WTO Rules Against U.S. Export Tax Law.

• Author: Stone, Ben
• Position: World Trade Organization - Brief Article

The World Trade Organization (WTO) has decided again that U.S. tax law covering export income earned by U.S. companies violates international trade agreements. Under the ruling, the United States has until November 1 to enact replacement legislation or face up to $4 billion in trade sanctions on U.S. exports to the European Union (EU).

The WTO ruling is only the most recent blow to the U.S. export regime. The tax law enacted last year, P.L. 106-519, replaced the Foreign Sales Corporation program, which was also found to violate WTO rules.

Under international agreements, the United States is not required to alter its current tax law. However, if this nation keeps the current regime, it must accept trade sanctions approved by the WTO. Members of U.S. industry, including the defense and aerospace industries, have expressed their preference to reform the current tax code in an effort to avoid trade sanctions.

Abercrombie Amendment

During the markup of the National Defense Authorization Act for fiscal year 2002, the House Armed Services Committee adopted an amendment that would effectively delay--if not block altogether--the Defense Department's efforts to contract for services.

The amendment, known as the Department of Defense Services Contracting Reform Act of 2001, was offered by Rep. Neil Abercrombie, D-Hawaii.

It would require that all of the department's future service contracts, including re-competes, extensions and modifications, be subject to public-private competition.

The Abercrombie amendment also would require that all direct and indirect contractor costs be reported on a quarterly basis--at a minimum. The reporting requirements are similar to those proposed by the Army earlier this year. The Department of Defense rescinded those requirements on procedural grounds.

The legislation is needed to ensure that the federal government achieves continued cost savings through competition between public and private sectors of the economy, according to the American Federation of Government Employees (AFGE). Once work is turned over to the private sector, AFGE officials said, there are often no mechanisms to ensure that savings are maintained. By requiring public vs. private studies, the federal government ensures that the most cost-effective organization will provide the service, union officials argued.

NDIA disagreed. Once a contract is won by the private sector, the association said, competition is actually greater than when public-private...