U.S. Trade Representative William E. Brock, in an effort to lessen trade tensions with Europe, yesterday proposed ending a controversial tax deferral plan for U.S. exporters that had been a major sore point with the European Economic Community.
However, in its place Brock has proposed cutting certain taxes and adding others for American exporting companies that would provide them with the same savings they received under the old system called the Domestic International Sales Corp. By selling exports through the special DISCs American firms have saved about $2 billion in taxes annually. The new plan wouldn't have an effect on U.S. Treasury revenues, according to Deputy U.S. Trade Representative David Macdonald.
The EEC recently challenged DISC before the General Agreements on Tariffs and Trade international body in Geneva, claiming that by allowing U.S. exporters to defer some taxes indefinitely it was an illegal subsidy. The issue had died several months ago, but was resurrected after the U.S. steel industry filed complaints against European steelmakers, making them liable for possible stiff duties and a reduced share of the U.S. market.
Under the DISC, U.S. exporters were allowed to defer taxes on part of their income from domestic operations and their plants overseas. The Europeans contended that by allowing U.S. exporters to defer taxes on domestic operations they were being illegally subsidized by the government, placing them at a competitive advantage against foreign countries in the world marketplace.
The Brock proposal would end the tax deferral. In its place the government would tax the previously deferred domestic income and exempt taxes on income of foreign operations in an amount equal to what the exporter had paid under the DISC system.
"As long as this appears to be one piece in the jigsaw puzzle of ascerbic U.S.-EEC relations, it behooves us to remove it as a source of acrimony," Macdonald told reporters. The plan hadn't been approved by any other government department and the Europeans hadn't been told about it, Macdonald said, because he wanted to float the idea and get a response from the American business community before any plan was firm.
Macdonald cautioned that the plan was not a Reagan administration proposal, but one from Brock's office. The Treasury will begin analyzing the plan soon, Macdonald said. The proposal also would have to be passed by Congress.
Macdonald said Brock hoped to "kill two birds with one stone" by making the proposal: improving DISC without gaining or losing revenue and removing an "obstacle to an harmonious relationship with Europe."