News Releases

U.S. Companies, Workers in WTO Trade Dispute

Apr 02 2003

Administration should not support repeal of law that helps Washington state exporters

(WASHINGTON, D.C.) - Senators Patty Murray and Maria Cantwell have petitioned the U.S. Trade Representative not to support repeal of the Extraterritorial Income Exclusion Act (ETI) without concessions from the European Union and protection for U.S. manufacturing companies and jobs. According to a study by PriceWaterhouseCoopers, the ETI benefited nearly 107,000 workers in Washington state in 1999.

The Bush Administration and its allies in the House are considering repealing the ETI as part of U.S. efforts to respond to a WTO dispute with the European Union over America's ETI law. Last year, the WTO ruled against the ETI law, and the European Union is threatening to launch $4 billion in retaliatory tariffs against American agricultural and manufacturing exports unless Congress repeals the ETI.

ETI allows U.S. companies to exclude from taxation a portion of the income they earn from sales of products that are manufactured domestically and exported abroad. Currently, European manufacturers get Value Added Tax rebates when they sell their products overseas. In response, ETI and its legislative predecessors were designed to level the playing field and allow American companies to more fairly compete with European companies and workers.

Senators Murray and Cantwell are proposing an alternative to the approach apparently favored by the Bush Administration. Specifically, the Senators are asking the Administration to take the following actions:

First, it should not endorse legislation replacing ETI unless it maintains production and jobs in the United States.

Second, it should support a transition period for U.S. companies that benefit from ETI.

Third, it should negotiate changes in the European Union's tax system, which provides an unfair advantage to EU manufacturers.

"The simple repeal of ETI would have an immediate, negative impact on working people in Washington state," said Murray. "We should begin negotiations with the European Union and reach an agreement that levels the playing field for American manufacturing companies and jobs and that prevents retaliation against U.S. exports, including our farm products."

The text of the letter follows:

April 1, 2003

The Honorable Robert Zoellick U.S. Trade Representative Office of the U.S. Trade Representative 600 17th Street NW Washington, D.C. 20500

Dear Ambassador Zoellick:

We are writing to express our concerns regarding the administration's support for simply repealing the Extraterritorial Income Exclusion Act (ETI) of 2000 in response to the World Trade Organization dispute with the European Union. We urge you to place America's interests first by insisting that any changes to the U.S. tax code regarding ETI be accompanied by an equal restructuring of WTO rules and European tax systems. In addition, we urge you to refrain from endorsing any ETI replacement legislation that fails to provide transition relief to harmed companies, and which does not maintain production and jobs in the United States.

ETI allows U.S. companies to exclude from taxation a portion of the income they earn from sales of products that are manufactured here and exported abroad. A recent PriceWaterhouseCoopers study estimates that 3.5 million jobs are attributable to exports that benefit from ETI, including nearly 107,000 direct and indirect jobs in Washington state. Quite simply, ETI creates and sustains jobs for American workers.

For more than 30 years, the United States has kept ETI and its legislative predecessors on the books to level the playing field against VAT tax rebate schemes used by many European manufacturers. The underlying WTO rules are heavily biased in favor of European tax systems. The EU capitalized on this bias by engineering a WTO ruling against ETI on the grounds it provides a prohibited subsidy on our exports.

The EU is now threatening to launch $4 billion in retaliatory tariffs against American agricultural and manufacturing exports unless we repeal a trade law that levels the playing field for our exports. According to the Joint Committee on Taxation, repeal of ETI would represent a tax increase of $50 billion over ten years on our nation's manufacturing base. This includes not just large companies, but thousands of small businesses as well.

As discussions continue on how to respond to the WTO dispute, we urge you to reject a strategy that simply repeals ETI. The WTO ruling does not require Congress to rewrite our tax code to eliminate ETI. The WTO rules encourage parties to settle their differences through negotiation and compromise, even after it has ruled. In addition, last year's Trade Promotion Authority law directed your office to use future WTO negotiations to address the rules that allow European manufacturers to subsidize its exports with targeted tax relief.

We again urge the administration to maintain and strengthen U.S. manufacturing jobs and exports as we work to resolve the ETI dispute so we can avoid serious harm to U.S. exporters and workers.

Sincerely,

Patty Murray & Maria Cantwell