by Lori Wallach
August 5, 2003
In 1991, a trade tribunal established under the General Agreement on Tariffs and Trade (GATT) declared a successful, popular U.S. dolphin protection law to be an illegal barrier to trade which the United States had to eliminate. Stunned environmental groups decried the ruling as an attack on democratic decision-making. The case, dubbed “GATTzilla Ate Flipper” by activists, was a wake-up call about how trade agreements, previously limited to eliminating barriers by cutting tariffs and removing quotas, could be used to undermine domestic environmental, health and other laws created by Congress. And when environmentalists opposed the formation of the World Trade Organization (WTO) in 1994, the WTO’s corporate boosters dismissed the criticism of the WTO –- and the outcry over the dolphin case -- as protectionist and misinformed.
Six years later, GATTzilla took a bite out of one of corporate America’s favorite tax benefits, with the WTO ruling that the U.S. Foreign Sales Corporation (FSC) tax break is an illegal trade barrier. With $4 billion in trade sanctions threatened against the United States if it does not eliminate the policy, Congress is now scrambling to comply.
From Wall Street, to K Street, to business-funded think tanks, an eerily familiar lament is sounding about the WTO’s attack on democracy as CEOs borrow lines from the past statements of Ralph Nader and the Sierra Club:
"This dispute cuts to the very heart of the domestic policy choices made by governments," Deputy Secretary of the U.S. Treasury Stuart Eizenstat told The Financial Times in 2000.
"Once tax policy is on the table, there's no end to what the WTO might meddle in," The Wall Street Journal wrote on January 17, 2002. "The more the WTO tries to be a world super-government that trumps policies, the less likely it will be to be able to do its real job of serving as an independent trade referee."
"For the WTO to start commenting whether U.S. tax policy is acceptable is a huge expansion of its authority. You have to ask, where does it stop?" said Heritage Foundation senior fellow Daniel Mitchell on September 1, 2002.
The case causing the corporate outcry involves the FSC, a tax benefit to corporations that exempts exports made by subsidiaries overseas from their corporate earnings for U.S. tax purposes. The FSC has long been decried by budget critics as corporate welfare –- a $5 billion annual tax break for large U.S. corporations.
In 1998, the European Union (E.U.) challenged the FSC at the WTO, claiming that the FSC violated subsidy rules. In 1999, the WTO sided with the E.U., finding that the FSC did constitute an illegitimate export subsidy and recommended the United States eliminate FSC provisions in the tax code by October 2000. The United States appealed, but the WTO ruled again in February 2000 that the FSC be removed, and allowed the E.U. to slap $4 billion in retaliatory tariffs against the United States.
It was then that the U.S. corporate business lobby really kicked into a frenzy over FSC. The corporate business lobby comprised the “FSC 2000” coalition (thanks to a loophole in the federal lobbying law, the public does not know the corporations that make up these ever-popular “coalitions”) and paid PricewaterhouseCoopers nearly $1 million to write a new tax bill that was supposed to be WTO-legal. The bill passed Congress and was signed by President Clinton but was still found by a trade tribunal to be WTO-illegal.
The U.S. corporate lobby got even more fidgety and urged the Bush administration to come to an agreement with the E.U. to avoid the retaliatory tariffs. The United States decided to again appeal the latest WTO ruling, and lost again. In August 2002, the WTO ruled that the E.U. was entitled to impose the full $4 billion in sanctions, and in February 2003, the Bush administration urged Congress to rewrite the tax code to come into compliance with the WTO.
So, the dog has come back to bite the owner. While lawmakers are scrambling and lobbyists are sweating, the FSC case illustrates the blatant hypocrisy of the corporate-managed trade lobby that has dominated U.S. trade policy, and attacked labor, consumer and environmental critics. U.S.-based multinationals embrace the WTO when it attacks public interest regulatory policies they view as impeding their “free trade.” But if the WTO strikes at corporate welfare provisions of the tax code, talking heads on business news shows and the editorial page of The Wall Street Journal howl about the WTO’s infringement on democracy.
Ganders, let me be the first among the geese to welcome the “FSC 2000” coalition and the corporate business lobby to the ever-increasing global movement to shrink the scope of the WTO.
As Sen. Russell Feingold (D-Wis.) noted when changes to the FSC were debated on the Senate floor, “While the FSC tax subsidy may be bad tax policy, it is our tax policy –- a policy arrived at through the elected representatives of the people of this nation. The ability of some international bureaucracy to effectively impose punitive taxes or tariffs on American goods should offend us all.”
Perhaps with its own corporate creators and protectors finally caring to inquire, we might expect a review with an eye towards repair? Or maybe not, because early in September, at the WTO’s fifth Ministerial Summit planned for Cancun, Mexico, the agenda being pushed by the Bush administration is not a careful stocktaking of the current WTO rules, but a massive expansion of WTO jurisdiction to new issues and areas.
There is a global campaign, called “WTO: Shrink or Sink” that calls for 11 transformational changes to the WTO. That agenda is supported by civil society groups from around the world –- from massive global labor federations to developing country peasant farm and fisherfolk organizations to indigenous peoples, environmental, development, health, anti-poverty and consumer groups from across the global South. It is the opposite agenda of that being proposed by the United States, European Union and a handful of other nations with the encouragement of corporate lobbies and the support of the supposedly neutral WTO staff, to expand the WTO.
Indeed, where does this powerful global commerce agency stop?
Lori Wallach is director of Public Citizen’s Global Trade Watch (www.citizen.org/trade/).