push it through the full House and the Senate in the last few days of the congressional session. Lawmakers plan to adjourn for the year early next month.
``It still remains a priority for the chairman,'' said Greg Crist, spokesman for Ways and Means Committee Chairman Rep. Bill Archer, R-Texas.
But the Europeans aren't satisfied by the proposed alternative. In a statement Friday from its headquarters in Brussels, Belgium, the EU said the legislative proposal still violates WTO rules by improperly subsidizing U.S. exports.
``The EU can't make it a subsidy by calling it one,'' the administration official said a few hours later. ``We would be more than happy to negotiate (with the Europeans) but ... we're left with no choice but to move forward to meet the Oct. 1 deadline.''
``What we're trying to do is avoid a trade war. We're behaving responsibly,'' the official insisted. ``If there's to be one, it will be in their hands, not ours.''
European authorities are believed to be developing a list of $26 billion of American products, or 17 percent of U.S. exports to EU member countries, that would be targets of retaliatory sanctions, according to the European American Business Council.
The proposed legislation would bring the U.S. tax system closer to those in several European countries. By expanding the class of U.S. companies that could benefit from tax breaks, it would cost American taxpayers $300 million more a year than the current system, experts estimate.
http://waysandmeans.house.gov/fullcomm/106cong/fsc/hr4986.pdf