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FSC, Other Trade Legislation Pending When Congress Returns

By Bruce Odessey
Washington File Staff Writer

Washington -- When Congress reconvenes November 14 for a post-election "lame duck" session, it will face some trade and investment bills that were left pending.

Most urgent is a bill providing the U.S. response to a World Trade Organization (WTO) ruling against U.S. Foreign Sales Corporation (FSC) tax breaks, which was successfully challenged by the European Union (EU).

Congressional leaders and Clinton administration officials worked for months to write the legislation. The House of Representatives passed the proposal as a provision of a much broader tax bill, which President Clinton has threatened to veto. The Senate has not voted on that bill.

Meanwhile, two WTO deadlines for the U.S. response have passed -- the original October 1 deadline and a November 1 extension. On November 1 the Senate passed the FSC proposal as a stand-alone bill -- that is, without the broader tax legislation -- and sent it to the House for passage.

Despite pressure from administration officials and U.S. business groups who want the FSC measure passed, Republican House leaders refused to consider the stand-alone bill. Instead on November 3 the House went into recess. When Congress reconvenes its faces a November 17 deadline for the EU to request WTO approval to impose retaliatory tariffs.

U.S. Trade Representative Charlene Barshefsky criticized the House leaders' tactics in a November 2 exchange with reporters.

"They should be able to pass this bill," Barshefsky said. "The gamesmanship that is going on, frankly, by the Republican leadership is unwarranted and inexcusable."

At issue is the FSC program, which excludes from U.S. income taxes certain export income earned by foreign subsidiaries of U.S. companies.

A WTO dispute-settlement panel, upheld by the Appellate Body, ruled that FSC amounted to an export subsidy in violation of WTO agreements on subsidies and agriculture.

The bill would repeal the FSC program. It would alter the U.S. tax regime to exclude from U.S. tax a certain portion of a corporation's foreign sales income -- without regard to whether the income derived from exports.

Whether House leaders returning from recess will pass the stand-alone bill or still insist on passage of the broader tax legislation remains uncertain.

A few other legislative proposals on trade and investment issues remain pending when Congress returns from recess although all of them face obstacles:

-- Legislation proposed by Senate Majority Leader Trent Lott that would require U.S. industry approval for any deal the Clinton administration might reach with the EU to settle WTO disputes over bananas and hormone-treated beef. This proposal is strongly opposed by other congressional leaders on trade, including Republicans such as House Ways and Means Committee Chairman Bill Archer.

-- The Sudan Peace Act, passed by the House. This sanctions bill would prevent companies doing business with the Sudanese government from having access to U.S. capital markets such as the New York Stock Exchange. The Senate had earlier passed a much different version of the bill that includes no sanctions. Final passage is considered unlikely this session of Congress.

-- The Bear Protection Act, passed by the Senate. The bill would prohibit imports, exports or any interstate or foreign commerce of bear parts. The House returned the bill to the Senate without action on procedural grounds -- insisting that, as a measure affecting revenue, such legislation must originate in the House as required by the Constitution.

-- The Madrid Protocol Implementation Act, designed to bring U.S. patent laws into conformance with the 1989 Madrid Agreement, which provides for an international registration system for trademarks. The House passed a bill in 1999 to implement the Madrid Protocol, but Senate passage of it is unlikely until the president submits the underlying treaty for Senate approval.

Congress will likely not consider other trade and investment issues until its next session. The Clinton administration decided against submitting this year its recent trade agreement with Vietnam and free trade agreement with Jordan.

Congressional leaders removed from a spending bill a controversial amendment sponsored by Senator Ernest Hollings that would have restricted foreign ownership of U.S. telecommunications companies. The provision would have prohibited purchases of such U.S. companies by companies that are more than 25 percent owned by foreign governments. The provision, a reaction to the proposed acquisition of Voice Stream wireless company by Deutsche Telekom, is opposed by the Clinton administration, business and labor groups and the EU.