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HomeNewsArchivesWORLD BODY REJECTS REVISED FSC PROGRAM

WORLD BODY REJECTS REVISED FSC PROGRAM

June 25, 2001 – The U.S. effort to save some of the benefits of the Foreign Sales Corporation program has been torpedoed, again, by the World Trade Organization.
Congress, wanting to keep something like FSC's in place as a tax break to major U.S. exporters, redesigned the program after the WTO threatened major penalties if the FSC program itself continued.
Now the substitute program also has been vetoed by the world body, in an interim ruling in favor of the European Union, and the United States is being threatened with $4 billion in penalties if it continues the program in its modified form.
Because this is a major concern to American business — not merely a problem for the Virgin Islands economy and the territorial treasury — it was front-page news Saturday in the Washington Post.
The New York Times also gave prominent space to the story, its Saturday account noting the significance of FCS's in the territory. "Some of the biggest corporations in the United States, including Microsoft, Ford Motor and Exxon Mobil, take advantage of the program, usually through entities incorporated in the Virgin Islands," it reported.
The United States will appeal the WTO decision, even though initial decisions are usually upheld in the organization's appeals process. Washington is meantime also working through diplomatic channels in an effort to save the FSC-substitute.
The FSC program, said to be worth $7 to $10 million annually to the V.I. government, worked like this: U.S. exporters (including 3,500 in the V.I. program) would get a U.S. tax break if they handled some part of their sales activities through FSC's. The corporations typically handled not actual export goods but the paperwork involved, but this qualified them for a substantial break in corporate income taxes. With these tax breaks, the exporters were better able to compete in overseas markets.
After Congress rewrote the law, the European Union — whose objection to the original FSC program had led to the WTO rejecting it, complained that the new version differed only superficially from the old one. Washington has maintained that the changes brought the law into compliance with WTO rules.
The World Trade Organization has ruled that the whole activity, in both its original form and its modification, amounts to an illegal subsidy of U.S. exporters by the U.S. government, a no-no under WTO rules and regulations.
The latest ruling was not made public, but news agencies reported that it went against the United States. Only U.S. and European Union officials were provided copies of the decision, and neither side would comment to the Times. "The unusually silent stance — in most cases, the winner, at least, is quick to discuss rulings with reporters — reflects the dispute's major implications for trans-Atlantic trade relations," the Times said.
In April, the V.I. Foreign Sales Corporation Commission met to begin dealing with the issues of the impending death, or at least the substantial reduction of the program. That effort was headed up by Lt. Gov. Gerard Luz James II.
The FSC program did not operate just in the U.S.Virgin Islands, or even just in American islands, generally. It also used other locations, including many ex-British Empire outposts.

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