House OKs Bill Calling for Trade Tax Breaks

Hoping to avert a trade war with Europe, the House passed legislation Wednesday that would enact new tax breaks for U.S. companies to replace a system ruled an illegal export subsidy by the World Trade Organization.

The vote was 315-109 to send the bill to the Senate, which is expected to follow suit quickly.

“It is extremely important that we send a message to the Europeans that we’re serious about this,” said Rep. Bill Archer (R-Texas), chairman of the House Ways and Means Committee. “The mother of all trade wars is something to be avoided.”

Some Democrats decried the bill as corporate welfare and expressed dismay that it was brought to the House floor under rules preventing any amendments.

In a letter to House GOP leaders, Reps. Lloyd Doggett (D-Texas) and Henry A. Waxman (D-Los Angeles) said the current program amounts to a $100-million tax break for tobacco companies.

Backed by the Clinton administration, Congress intends to pass the bill before an Oct. 1 deadline set by the WTO, which invalidated the U.S. foreign sales corporation tax rules after they were challenged by the European Union.

The WTO set the deadline to give the United States time to enact a replacement law without retaliatory tariffs from the EU. European officials contend that this new system is also illegal, but U.S. officials said they will press ahead to prevent tariffs or sanctions on up to $40 billion in U.S. exports.

Deputy Treasury Secretary Stuart Eizenstadt said the bill represents “the only way in which we can avoid the potential for an immediate conflict with the EU, with the possibility of significant retaliation on their part.”

Created to offset an EU tax rebate for its exporters, the foreign sales corporation program permits U.S. companies to reduce income taxes by 15% through export subsidiaries set up in offshore tax havens such as Barbados and the Virgin Islands. Microsoft, Boeing and General Motors are a few of the 6,000 companies, with 4.8 million workers, that get the $4.1-billion annual tax break.

The replacement legislation, costing the government roughly the same amount each year, would set up tax breaks that apply equally to exports by U.S. companies and the products they make abroad.

The WTO ruling against the previous rules centered on their nature as special exceptions in tax law. Efforts to reach a diplomatic solution failed.