The United States, the Common Market and three European countries have agreed tentatively to call a cease-fire in the fight to eliminate a 10-year-old section of the U.S. tax code that saves U.S. exporting companies more than $1 billion a year.
The agreement, if approved on Nov. 3 by the General Agreement on Tariffs and Trade Council, will put to rest a dispute between the Europeans and U.S. trade officials over claims that the United States is subsidizing exports through the tax, contrary to GATT rules. The GATT also labeled the tax systems of France, Belgium and The Netherlands as export subsidies. Under the tentative agreement, disputes about their taxes also will be dropped, according to Deputy U.S. Trade Representative David R. MacDonald.
MacDonald said he wouldn't characterize the tentative agreement as a concession by the Common Market, but "a cessation of the battle without agreeing anyone is guilty or innocent." However, any country can feel free to bring a complaint against any of the tax systems at a later time, but that appears unlikely, another trade official said.
The tax system in question, which under the agreement would be allowed to stand, allows U.S. corporations to set up paper subsidiaries called Domestic International Sales Corporations. The parent companies then can defer indefinitely U.S. taxes on part of the profits from the subsidiaries' overseas sales.
Congress passed legislation permitting DISCs in 1971 to stimulate U.S. exports, help the balance of trade and shore up the dollar. The GATT has avoided making a decision on the tax break since its inception, and the question was expected to arise next week. The Reagan administration at one point had considered substituting another incentive for DISCs to lay the issue to rest.
The major beneficiaries of the tax break are large firms such as General Electric, FMC, Boeing and Monsanto Chemical, which have gained--and the Treasury has lost--about $10 billion. The companies are expected to benefit by about $1.8 billion next year.
MacDonald said that in 1972 the Common Market challenged DISCs as subsidies because they didn't place the same tax burden on exports as on domestic products.