- The Washington Times - Thursday, November 2, 2000

The Senate yesterday unanimously signed off on a replacement for an export-tax law that had run afoul of the rules of the World Trade Organization (WTO).
But the legislation is now stalled in the House because senior Republicans are deadlocked over how to move the bill, which attempts to defuse an explosive trans-Atlantic trade dispute in time for a WTO-imposed deadline that passed yesterday.
The Senate passed the change unanimously, to the great relief of ardent free traders who pointed out that the European Union (EU) would have the right to impose retaliatory trade sanctions if the current law stood unchanged.
"It had the potential for a ruinous trade war," said Sen. Daniel Patrick Moynihan, New York Democrat. "We [in the Senate] have just dodged a big bullet."
But the measure, which lowers taxes on income from exports, also has been incorporated into a broader $240 billion tax bill that the House has approved, is delayed in the Senate and President Clinton has said he will veto. The threat has infuriated Republicans and made it likely that Congress will wrap up its work in a post-election lame-duck session.
House Majority Leader Dick Armey, Texas Republican, said that Republicans want action on the entire tax bill, rather than pieces of it, despite the international implications of inaction.
"The House has spoken on taxes," Mr. Armey said. "We think it's good work, and we think it ought to be signed."
But House Ways and Means Committee Chairman Bill Archer argued that acrimony between the White House and Congress over tax policy should not stand in the way of efforts to head off a damaging trade conflict.
"We must set aside our differences and focus on this issue so critical to our economy, or we will surely face an unholy trade war," the Texas Republican said.
The new law revamps a tax rule known as the Foreign Sales Corporation (FSC) provision, which allows U.S. corporations to route income from exports through shell companies in tax havens such as the U.S. Virgin Islands and Barbados. The provision saves American exporters, mostly corporate giants such as General Electric, Boeing and Microsoft, $4 billion per year.
But the Geneva-based WTO, at Europe's behest, ruled early this year that the rule is an illegal export subsidy.
The ruling set in motion a timetable that would have forced the United States to change the law by Oct. 1 or face retaliation. U.S. and European officials subsequently hammered out an agreement that extended that deadline to Nov. 1.
But the European Union will wait until later in the month to request the right to retaliate against U.S. exports, giving a bitterly divided Congress a bit more breathing room to pass the new law.
"If there is no legislation, we will go to Geneva and request retaliation," said Willy Helin, spokesman for the EU diplomatic mission in Washington.
House and Senate committees drafted legislation that jigs the FSC rule but will cost the Treasury an additional $1.5 billion over the next five years.
Passage of the bill will at least buy the United States some time. Europe also objects to the new provision and plans to ask for a WTO review of it, a process that could take until next June. But if Congress does not pass the bill, it will move into the retaliation phase immediately.
Senate Majority Leader Trent Lott, Mississippi Republican, had tried to move the FSC bill before, but his efforts foundered on the objections of Democratic senators. Paul Wellstone of Minnesota, Ernest F. Hollings of South Carolina and Richard H. Bryan of Nevada had complained about benefits that the bill conferred on cigarette makers, weapons manufacturers and pharmaceutical companies.
But lobbying by Deputy Treasury Secretary Stuart Eizenstat apparently convinced Democrats to drop their objections.

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