[Congressional Record Volume 150, Number 97 (Wednesday, July 14, 2004)]
[House]
[Pages H5672-H5675]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




   URGING THE PRESIDENT TO RESOLVE THE DISPARATE TREATMENT OF TAXES 
                PROVIDED BY THE WORLD TRADE ORGANIZATION

  Mr. ENGLISH. Mr. Speaker, I move to suspend the rules and agree to 
the resolution (H. Res. 705) urging the President to resolve the 
disparate treatment of direct and indirect taxes presently provided by 
the World Trade Organization.
  The Clerk read as follows:

                              H. Res. 705

       Whereas the World Trade Organization does not permit direct 
     taxes, such as the corporate income tax, to be rebated or 
     reduced on exports;
       Whereas indirect taxes, such as a value added tax, can be 
     and are rebated on exports in other countries;
       Whereas the distinction by the World Trade Organization 
     between direct and indirect taxation is arbitrary and may 
     induce economic distortions among nations with disparate tax 
     systems; and
       Whereas United States firms pay a high corporate tax rate 
     on their export income and many foreign nations are allowed 
     to rebate their value added taxes, thereby giving exporters 
     in nations imposing value added taxes a competitive advantage 
     over American workers: Now, therefore, be it
       Resolved, That the President--
       (1) within 120 days after the convening of the 109th 
     Congress, and annually thereafter, should report to Congress 
     on progress in pursuing multilateral and bilateral trade 
     negotiations to eliminate the barriers described in section 
     2102(b)(15) of the Trade Act of 2002; and
       (2) within 120 days after convening the 109th Congress, 
     should report to Congress on--
       (A) proposed alternatives to the disparate treatment of 
     direct and indirect taxes presently provided by the World 
     Trade Organization; and
       (B) other proposals for redressing the tax disadvantage to 
     United States businesses and workers, either by changes to 
     the United States corporate income tax or by the adoption of 
     an alternative, including--
       (i) assessing the impact of corporate tax rates,
       (ii) a system based on the principal of territoriality, and
       (iii) a border adjustment for exports such as is already 
     allowed by the World Trade Organization for indirect taxes.

  The SPEAKER pro tempore. Pursuant to the rule, the gentleman from 
Pennsylvania (Mr. English) and the gentleman from Michigan (Mr. Levin) 
each will control 20 minutes.
  The Chair recognizes the gentleman from Pennsylvania (Mr. English).
  Mr. ENGLISH. Mr. Speaker, I yield myself such time as I may consume.
  I am pleased to bring House Resolution 705 before the House today. It 
was introduced last week and it is being brought forward with 
considerable urgency because, Mr. Speaker, while this may not be the 
first time that we have discussed the issue of competitive trade 
disadvantage on the floor of the House that U.S. companies are facing, 
this may be the time that we are most clearly focusing on the 
contribution to that problem created by the American tax system.
  The fact that our trade deficit is more than $500 billion 
demonstrates that the economic engine of American exports has 
experienced a slowdown. In order for us to revive our economy and to 
have long-term growth, the substantial trade imbalance that we now are 
experiencing, 5 percent of our economy, representing our trade deficit, 
has to be corrected.

                              {time}  1200

  Mr. Speaker, Congress and the administration need to push our trading 
partners to adjust the rules to level the playing field for American 
workers and American companies; and today's resolution helps do that by 
focusing on the disadvantage actually built into the

[[Page H5673]]

World Trade Organization rules, a disadvantage imposed upon our Tax 
Code, allowing our competitors what amounts to a $120 billion advantage 
over American companies.
  For the past 30 years, the WTO has said that, while the EU members 
and other trading partners can and do exempt from tax their exports to 
the U.S., we must fully tax our exports to them. As our manufacturers 
and other critical industries begin to recover from the recession, it 
is imperative that we address this inequity. Otherwise, we risk 
undermining one of the key drivers of economic growth, our export 
sector, and we also put at risk those companies that are competing 
within our domestic market by fostering upon them a significant 
competitive disadvantage.
  Right now, WTO rules recognize the U.S. corporate income tax to be a 
so-called direct tax. Under the WTO rules, so-called ``indirect 
taxes,'' value-added tax or retail sales tax or any other consumption-
type tax, can be rebated on exports going out from the home country and 
imposed on imports coming in from foreign countries, but such 
adjustments cannot be made for direct taxes when goods and services 
cross international borders.
  This is a distinction that has no grounding in economic reality and 
simply puts us at a competitive disadvantage. It is a crucial inequity 
for U.S. taxpayers and producers. Confronting it head on will go a long 
way to boost American competitiveness in the global market. That is why 
the resolution before us declares that this distinction is arbitrary 
and it results in a competitive disadvantage for businesses and works 
with a border-adjustable system, such as all value-added tax systems.
  Looking to the future, this resolution should serve as a roadmap for 
reforming our international tax rules to allow U.S. products to compete 
in the global marketplace. This should be done in a way that exports 
American goods and services, not American jobs.
  The resolution asks the President to report to Congress on two 
matters within 120 days of the convening of the 109th Congress. As 
required by the Trade Act of 2002, the United States Trade 
Representative is charged with considering how to eliminate trade 
barriers put up by the U.S.'s direct tax system in pursuing trade 
negotiations. Thus, first, the resolution asks for the President to 
provide a progress report on these barriers and how they can be 
eliminated. Second, it resolves that the President should report on 
proposed alternatives to the disparate treatment of the direct/indirect 
distinction as well as domestic proposals redressing the taxes 
disadvantage to the U.S.
  Under the resolution, the President is asked to consider the impact 
of reducing the corporate rate, of implementing a territorial tax 
system, as well as the impact of a border-adjustable system as already 
allowed under the WTO rules. A comprehensive report on the issues would 
be an enormous help to the Congress and to any administration in 
putting into bold relief the improvements needed to international tax 
rules as well as our tax system as it stacks up against the systems of 
the rest of the world.
  The reason we must look at this issue more deeply is because it 
impacts on our economy in such a fundamental way. While we are 
certainly in a period of robust economic recovery, there is more we can 
do to sustain long-term growth. As evidenced by the $550 billion trade 
deficit I referenced earlier, we have become a Nation of importers. We 
need once again become a Nation of exporters; and as a Nation of 
exporters, we would see a thriving job market and a thriving 
manufacturing sector.
  In the absence of some kind of border tax adjustments for exports of 
American-made goods to correspond to the export rebates under VAT 
systems, there will continue to be a disincentive to produce goods in 
the United States. In effect, our tax system is creating all of the 
incentives to send our good-paying jobs offshore. This must be 
corrected, and this resolution is a step in the right direction.
  Mr. Speaker, I reserve the balance of my time.
  Mr. LEVIN. Mr. Speaker, I yield myself such time as I may consume.
  Mr. Speaker, I rise in support of this resolution. It cannot do any 
harm. But I am not at all sure how much good it can possibly do.
  I want to review very briefly what has happened with this issue over 
the years. We had a system in place. It was ruled illegal under GATT. 
We then decided we would replace it with what became known as FSC, a 
famous term now. That resulted from a series of negotiations or 
discussions with the Europeans, and we thought everybody understood 
that, that new system that we had incorporated would go without 
challenge. And it did so for a number of years. Then the European Union 
decided to challenge our FSC system, I think contrary to the mutual 
understanding that we had.
  I had always believed, and there is some evidence to support, that 
the reason they did so was really to gain leverage on other issues. 
But, be that as it may, the FSC system, as we all know, was ruled 
contrary to the rules of the WTO, and then they authorized sanctions, 
and those are now in effect.
  When the WTO ruling came up, it was the feeling of many of us, 
actually, before that, that the best answer to this was to have 
negotiations within the WTO. And we urged the USTR Rep, our Ambassador, 
to try to resolve this through WTO negotiations rather than the 
litigation that occurred. I am not sure that effort ever was taken very 
seriously, and the WTO ruling and the sanctions did occur.
  We also urged the USTR on several occasions, as I remember it, to try 
to put forth a proposal for discussion in the Doha Round that would 
resolve this issue, and there seemed to be some resistance to this. 
Eventually, the U.S. Government did table a provision, a proposal, 
within the WTO. As far as I have read, it has not been very vigorously 
pursued, and it is essentially, as I understand, if not dormant, not 
very much on the front burner.
  So here we are. I think there has been a failure of sufficient 
aggressiveness by the USTR over these years to really try to adequately 
protect the FSC system. Now it said let us have a report. Let us have a 
report with a mandated time for submission. And I guess, as I said at 
the beginning, that cannot do any harm and maybe will do a bit of good.
  However, I want it to be clear that in supporting this resolution 
that we are not giving our imprimatur to any particular alternative 
that is named in this resolution. The assessment of the impact of 
corporate tax rates, I am all in favor of that. I do not want any 
implication as to what we might do. A system based on the principle of 
territoriality, the administration has had over 3 years to propose such 
a system. It is very controversial, and they never have formally come 
up with this, although there have been hints of this. And a border 
adjustment for exports such as already allowed by the WTO for indirect 
taxes, I think that is worthy of study.
  So, in a word, I think support of this is okay. I think, though, what 
we are going to need in the days and years ahead is not simply reports 
but some real action.
  Mr. Speaker, I reserve the balance of my time.
  Mr. ENGLISH. Mr. Speaker, I yield myself such time as I may consume.
  First of all, I want to thank the gentleman for his statement because 
I can associate myself honestly with a good bit of the analysis that he 
has provided, and I also want to congratulate the gentleman because I 
know that he understands to an extent that many people who have not 
debated trade policy do understand that one of the reasons why we are 
in a competitive disadvantage is the design of our tax system, and I 
quite agree with him.
  What we are putting forward in this resolution is not an endorsement 
of a particular tax system. What we are doing is putting the WTO on 
record that we want to change the standard, that we are going to insist 
on changing the standard. We are also putting the WTO on record that we 
are determined to make our tax system internationally competitive once 
more.
  Through all of the debates on our trade deficit and the problems that 
we have had in the current international trading system, too little of 
the focus has been put on the disadvantages that we impose on 
ourselves, on our workers and our producers, because of the design and 
the level of American taxes. I will in my closing remarks give some 
specific examples.
  But I again want to congratulate the gentleman for getting the gist 
of what

[[Page H5674]]

we are doing and supporting it and giving it a strong bipartisan push, 
because I think it is important for our trading partners in the WTO to 
see that this resolution is coming out of the House with strong 
support.
  This is, in my view, an extremely strong resolution. This is a strong 
statement of policy. And I think that, although the gentleman makes I 
think a credible point, that there has been a need for stronger 
leadership on this point. It has not been specifically this 
administration but actually a series of administrations that have not 
been willing to take on this very difficult challenge directly. We need 
fundamental international tax reform if we are going to remain 
competitive.
  Mr. Speaker, I reserve the balance of my time.
  Mr. LEVIN. Mr. Speaker, I yield myself such time as I may consume. I 
will close briefly.
  This is the third bill in a row where there has been talk again about 
bipartisanship, and I suppose that is supposed to be the mantra of the 
day. As I said earlier on those two bills, the problem in this 
institution has been bipartisanship if it suited the majority and they 
felt we would agree with their proposal. But when it comes to issues 
where there is some legitimate disagreement or different points of 
view, that bipartisanship does not prevail.
  Mr. Speaker, on this issue there was a bipartisan effort to address 
the FSC issue. The gentleman from Illinois (Mr. Crane), who is on the 
floor; the gentleman from Illinois (Mr. Manzullo); the gentleman from 
New York Mr. Rangel; and I had a bipartisan proposal. And here we are 
many, many months later. All that this House has done is to pass a bill 
that really was not a bipartisan bill, and many of us had many 
objections to it. So there we had a wonderful chance to be bipartisan 
to address a problem in our tax structure and to do it to try to help 
manufacturing in this country.

                              {time}  1215

  Instead, that opportunity was squandered; and here we are many, many 
months later without a bill that will replace FSC.
  So in a word, I just want to say words of bipartisanship are fine. 
Concrete efforts to achieve it are really what is necessary, and this 
resolution is not going to have much impact unless we try to rebuild 
the bipartisan basis for trade policy that has been undermined these 
last 3 years.
  Mr. Speaker, I reserve the balance of my time.
  Mr. ENGLISH. Mr. Speaker, it is now a great privilege to yield 2 
minutes to the distinguished gentlewoman from Connecticut (Mrs. 
Johnson), a strong advocate of fair trade for American workers.
  Mrs. JOHNSON of Connecticut. Mr. Speaker, I thank the gentleman for 
yielding me time, and I thank the gentleman for bringing this 
resolution to the House floor.
  Direct and indirect subsidies are an extreme problem in creating not 
only a free trading community across the world but a fair trading 
community. And while we have struggled mightily to comply with the 
World Trade Organization's requirement that we repeal a good and 
significant piece of the tax law governing American companies' earnings 
abroad, we have found that very difficult to do because there are so 
many ways in which our competitors do help support their companies and 
effectively reduce their companies' costs in the world trading 
community through their tax structures.
  So while this resolution focuses on tax issues between the United 
States of America and particularly the European Union in a way that I 
think is very productive and needed to set the stage for the next round 
of reform, I also want to mention just a few of the kinds of subsidies 
that the Europeans particularly are using and that for some reason are 
not being attacked by either our Trade Representative or seen as a 
problem under the World Trading Organization.
  If you listen to the Europeans, they directly set out to increase 
their market share of the aerospace industry. They have done so by 
buying themselves a more competitive position. There are many, many 
little things they do that are together, powerful. For example, they 
provide very generous loans to their aerospace producers, that only 
have to be repaid as planes were sold; and if the right number of 
planes were not sold, then, of course, the loan was never repaid, and 
it was effectively a grant, which is illegal under the GATT 
arrangements.
  So this effort to look at both direct and indirect subsidies and the 
complexity of the tax subsidies different parts of the world are 
providing to their manufacturers in a very competitive global economy 
is something I commend, and I thank the gentleman for his leadership.
  Mr. LEVIN. Mr. Speaker, I yield myself such time as I may consume.
  Mr. Speaker, I will just say something briefly. Look, I am all in 
favor of this study, but I do not want to make this unduly complicated. 
We had a chance going back many, many months to pass some legislation 
here that would address the specific problem facing us because of the 
WTO decision on FSC. We had the concrete opportunity to do something 
very specific on a bipartisan basis. That never was given a really fair 
chance on the floor of this House. I do not think that this resolution 
should mask the fact that here we are so many, many months later and 
that issue is not resolved.
  We have an obligation not only to ask for studies, but to act, and 
this institution has not acted. The President had a chance very early 
on to come out in support of the bill that the four of us introduced 
that would have resolved the FSC problem within WTO rules and would 
have assisted manufacturing in the United States of America. That 
opportunity was lost, and we are just now in the quagmire of a bill 
that does not cost $4 billion a year, but has a price tag of, what, 
$150 billion over the time period.
  So, let us study. Let us also act.
  Mr. Speaker, I yield back the balance of my time.
  Mr. ENGLISH. Mr. Speaker, I yield myself the balance of my time.
  Mr. Speaker, let me say that I agree with the gentleman that there is 
a great need for bipartisanship right now in our trade policy if, in 
fact, we are going to reverse the tide and put American companies and 
American workers on a competitive level playing field that will allow 
us to build the 21st-century economy we need to create good-paying jobs 
for young people.
  That is something that should not be a partisan issue. That is 
something that should unite us, because many of its components cut 
across philosophical lines.
  As we will see today in some of the later trade votes, there is a 
great deal of bipartisanship still in the approach to trade policy. The 
gentleman is raising an important point that perhaps there should be 
more bipartisanship. But the fact is, the fact that we have had genuine 
philosophical disagreements on the FSC bill should not mask the fact 
that this resolution is enormously significant for American workers and 
for American companies.
  I would like to demonstrate to the American public how dramatic an 
impact this is. I come from Erie County, Pennsylvania; and we make 
things for a living. We have the biggest concentration of manufacturing 
jobs still in the State. Much of what we make is actually for export. 
As a result of that, any small competitive disadvantage puts our 
workers and our companies at a significant disadvantage in the global 
marketplace. We cannot be dealing ourselves these sorts of large, 
substantial disadvantages.
  Let us understand exactly what kind of disadvantage is being dealt to 
our producers as a result of a trading system which is not adjustable. 
This is a study that was done by the U.S. Council For International 
Business. It demonstrates on balance the comparative disadvantage of 
American products, both in our market and in foreign markets, as a 
result of not having a border-adjustable tax system.
  In the United States, because in the U.S. we have the price of our 
tax system built into products, a product that has that price in it 
may, for argument's sake, cost $100. The same product, if it is 
produced to cost $100 in China, because there is a rebatable VAT tax, 
comes into our market costing only $88.89, plus the cost of 
transportation. All things being equal, if it is the same price there 
and the same price here, we are at a significant competitive 
disadvantage just because of the taxes.
  At the same time, a product coming in from Germany that would cost 
$100

[[Page H5675]]

in Germany comes into the United States without the VAT included, 
without the price of their tax system included, lands in the United 
States, and it amounts to $86.21, competing with the product in the 
United States that costs $100. That is a significant wedge when it 
comes to manufactured products, where small price differences and small 
profit margins are what govern.
  But what happens if we try to export from the United States to 
Germany? A product that costs $100 in the United States and $100 in 
Germany goes out of the United States with the price of our tax system 
built in, and then has imposed on it that additional VAT in Germany. So 
it costs $116 in Germany, competing with the same product that costs 
$100 in Germany. In that respect, Germany has a big advantage in 
competing with American products that they import. Their domestic 
producers have, in effect, a tax subsidy.
  Look at what happens if we try to sell the same product in Germany 
and compete with the same product coming in from China. We send it in, 
it costs $116, but the Chinese export it to Germany, and it only costs 
$100.87. Why is it? It is because in their market, our pricing of our 
product has to include not only the price of our tax system, but 
theirs. It is double taxation.
  When their product comes into our market, our product still carries 
the price of our tax system, but theirs has been rebated away. So, in 
effect, it is a tax subsidy, a standing tax subsidy that double taxes 
our products in foreign markets and frees imports from carrying their 
fair share of the tax burden. That is not fair. That is a tax 
differential that we can no longer afford to look the other way at.
  This has been a disadvantage that we dealt ourselves back in the 
1940s, and it has taken us this long. It is not this administration; it 
has taken us this long to come head to head with this problem.
  The time has come for us to put the World Trade Organization on 
notice that we are going to insist on tax fairness, that we are going 
to insist on a level playing field. And that is not the only thing we 
need to do. There is no single silver bullet in leveling the playing 
field for fair trade, but this is one thing that has to happen. This 
needs to be the beginning of a much broader trade agenda that allows us 
to level the playing field, to insist on fairness, and to insist on 
apples-to-apples competition if we are going to have a strong 
international trading system.
  I urge my colleagues, in the bipartisan spirit that my colleague 
raised, to support the resolution, to support this legislation, to put 
America on record as moving forward in this area and insisting on a 
change in terms of trade.
  Mr. SAM JOHNSON of Texas. Mr. Speaker, I rise today in support of the 
resolution by Mr. English that would direct the President to report to 
Congress on the progress he is making at the WTO to ensure other 
nations do not dictate the American tax system.
  We have had a long debate over the repeal of the FSC-ETI tax rules 
because the WTO determined that tax system to be an ``illegal export 
subsidy.''
  I disagree with this characterization and have worked hard to find an 
acceptable alternative tax system.
  In the trade act of 2002 we directed the President to begin these 
discussions and I want to see some results soon or at least, as this 
resolution calls for, to hear a report on the status of those efforts.
  The ``ways and means'' of taxing Americans is primarily within the 
jurisdiction of this body of Congress and should not be forced on us by 
a few foreign bureaucrats based in Brussels.
  Mr. ENGLISH. Mr. Speaker, I yield back the balance of my time.
  The SPEAKER pro tempore (Mr. Putnam). The question is on the motion 
offered by the gentleman from Pennsylvania (Mr. English) that the House 
suspend the rules and agree to the resolution, H. Res. 705.
  The question was taken.
  The SPEAKER pro tempore. In the opinion of the Chair, two-thirds of 
those present have voted in the affirmative.
  Mr. ENGLISH. Mr. Speaker, on that I demand the yeas and nays.
  The yeas and nays were ordered.
  The SPEAKER pro tempore. Pursuant to clause 8 of rule XX and the 
Chair's prior announcement, further proceedings on this motion will be 
postponed.

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