Mar/Apr 04
Bills have been reported out of both the Senate Finance (S. 1637) and House Ways and Means (H.R. 2896) Committees that would repeal the extraterritorial income (ETI) regime and implement tax relief aimed at domestic manufacturing as well as other pro-growth changes. While neither of these bills is perfect, quick resolution of remaining issues and floor passage is necessary to comply with the WTO rulings and avert EU retaliation.
Since 1997 when the European Union (EU) challenged foreign sales corporations as an illegal export subsidy under World Trade Organization (WTO) rules, and the WTO ruled in 2000 in favor of the EU, the United States repealed the FSC rules and replaced them with the extraterritorial income (ETI) regime. The EU immediately challenged the ETI regime as insufficient, and the WTO agreed in a final 2002 ruling. A WTO arbitration panel issued an August 30, 2002 report authorizing the EU to impose more than $4 billion in annual, retaliatory sanctions. The EU this spring finalized a retaliation list, including approximately $4 billion in U.S. products. Effective March 1, the EU began imposing a 5 percent additional tariff on 44 categories of U.S. exports. Unless the ETI is repealed, the EU plans to raise tariffs on the covered products by 1 percentage point per month, until the tariffs reach 17 percent. If left in place, the sanctions would add $666 million in additional tariffs to covered products by March 1, 2005. The EU has said it will not
actually impose any sanctions until 2004, but is expected to do so beginning this month if the United States has not come into compliance.
Ways and Means Committee Chair Bill Thomas (R-CA) has reintroduced his FSC/ETI and corporate tax reform bill
as H.R. 3967. The bill includes new revenue raisers that bring down the cost of the bill to about $4 billion over ten years. Included among the new “pay-fors” is a modified version of the Treasury Department’s “SILO” proposal to ban “sales-in-lease-out” agreements purported to be tax shelters. The new provision provides a $20 billion
offset over 10 years. The House will soon consider the American Jobs Creation Act (H.R. 2896), legislation
that complies with our World Trade Organization (WTO) obligations by replacing the ETI tax regime (successor
to the FSC) with a manufacturing tax deduction, as well as a number of international and domestic tax reforms.
This bill contains sensible pro-growth policies that will benefit U.S. manufacturers of all sizes. The House of Representatives should debate and pass this legislation as soon as possible.
Before leaving for the recess, Majority Leader Bill Frist (R-TN) confirmed that the JOBS bill, S. 1637, would be the “first order of business” when the Senate returns on March 22. Senator Frist is expected to begin procedural maneuvers to force a cloture vote unless an agreement is reached to limit any additional amendments to only those that are germane. The Senate on March 3 began debate and votes on S. 1637, the Jumpstart Our Business Strength (JOBS) Act. S. 1637 is a fair, balanced bill that complies with our World Trade Organization (WTO) obligations by
replacing the ETI tax regime (successor to the FSC) with a manufacturing tax deduction, as well as a number
of international and domestic tax reforms.S. 1637 contains sensible, pro-growth policies that will benefit U.S. manufacturers of all sizes. It is important to our manufacturers and to economic growth that we end the EU sanctions as soon as possible. S. 1637 keeps the process moving and brings us closer to ultimate compliance with WTO rules in a way that keeps our companies competitive.