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September 12, 2000

H.R. 4986 - FSC Repeal and Extraterritorial Income Exclusion Act of 2000
(Archer (R) Texas)

The Administration strongly supports H.R. 4986, which would repeal provisions of the Internal Revenue Code relating to foreign sales corporations and provide an exclusion from U.S. tax for certain income earned overseas.

H.R. 4986 addresses the issues with respect to foreign sales corporations (FSCs) that were raised by the World Trade Organization (WTO) Appellate Body decision in February 2000. Because the legislation provides an exclusion for certain income earned overseas (referred to as "qualifying foreign trade income"), there is no forgone revenue that would otherwise be due and thus there is no subsidy. Further, by treating all qualifying foreign sales alike, regardless of whether the goods were manufactured in the United States or abroad, the proposed legislation is not export-contingent.

H.R. 4986 has been developed through an extraordinary bipartisan, bicameral process. The Administration believes that enactment of this law, prior to October 1, 2000, is necessary to avoid an immediate confrontation with the European Union (EU), to ensure that the United States is in compliance with the WTO Appellate Body decision, and to avoid possible sanctions that would otherwise be imposed by the EU. This legislation would assure that no U.S. companies are disadvantaged. Passage of this legislation is the only way to avoid potential EU sanctions against U.S. exports.

Pay-As-You-Go Scoring

H.R.4986 would affect direct spending and receipts; therefore, it is subject to the pay-as-you-go (PAYGO) requirement of the Omnibus Budget Reconciliation Act of 1990. The Joint Committee on Taxation estimates that the bill would produce revenue losses of $1.5 billion in fiscal years 2001 through 2005. The Administration's scoring of the bill is under development. The Administration will work with Congress to avoid an unintended sequester.