US Makes Comforting Noises On FSC Problem

by Mike Godfrey, Tax-News.com, Washington

03 May 2002

US pro-business lobby, the National Foreign Trade Council, yesterday released details of a proposal that could resolve the 'Foreign Sales Corporation' tax spat between the US and the EU. Tax breaks for US exporters of up to US$5bn under the FSC have been ruled illegitimate after a lengthy series of WTO hearings, and the EU is about to retaliate with trade sanctions.

The proposal would provide a similar level of tax benefit but to a larger group of companies. Stuart Eizenstat, the Clinton Administrations deputy treasury secretary who was involved in Clinton-era attempts to resolve the dispute, helped draw up the new proposal. He said the plan represented an overhaul that would hurt some companies and help others: "No one can consider this as tinkering," he said, referring to EU criticisms of previous reform proposals.

The proposal came as US and EU leaders met in Washington for high-level talks at which the FSC dispute was one agenda item. After meeting European leaders at the White House, President Bush said his administration would begin overhauling the tax breaks for US exporters, and a senior EU official said later: "This is clearly a strong signal by the president that he is stepping into the compliance process; there is a commitment to establish a roadmap."

But Congressional leaders warned Pascal Lamy, the EU's Trade Commissioner, that any change to US tax laws to comply with the WTO ruling would require a long legislative process that would carry well into next year. Bill Thomas, chairman of the House Ways & Means Committee, is developing a list of options and planning further hearings on alternative approaches. "There are many, many options because there is no easy fix," said one of his assistants.

Mr Lamy warned in return that the EU would have to see signs of progress if it was to hold back on the imposition of sanctions, which it would be legally entitled to impose in just two months' time.

Recommended