[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.
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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
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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.
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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
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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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