[Congressional Record Volume 146, Number 108 (Thursday, September 14, 2000)]
[Extensions of Remarks]
[Pages E1480-E1481]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




     FSC REPEAL AND EXTRA-TERRITORIAL INCOME EXCLUSION ACT OF 2000

                                 ______
                                 

                               speech of

                            HON. MARK UDALL

                              of colorado

                    in the house of representatives

                      Tuesday, September 12, 2000

  Mr. UDALL of Colorado. Mr. Speaker, I rise in opposition to this 
bill. It is problematic for a number of reasons. First, it does not 
address concerns laid out clearly in a letter to Deputy Secretary 
Eizenstat I signed in April along with 31 of my colleagues. I am 
attaching a copy of that letter.
  In the wake of the WTO's adverse decision on Foreign Sales 
Corporations, we urged the Administration--as it fashioned its response 
to the WTO decision--to resist efforts to increase benefits for 
military arms sales. After all, if the U.S. is serious about leading 
the world into a peaceful future, we should be promoting arms control--
not increasing subsidies for defense contractors so that they can 
promote the conventional arms race. But this bill does just what we 
urged the Administration not to do--it would increase defense 
contractor subsidies.
  In addition, this bill continues export subsidies for tobacco, thus 
making it American policy to promote the sales of cigarettes all over 
the world.
  Mr. Speaker, these are serious issues deserving of serious debate. At 
a minimum, the bill should have been brought up under a rule for 
purposes of a thorough debate and consideration of amendments. This was 
especially necessary given the cost of the bill. At $1.5 billion over 
five years (in addition to the revenue that would be lost under FSC), 
this bill should have been more thoroughly discussed before being put 
to a vote.
  For these reasons, Mr. Speaker, I cannot support H.R. 4986 as it has 
been brought before the House.

                                Congress of the United States,

                                   Washington, DC, April 19, 2000.
     Hon. Stuart E. Eizenstat,
     Deputy Secretary of the Treasury,
     Washington, DC.
       Dear Secretary Eizenstat: In your position as the lead 
     Administration official charged with implementing an 
     acceptable response to the adverse World Trade Organization 
     (WTO) decision on Foreign Sales Corporations (FSC), we urge 
     you to resist all efforts to increase benefits for military 
     arms sales. Indeed, the existing benefits should actually be 
     narrowed.
       The current limitation on this benefit, as contained in 26 
     USC Sec. 923(a)(5), provides that the normal FSC benefit is 
     reduced by 50% for sales of certain military property, 
     defined by Treasury as, ``an arm, ammunition, or implement of 
     war.'' Specific covered military property is listed on the 
     U.S. Munitions List (22 CFR 121), as provided for by the Arms 
     Export Control Act (22 USC Sec. 2778).
       Firmly believing that our nation should be providing more 
     leadership for effective arms control policies, we seek your 
     help to avoid additional subsidies with federal taxpayer 
     monies to promote the conventional arms races that plague our 
     planet. We should be promoting arms control, not arms sales.
       The complicated legislative history of the FSC provision 
     does show that it was intended to help U.S. companies to 
     compete overseas. However, according to the Congressional 
     Research Service, in 1997, the United States enjoyed a 44% 
     share of the world market for arms while Great Britain, its 
     nearest competitor, had 17%. In 1998, the United States led 
     in new arms deals with $7.1 billion, followed by Germany at 
     $5.5 billion. Even the Defense Department has touted the 
     world market dominance by U.S. companies, writing in 1994:
       ``The forecasts support a continuing strong defense trade 
     performance for U.S. defense products through the end of the 
     decade and beyond. In a large number of cases, the U.S. is 
     clearly the preferred provider, and there is little 
     meaningful competition with suppliers from other countries. 
     An increase in the level of support the U.S. government 
     currently supplies is unlikely to shift the U.S.

[[Page E1481]]

     export market share outside a range of 53 to 59 percent of 
     worldwide arms trade.''
       In 1976, Congress decided to reduce the benefit for 
     military sales in half, establishing a 50% limit on tax 
     benefits. In fact, the Senate provision would have eliminated 
     it altogether for military goods, ``unless it was determined 
     that the property is competitive with foreign-manufactured 
     property,'' and the House provision would have terminated 
     benefits for military sales, ``except if the products are to 
     be used solely for nonmilitary purposes.'' A report from the 
     Joint Committee on Taxation at the time shows that Congress 
     was very concerned with the revenue cost of this program. To 
     increase this benefit now would cost federal taxpayers an 
     additional $2 billion over the next 10 years. This subsidy is 
     unnecessary. As Treasury's Office of Tax Policy wrote to the 
     Department of Defense in December, 1998:
       ``[W]e analyzed whether the defense industry receives any 
     benefits or subsidies from the U.S. government, particularly 
     any benefits or subsidies that are not generally available to 
     other industries. Our analysis indicates that the defense 
     industry does benefit from its special relationship with the 
     U.S. government, and the benefit is arguably greater now than 
     in years past . . .''
       On the question of doubling the FSC benefit to 100% for 
     military sales, Treasury wrote in August, 1999:
       ``We have seen no evidence that granting full FSC benefits 
     would significantly affect the level of defense exports, and, 
     indeed, we are given to understand that other factors, such 
     as the quality of the product and the quality and level of 
     support services, tend to dominate a buyer's decision whether 
     to buy a U.S. defense product.''
       In criticizing some of the continued largesse the defense 
     industry enjoys in our federal budget, the Congressional 
     Budget Office wrote in 1997:
       ``U.S. defense industries have significant advantages over 
     their foreign competitors and thus should not need additional 
     subsidies to attract sales. Because the U.S. defense 
     procurement budget is nearly twice that of all Western 
     European countries combined, U.S. industries can realize 
     economies of scale not available to their competitors. The 
     U.S. defense research and development budget is five times 
     that of all Western European countries combined, which 
     ensures that U.S. weapon systems are and will remain 
     technologically superior to those of other suppliers.''
       More recently, William D. Hartung, President's Fellow at 
     the World Policy Institute, wrote for the Cato Institute in 
     August, 1999, ``If the government wanted to level the playing 
     field between the weapons industry and other sectors, it 
     would have to reduce weapons subsidies, not increase them.'' 
     He continued, ``Considering those massive subsidies to 
     weapons manufacturers, granting additional tax breaks to an 
     industry that is being so pampered by the U.S. government 
     makes no sense.''
       Indeed, Mr. Secretary, it makes no sense. But what is much 
     more persuasive than the fiscal fairness arguments, is the 
     eloquent plea from advocates for peace, such as Oscar Arias, 
     the former Costa Rican president and Nobel Peace Prize winner 
     in 1987, who wrote last summer in the New York Times:
       ``By selling advanced weaponry throughout the world, 
     wealthy military contractors not only weaken national 
     security and squeeze taxpayers at home but also strengthen 
     dictators and human misery abroad.''
       By encouraging arms sales overseas, this subsidy actually 
     elevates the dangers abroad, thus creating more challenges to 
     the maintenance of our own ``military superiority;''--and of 
     course more pressure to increase the defense budget. We urge 
     you not to increase this unnecessary subsidy and to seek ways 
     to reduce the cost to taxpayers of subsidizing weapons 
     manufacturers.
           Sincerely,
         Lloyd Doggett, Lynn Wooolsey, George Miller, Pete 
           DeFazio, Bob Filner, Barbara Lee, Barney Frank, Jan 
           Schakowsky, John Tierney, Tammy Baldwin, Dennis 
           Kucinich, Cynthia McKinney, Jerrold Nadler, John Olver, 
           Bill Luther, Major Owens, Lynn Rivers, Jesse Jackson, 
           Jr., Tom Barrett, Edward Markey, Bernard Sanders, John 
           Moakley, Jim McGovern, Michael Capuano, Sherrod Brown, 
           John Conyers, Stephanie Tubbs Jones, Ted Strickland, 
           Pete Stark, Mark Udall, David Minge, Brian Baird.

           

                          ____________________