[Congressional Record Volume 146, Number 20 (Tuesday, February 29, 2000)]
[Senate]
[Pages S968-S969]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




          WTO APPELLATE DECISION ON FOREIGN SALES CORPORATIONS

 Mr. BAUCUS. Mr. President, I rise today to address a very 
serious development in foreign trade. It is a development which hurts 
American interests. It has been brewing for quite some time, and it 
finally came to a head last week in Geneva. A World Trade Organization 
(WTO) appeals panel ruled against us in a case the European Union 
brought against American tax law.
  The ruling was not a complete surprise. A few months ago, the WTO 
ruled that our laws for Foreign Sales Corporations, usually known as 
FSC's, are illegal export subsidies. We appealed that decision. We lost 
the appeal. The WTO said that we have until October 1 of this year to 
come into compliance with the ruling.
  Why is the WTO dealing with this case to begin with? Why isn't it 
sticking to its mandate, which is international trade, and stay out of 
tax matters?
  The EU brought this case to the WTO 2 years ago. In doing so, Europe 
broke an agreement with us that dates back to 1981. Congress passed the 
FSC in 1984. I remember very well all the work that we put into 
crafting the rules to place U.S. exports on a more equal footing with 
European competition. In crafting the rules, we relied on that 1981 
understanding with the EU. It confirmed that foreign source income need 
not be taxed, and that failing to tax such income is not a subsidy. 
European exporters are not taxed on such income, and they enjoy value 
added tax rebates on exports as well.
  This case is just another step in a European Union campaign which 
undermines the world trading system.
  We saw it very clearly last year in the run-up to the Seattle 
ministerial. EU leaders tried in every way they could to avoid coming 
to the table to talk seriously about their number one problem: 
agriculture.
  First, they started a public relations campaign to downplay 
expectations. In a number of meetings, they hinted that the Seattle 
talks would probably fail. Second, they tried to overload the 
negotiating agenda. They wanted to turn the trade talks into such a 
complex undertaking that we would never get to the real problem: EU 
agriculture. Third, they stalled in Geneva, so there wasn't any 
agreement on the scope of agriculture talks in Seattle. In 1995, they 
agreed to start agriculture talks in January 2000. But they wanted to 
put off getting down to business for as long as possible.
  They are still trying to put it off. Putting it off hurts American 
farmers and agro-business. Putting it off hurts developing countries. 
Putting it off even hurts Europe itself in the long term. It just 
undermines confidence in the world trading system.
  This FSC case makes things worse. Let's be very clear on what's going 
on here. We can set aside the European rhetoric about ``respecting 
international obligations'' in tax policy. That's not what this case is 
about. If the EU were serious about ``respect for international 
obligations,'' it would take a close look at the tax policies of its 
members. This case is not about respecting international obligations.

  This case is not about tax policy. If the EU were seriously concerned 
about the trade effects of tax policy, it wouldn't file a case in the 
World Trade Organization. That's no way to fix an international tax 
problem. Instead, it would seek multi-party talks in an organization 
like the OECD or the UN. But the EU doesn't really care about tax 
policy in this case.
  This case is not even about money. The EU has no real commercial 
interest at stake here. They haven't demonstrated any appreciable 
adverse impact on European companies from US tax laws. In fact, a 
number of European companies benefit from FSC! They have domestic 
subsidiaries in the United States, and these subsidiaries have set up 
Foreign Sales Corporations.
  So what is this case about? It's about revenge. Pure, simple revenge. 
The Eurocrats want revenge for losing WTO disputes with the United 
States over bananas and beef. That's an open secret. Everyone knows 
where this case came from. It didn't come from European manufacturers 
facing unfair competition from US firms because of FSC. It didn't come 
from European banks. Or from European consumers. Or from European 
farmers. It didn't come from the members states. It came from EU 
bureaucrats, the gnomes of Brussels.
  They were angry over losing the beef and banana disputes with the 
United States. The cases were long and hard. They took years. The EU 
fought us all the way. They lost at every turn, because we were in the 
right. When they refused to correct their illegal policies, the WTO 
authorized us to retaliate legally. And we did.
  For revenge, the Eurocrats wanted to poke us in the eye, and show us 
that they could hurt us. So they took this case, which had been sitting 
on their shelf for years. They dusted it off and sent it to the WTO, 
despite our 1981 agreement with them on tax policy.
  Well, they're playing with fire. Using the WTO as an instrument of 
revenge is dangerous for them, and dangerous for us. The WTO is a five-
year old child. Its

[[Page S969]]

dispute settlement system is still young and fragile. The FSC case 
strains its resources, which are limited. But more important, the FSC 
case strains the political acceptability of the WTO system.
  The political leaders of the EU should not have let this case go 
forward. It was a bad judgement on their part. Now it is in their 
interest and in the interest of the world trade system for them to 
settle this case amicably and fast. It will take wisdom and courage for 
them to do so. I hope they find that wisdom and courage.

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