[Congressional Record (Bound Edition), Volume 147 (2001), Part 9]
[Extensions of Remarks]
[Pages 12629-12630]
[From the U.S. Government Publishing Office, www.gpo.gov]



                 INSULAR AREAS OVERSIGHT AVOIDANCE ACT

                                 ______
                                 

                        HON. ROBERT A. UNDERWOOD

                                of guam

                    in the house of representatives

                        Thursday, June 28, 2001

  Mr. UNDERWOOD. Mr. Speaker, today I would like to reintroduce the 
Insular Areas Oversight Avoidance Act, legislation I previously 
introduced during the 106th Congress.
  This legislation, which is cosponsored by Congresswoman Donna 
Christian-Christensen from the Virgin Islands and Resident Commissioner 
Anibal Acevedo-Avila of Puerto Rico, seeks to hold the federal 
government more accountable in the manner that federal policy is 
developed towards the insular areas, which include Guam, the Virgin 
Islands, the Commonwealth of Puerto Rico, American Samoa, and the 
Commonwealth of the Northern Mariana Islands. The bill would require 
that the Office of Management and Budget explain any omission of any 
insular area from treatment as part of the United States in any policy 
statement issued by the Office of Management an Budget on federal 
initiatives or legislation.
  The impetus for the bill is to improve federal-territorial relations 
and to encourage greater use of government resources in a more cost-
efficient manner. Given our geographical distance from Washington, 
D.C., and our political status as territories, it is very difficult for 
insular area officials to sometimes be heard at the federal level. We 
face repeated challenges in ensuring that the insular areas are not 
forgotten in federal initiatives and policies on a daily basis, whether 
it be international treaties, Presidential Executive Orders, proposed 
legislation by the Executive Branch or Congressional Members, or 
federal regulations.
  It is my belief that the U.S. insular areas should be considered at 
the outset of the development of federal policies, including 
Presidential initiatives. I believe that such consideration would be a 
more effective way of ensuring that all Americans--in the fifty states, 
the District of Columbia, and the insular areas--are treated fairly.
  The failure of the federal government to contemplate the impact of 
the insular areas in federal initiatives often results in the need for 
insular area governments to expend an exorbitant amount of resources 
and energy to either rectify the ``oversight'' through legislation or 
through extensive and sometimes futile negotiations with federal agency 
officials.
  An example of such a situation is the way in which U.S. Treasury 
Department officials negotiate international tax treaties. There are 
around 75 international tax treaties that the U.S. has negotiated with 
other countries. The treaties govern the bi-lateral relationships the 
U.S. has with other countries on tax matters, including foreign 
investment withholding rates.
  In its definition of the term ``United States'', there are several 
definitions used by U.S. negotiators. The most commonly employed 
definition explicitly excludes Guam and the other insular areas by 
name. Another definition explicitly includes the 50 states and the 
District of Columbia as comprising the ``United States.''
  Currently, the Congress is considering legislation I introduced, H.R. 
309, the Guam Foreign Investment Equity Act, which is trying to rectify 
Guam's exclusion in these international tax treaties. H.R. 309 provides 
the Government of Guam with the authority to tax foreign investors at 
the same rates as states under U.S. tax treaties. The bill passed the 
House on May 1, and is awaiting Senate consideration.
  I would not have to be pushing for the Guam Foreign Investment Equity 
Act if the federal government had contemplated its impact on the 
insular areas, including Guam, when the current U.S. tax treaties with 
other countries were negotiated.
  To understand why this ``oversight'' is detrimental to Guam and the 
federal government, let me give you an overview of how this action has 
stymied economic development on Guam. Currently, under the U.S. 
Internal Revenue Code, there is a 30% withholding tax rate for foreign 
investors in the United States. Since Guam's tax law ``mirrors'' the 
rate established under the U.S. Code, the standard rate for foreign 
investors in Guam is 30% since Guam is not included in the definition 
of ``United States'' for international tax treaties. As an example, 
with Japan, the U.S. withholding rate for foreign investors is 10%. 
That means while Japanese investors are taxed at a 10% withholding tax 
rate on their investments in the fifty states, those same investors are 
taxed at a 30% withholding rate on Guam. As 75% of Guam's commercial 
development is funded by foreign investors, such an omission has 
deprived Guam of attracting foreign investment opportunities.
  Other territories under U.S. jurisdiction have already remedied this 
problem or are able to offer alternative tax benefits to foreign 
investors through delinkage, their unique covenant agreements with the 
federal government, or through federal statute. Guam, therefore, is the 
only state or territory in the United States which is unable to provide 
this tax benefit or to offer alternative tax benefits for foreign 
investors.
  The Insular Areas Oversight Avoidance Act would be helpful to insular 
area governments and the federal government by requiring that

[[Page 12630]]

situations like the U.S. negotiations on international tax treaties are 
for the good of all U.S. jurisdictions in the country, not just the 
fifty states. I understand that the U.S. government is currently 
renegotiating with Japan on the tax treaty between our two countries. 
While I hope that Guam is not excluded from being part of this treaty, 
the record of U.S. negotiators on previous tax treaties does not 
provide me with any level of comfort. This is a perfect example of why 
the bill I have introduced today is needed.

                          ____________________