By Bruce Odessey
Washington File Staff Writer

Washington -- Senate Republican leaders have decided to figure out a new strategy for pushing to passage a bill to repeal export tax breaks ruled illegal by the World Trade Organization (WTO) after failing to block further amendments to the bill.

By a 51-47 vote March 24 the Republicans failed by a wide margin to obtain the 60 votes needed to invoke cloture -- that is, to halt debate. Work on the bill stalled, at least for a few hours, after Senator Bill Frist, the Republican majority leader, announced he would attempt to work out a way to proceed.

By most accounts the Republicans were attempting to avoid a politically difficult vote on a proposed amendment aimed at overturning a Bush administration proposed rule that would eliminate overtime pay protection for many workers.

Essentially the same provision, called the Harkin amendment after its sponsor, Democratic Senator Tom Harkin, actually passed in 2003 in a Senate spending bill, and its inclusion was later supported in the House or Representatives. Nevertheless, Republican leaders removed it from the final legislation after the Bush administration objected.

By all accounts the underlying bill to repeal the export tax breaks and replace them with a number of other tax breaks and reforms has wide bipartisan support in the Senate.

"The Senate would pass this legislation by a wide margin if it could get past this election year posturing," Frist said. "I look forward to working with the leadership on this particular bill to see exactly where we should go from here ...."

At issue are two U.S. laws that the WTO has ruled as illegal export subsidies: the decades-old Foreign Sales Corporation (FSC) and its successor, the Extraterritorial Income Act (ETI).

In the case of U.S. non-compliance, the WTO authorized the European Union (EU) to impose sanctions amounting to $4 billion a year. The EU began March 1 imposing tariffs of 5 percent and is prepared to increase the level by one percentage point a month up to 17 percent.

Debate on the Senate bill began March 3-4 and then resumed March 22. Its main provision would over three years repeal FSC/ETI and reduce the tax rate for all U.S.-based manufacturing companies -- not just for certain exporting companies and not for offshore manufacturing -- to 32 percent from 35 percent.

Other provisions would reform the U.S. international tax regime, including ending double taxation of income and shutting down offshore tax shelters. It also would close abused loopholes in the tax regime, in line with Treasury Department recommendations, including some infrastructure-leasing deals widely regarded as scams.

Senator Harkin vowed in March 24 debate that the FSC/ETI bill would not pass the Senate without his amendment.

"They're more willing to pay tariffs to Europe than overtime to American workers," Harkin said.

Meanwhile, a much different FSC/ETI repeal bill in the House appears to face even bigger obstacles. Representative Bill Thomas, Republican chairman of the House Ways and Means Committee, was reported to have told a business group March 22 that lobbyists seeking narrow changes to benefit their specific industries had come close to killing the bill he had put together.

Thomas' bill has apparently so far failed to gain enough support to pass the Republican-controlled House, opposed by nearly all Democrats and a significant group of Republicans who object to tax cuts that would go to multinational corporations.