FROM THE OFFICE OF PUBLIC AFFAIRS

Thank you very much. I am pleased to be in Brussels again, which I consider almost a second home. My visit today has been with a range of EU officials, four Commissioners in all, and a Belgian holocaust authority. With Eriki Liikanen, I had a very good discussion. We discussed emerging Internet issues and the digital divide, things that both the US and the EU are doing to deal with the digital divide, and how the G8 summit agenda in July should deal with that very important issue. I also stressed the importance of using the OECD process to develop coordinated policies regarding the development of Internet taxation on an international basis and that this needs to be undertaken with sensitivity and to avoid unilateral actions that could have international implications.

I met with Mr. Buysse, the head of the Belgian Holocaust Commission, and was pleased with the process that the Commission was making in identifying confiscated holocaust era assets, which include everything from dormant bank accounts to real estate and art. I was pleased to learn that when their work is finished in July of next year, they believe that they will have identified some 85 percent of the assets confiscated during the war, though a significantly smaller percentage will be found and returned. And I was very pleased to learn that they have agreed to our request to release a list of 25,000 names of those deported from Belgium, most from Mechelen, during WWII, and to share them with the US Holocaust Commission. This will enable us to match those names with dormant bank accounts in the US to see if there are any members or heirs of the Belgian Jewish community who might have had bank accounts in the US.

I had an excellent meeting with Commissioner Patten which touched on a wide range of political issues, including our close cooperation on Southeast Europe, our joint effort at promoting human rights and our cooperation in the UN Human Rights Commission to promote human rights in Cuba and in other countries. We discussed as well the overall state of US-EU relations.

The Ambassador was good enough to host a working lunch with officials from the European Parliament and from the different services as well as with Commissioner Byrne. We had a very lively discussion about the importance of NGOs and decision-making, with a special emphasis on biotechnology and GMOs.

With Pascal Lamy, we discussed the full range of US-EU trade issues, from ways to make progress toward a WTO trade round to a variety of long-standing disputes, with particular attention to the Foreign Sales Corporation, or FSC, issue. We found the meeting with Mr. Lamy and other members of the Commission to be very productive. We have concluded our first round and there will be a second round this evening, led by Mr. Talisman and which will include our technical people. We presented the US proposal for resolving the FSC issue and we discussed it at length. This proposal responds directly to the panel decision and at the same time ensures that US firms and workers are not disadvantaged.

The WTO Appellate Body ruled in February that the FSC tax regime was a prohibited export subsidy because the reduced tax rates under the FSC were available only in connection with exports. In response to this finding, the US proposal would repeal the FSC regime and replace it with a new elective regime that is not export-contingent. The FSC has been in place for over 15 years and was adopted consistent with an understanding reached with the EU. Nevertheless given the WTO decision -- we respect that decision, and the actions we take are responsive to it. Our new proposal would replace the FSC regime, which would be repealed, with special tax rates to income for both export and non-export foreign sales, leases, or rentals by certain eligible manufacturers. To qualify, a manufacturer must be or elect to be subject to US tax and meet certain other specific requirements. Our proposal directly addresses the WTO panel decision and it is both in fact and in law WTO compatible. This proposal was developed over the course of several months after the consideration of a number of options. It reflects extensive consultations with the US business community and with Congress. It has the united support of the US business community and, on a bi-partisan basis, key members of Congress, including the Chairman and the ranking Democrat on both the House Ways and Means Committee and the Senate Finance Committee, which are of course our tax-writing committees. That is Chairman Archer and Mr. Rangle on the House side, Senator Roth and Senator Moynihan on the Senate side.

The business community and key Congressional leaders want to pass this replacement for the FSC by the October 1 deadline set in the WTO decision. The administration wishes to act in a timely manner and to take advantage of the current rather remarkable domestic consensus which is essential to resolving this issue to our mutual satisfaction. In general it is the intention of the US to implement the recommendations and rulings of the WTO in a manner that respects our WTO obligations while protecting the interests of US companies and workers. It is in our mutual interest that this important issue be resolved and that we avoid the potentially serious implications of an on-going dispute for both of our business communities -- and by the way, European companies with American affiliates have been major users of the FSC, the potential for its impact on our bilateral relationship, on the World Trade Organization, and indeed on the global trading system. We will continue our discussions with the EU and we are hopeful that we will be able to move forward with a legislative solution quickly and in this session. Thank you.