Remedial
US Legislation
Various
proposals were put forward to end the export subsidy
system, including various bills introduced in
Congress. One of these was the 'American Competitiveness
and Corporate Accountability Act' drawn up by
Republican chairman of the House Ways and Means
Committee, Bill Thomas in 2002. However, it was
felt by industry that the measures did not do
enough to compensate for the extra tax burden
which would be shouldered by US companies with
overseas interests. The bill was dropped after
a lobbying campaign by major corporations such
as Boeing and Caterpillar.
The
more popular Job Protection Bill, proposed by
House Ways and Means Committee members Charles
Rangel (a Democrat), and Philip Crane (a Republican)
offered to give firms tax "brownie points" whilst
also lowering the rate of corporate tax payable
on foreign earnings. The Job Protection Act of
2003 would have repealed the FSC/ETI tax program
and replaced it with a corporate rate deduction
for domestic manufacturers. This would have meant
that firms with 100% of their production based
in the US would see a 3.5% reduction in corporate
tax on export-generated profits to 31.5%. A sliding
scale would be introduced according to a firm's
ratio of domestic/international production.
“We all agree that we must repeal the FSC/ETI
exemption and replace it with a WTO-compliant
solution. The issue is how best to do it. Our
plan will bring US tax laws into compliance with
WTO rules, as well as provide incentives for domestic
job creation by US companies and foreign subsidiaries
operating in U.S. territory. That is a crucial
component to any good solution,” Crane said. “Any
revenues raised from the repeal of FSC/ETI should
be used to encourage companies to maintain and
expand their operations in the United States.
This bill is about protecting and creating jobs
and allowing US manufacturers to remain competitive
in the global marketplace.”
“The
United States need to comply with our international
commitments, but we should do so in a way that
preserves American jobs. If we want our nation
to be strong, we must remember the importance
of these three words: ‘Made in USA.’ The products
may change - today we produce more software and
high-tech machinery than textiles and stereos
- but keeping a healthy manufacturing base remains
vital to our national interest,” Rangel said.
The
composite tax-package legislation of May, 2003
also incorporated a short-term substitute for
the ETI legislation in the form of a provision
that reduces tax on the repatriated foreign earnings
of US corporations to 5.25% for a period of one
year. The bill also contained measures that will
allow US multinationals to more easily take advantage
of foreign tax credits.
The
European Union became impatient with the long-drawn-out
efforts in the US Congress to respond to the WTO's
banning of the FSC and ETI regimes and put in
place counter tariffs in March 2004 on a range
of US goods, starting at a rate of 5%. This was
designed to rise in 1% increments every month
until the EU became satisfied that appropriate
action had been taken by US lawmakers.
The United States had aimed to complete the replacement
legislation before the European Union imposed
the retaliatory tariffs. However the European
Union still objected to a proposed three-year
transitional period before the new legislation
came fully into force. "We have already waited
for three years to get the legislation repealed,"
Arancha Gonzalez, spokeswoman for EU Trade Commissioner
at the time, Pascal Lamy, observed at a news conference,
continuing: "an extra three-year period could
not be acceptable to us."
Chairman of the Senate Finance Committee Charles
Grassley refuted the EU's claim over the transitional
period, arguing that the new proposals removed
the obligation on a firm to physically export
goods before qualifying for the tax break. "I
would think the European Union would have some
appreciation for the extent of this undertaking
and show some restraint and patience," said the
Iowa Republican said. "The imposition of sanctions
now will only contribute to soften the economic
recovery and slow economic growth worldwide."
The
FSC and ETI regimes were finally abolished by
the American Jobs Creation Act 2004. See here
for an account of the Act and its consequences
in 2005.
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