FSC Legislation to be Introduced in House
 
April 22, 2003
 

House Ways and Means Committee ranking member Charles Rangel (D–NY) and the Chairman of the Trade Subcommittee Philip Crane (R–IL) plan to introduce a bill to repeal the foreign sales corporation (FSC) tax incentive for U.S. exporters by offering a lower income tax rate on U.S. manufacturers as a replacement. If passed, the bill would phase out the FSC benefits until 2008 while gradually implementing the lower income tax rate. The Bush Administration and Congress have been working together to bring the FSC law in compliance with the international laws governed by World Trade Organization (WTO), after the WTO ruled that the tax break, and its successor, the Extra-Territorial Income Act (ETI), were in effect an export subsidy and violated those laws. The WTO has since granted the European Union the right to retaliate against the U.S. law through international trade barriers’ equivalent to the amount benefited by U.S. exporters, which is annually about $4 billion. The Rangel-Crane bill is likely to gather general support from manufacturers seeking to benefit from the lower tax rate; however, in order to pass, the bill must be crafted in a way that would compensate exporters for the loss of current FSC/ETI benefits.