Copyright 2000 The Seattle Times Company
The
Seattle Times
November 2, 2000, Thursday Second Edition
SECTION: ROP ZONE; Business; Pg. C1
LENGTH: 637 words
HEADLINE:
Exporters 'dodge a bullet'
Revised trade subsidy worth millions to Boeing,
Microsoft
BYLINE: Seattle Times news services and
business staff
DATELINE: Washington
BODY:
WASHINGTON -- The Senate yesterday passed a
tax break for U.S. exporters that's designed to avert a threatened trade war
with the European Union, but House leaders said they wouldn't go along, despite
an EU deadline of midnight.
The Senate unanimously approved by voice
vote a bill repealing the so-called Foreign Sales Corporation tax system (FSC)
and replacing it with a plan that broadens the tax benefit for companies that
sell abroad, such as Microsoft and Boeing.
The World Trade Organization
last year ruled that the system amounted to illegal trade subsidies, and the EU
set yesterday as the deadline for Congress to pass legislation to revise U.S.
laws.
The revised subsidy is part of a larger 10-year,
$240 billion tax-relief package that is being delayed in the
Senate for unrelated reasons and has drawn a veto threat from President Clinton.
House Majority Leader Dick Armey, R-Texas, told reporters that House Republicans
favor holding firm on the entire tax measure rather than moving individual
pieces, even if Congress takes a break until mid-November for next week's
election.
Sen. Daniel Patrick Moynihan of New York, senior Democrat on
the Senate Finance Committee, said if Congress did not pass the export-tax
legislation before adjourning for the year, it could result in
$4 billion in retaliatory tariffs from the Europeans.
"It had the potential for a ruinous trade war," Moynihan said. "We have
just dodged a big bullet."
That's not necessarily true. Even if a
lame-duck Congress were to gather again after the election and pass the reform
measure, there's no guarantee the EU would accept the plan.
"It's very
clear that what's in the draft legislation before Congress, the House and the
Senate on FSC is not, as we see it, WTO compliant," EU trade commissioner Pascal
Lamy said yesterday.
The legislation, costing taxpayers
$4.5 billion over 10 years, would replace the FSC law
invalidated by the WTO, which provides tax breaks for more than 6,000 U.S.
companies operating offshore sales subsidiaries.
Under the 16-year-old
law, Boeing, Microsoft and other big exporters were allowed to set up an
offshore subsidiary in, for instance, the U.S. Virgin Islands, that acts as an
agent for export sales.
The parent company could then exempt up to 15
percent of export earnings from U.S. income taxes. Tax breaks for the FSCs would
be worth more than $15 billion over the next five years,
according to congressional estimates.
In one concrete example, Boeing
saved $130 million in 1998, about 10 percent of its profit,
according to its annual report.
The FSC program was designed to offset a
European Union tax rebate given to European companies for products sold
overseas. Under the reform legislation, the United States would exclude certain
categories of foreign-source income from U.S. taxation.
Unlike the FSC,
companies would receive the benefits directly, rather than through offshore tax
havens.
The measure is a top priority for the Clinton administration and
has broad bipartisan support, but for weeks it was blocked by a handful of
Democrats--Sens. Richard Bryan of Nevada, Paul Wellstone of Minnesota and Ernest
Hollings of South Carolina among them. They had objected to extending the
export-tax breaks to such industries as drug makers, tobacco companies and
defense contractors.
The larger $240 billion tax bill
pending in the Senate faces an uncertain future, especially with the priority
export-tax provision moving separately.
If agreement is not reached to
bring up the bill for debate, Lott said he would seek a vote, probably today, to
cut off the filibuster.
Information from Seattle Times business
columnist Stephen H. Dunphy, The Associated Press, Bloomberg News and Reuters
was used in this report.
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December 4, 2000 
