FROM THE OFFICE OF PUBLIC AFFAIRS

"The Administration is disappointed with the EU Commission's response to its Foreign Sales Corporation (FSC) proposal. This new proposal was developed in response to the recent Appellate Body decision in the World Trade Organization (WTO), which found the FSC to be in violation of WTO rules.

While Mr. Lamy did not reject our proposal, I am saddened that the EU has not yet seized this opportunity to negotiate a solution based on our proposal. We are disappointed that a chance may be lost to accomplish this goal. We firmly believe that our proposal is WTO compliant, in fact and in law. Nonetheless, we remain hopeful that we will be able to resolve our differences with the EU over the regime in a cooperative and constructive manner.

After discussions with the European Commission in early May in which the Administration presented a detailed proposal, and a further memorandum of May 19 responding to questions raised during consultations in Brussels, Paris and London, we hoped to commence serious negotiations based on this approach. We were prepared to address various issues which we know were of concern to various EU member states. Therefore, we regret that the Commission has chosen not to engage in serious negotiations based on our proposal.

It is our intention to work with the bipartisan leadership of Congress to pass legislation based on our approach, in the timeframe set by the WTO. It is important to note that this new regime would provide similar tax treatment to foreign sales as under many European tax systems.

While we are working with Congress, we hope the European Commission will reconsider its position and demonstrate its willingness to commence serious negotiations."

Following the recent Appellate Body decision in the World Trade Organization (WTO), which found the Foreign Sales Corporation (FSC) tax incentive to be an export subsidy in contravention of WTO rules, the Administration promptly developed a new tax regime supported by the U.S. business community and the bipartisan leadership of the House Ways and Means Committee and Senate Finance Committee. This new tax system would apply to foreign income from all foreign sales, rentals and leases regardless of whether the goods were manufactured in the United States or abroad.