June, 2003: Players Who’s Up To What

By Greg Rushford

Published in the Rushford Report

Tax the foreign fellows

            “Don’t tax me, don’t tax thee,” Sen. Russell Long, who chaired the Senate Finance Committee from 1966-1981, used to say. “Tax that fellow across the sea.”

            Political giants like the crafty, always colorful, Long, who died of heart failure in Washington last month at age 84, are infrequently observed on Capitol Hill these days. But the old game of taxing foreigners — or even Americans who live in foreign lands, or Americans who buy stock in foreign corporations — continues.

            Last month, two normally sensible Republican lawmakers, Ways and Means Chairman Bill Thomas ( Calif. ) and Finance Committee Chairman Chuck Grassley ( Iowa ) tried their hands at foreign bashing, unsuccessfully.

            Looking for offsets to pay for President Bush’s $350 billion tax-reduction bill that was passed just before the Memorial Day recess, Thomas came up with the idea to exclude foreign corporations from benefiting from a dividend tax break. In plain language, Thomas was proposing to penalize Americans who buy foreign stocks. What an idea — a sure violation of U.S. obligations not to discriminate against fellow trading partners in the World Trade Organization, not to mention common sense.

            At least Thomas gracefully agreed to drop the ploy after its obvious weaknesses were quietly-but-quickly pointed out by business lobbies, the most active of which seemed to be the Organization for International Investment. OFFI might sound “foreign,” but its members — the U.S. subsidiaries of foreign corporations like Bayer, Siemens, Sony, Honda, and Unilever — employ more than six million Americans. The American International Auto Dealers Association, long one of Washington ’s more effective business lobbies with its 10,000 auto dealers positioned in key political districts nationwide, also weighed in.

            Grassley, who has not previously been known as a tax-the-rich kind of liberal, somehow came up with the idea (he refused repeated requests to say how) to take money out of the pockets of American expatriates. Section 911 of the tax code allows U.S. citizens who work overseas to exclude up to $80,000 of their income earned from their foreign wages. To Grassley, this is unfair. “I have to ask whether it’s fair for taxpayers to underwrite the cost of sending employees overseas,” he told reporters on May 14.

            Perhaps the senator might ask himself whether it is fair for the U.S. government to tax any income earned by Americans in other economies. Sure, there are privileges associated with working overseas, but there are also undeniable hardships. Every time Americans who work in London , Berlin , or Brussels buy anything to eat, drink, or wear, they are taxed dearly. Americans who work in Hong Kong have enough to worry about with the SARS virus, now they have to worry that some senator from Iowa wants to pick their wallets. Americans who work in Manila have enough to worry about with local tax leeches. Americans everywhere abroad have to worry about terrorism — and now Chuck Grassley.

            Grassley’s idea immediately became the subject of vehement opposition — even ridicule — from the business community.

            “Robbing Peter to pay Paul is a poor tax strategy,” noted Thomas Donohue, the president of the U.S. Chamber of Commerce. Eliminating Sec. 911 is a bad idea that “hurts American workers and does not help the economy.”

            American executives who work in the Persian Gulf region were especially vocal. John Pratt, who chairs the American Business Council of Gulf Countries, the umbrella group for American Chambers of Commerce in the region, flew to Washington last month to weigh in. Pratt and Leigh Gribble, who is vice chairman of the group, headed a delegation of about 30 American businessmen who took their concerns to the Hill. They found an ally in Sen. John Breaux, a power on the Finance Committee. Coming from Louisiana , Breaux watches out for the interests of workers in the oil industry.

            Grassley finally had to drop the idea in the House-Senate conference.

            But the plainspoken Iowa pig farmer, as Grassley is fond of portraying himself, is known for his tenacity. Once he locks on to an idea, he is prone to stay locked on. So it is entirely possible that Grassley will try to attack American expatriates at the next available opportunity. That could come in the next few months, when the Finance Committee (finally!) tries to bring the Foreign Sales Corporation export subsidy legislation into compliance with U.S. obligations as a member of the World Trade Organization.

George W. Bush, diplomatic avenging angel

            It’s still payback time in the Bush White House. The president, flush with his victory over Saddam Hussein, has been quite the diplomatic avenging angel of late. Last month, I reported how Bush was keeping the U.S.-Chile preferential trade deal on ice because he was upset that Chilean President Richard Lagos had not joined the coalition of the willing over Iraq . On May 27, U.S. Trade Representative Robert Zoellick issued a brief statement saying that he and Chilean Foreign Minister Soledad Alvear would sign the accord in Miami on June 6. Considering the fanfare with which Bush signed the U.S.-Singapore preferential deal in the White House with Prime Minister Goh Chok Tong, who lined up with Bush on Iraq , this is another snub for Chile .

            Bush also snubbed Mexican President Vicente Fox last month, deliberately failing to mention Fox’s name in a May 5 statement hailing Mexico ’s Cinco De Mayo national holiday. Like Chile ’s Lagos , Fox had refused to support the United States in securing a U.N. Security Council resolution to authorize force to topple Saddam.

            Also last month, Bush — still upset with Canadian Prime Minister Jean Chretien for the same reason — indefinitely postponed a trip to Canada . At least, Bush and Chretien finally spoke on the telephone on May 26 to discuss the upcoming summit of the G-8 rich countries in Evian , France . It was their first conversation since late February.

            Bush is still angry at Turkey , too: same general reason. The president must have been pleased when Secretary of State Colin Powell visited Tirana , Albania on May 2. Albania was the first predominantly Muslim country to send peacekeepers to Iraq . In Tirana, President Alfred Moisiu gave Powell the Skenderbeg award, which is named after an Albanian national hero who defeated Turkey in the 15th century. “Given the shaky relations at present, the symbolism did not go unnoticed,” observed Guy Dinmore in the Financial Times.

            And even as Bush was preparing to meet French President Jacques Chirac in Evian, officials in Washington were staying up late at night trying to figure out how best to inflict a little pain here, a little there. U.S.-French relations these days are all about “consequences.” The Pentagon informed France that it would no longer be invited to participate in Red Flag military exercises in Nevada next year. And don’t expect too many Americans at the Paris Air Show in June, the French have been informed.

            Such pettiness.

Bush’s Latin American agenda: back on track?

            While his priority is settling personal scores over Iraq , Bush is also trying to convince Latin American leaders that he won’t ignore them any more. Last month, Bush called Argentina ’s new president, Nestor Kirchner, with congratulations and an invite to the White House soon. Later this month, the president will meet visiting Brazilian President Luiz Inacio Lula da Silva — look him in the eye and judge him, too.

            But is Bush’s revived Latin agenda really back on track?

            Throughout the region, memories are still too fresh over past U.S. military mischief in Guatemala, the Dominican Republic and Chile dating to the 1950s, 60s and 70s. Lingering distrust of the Yankees that had been in decline in the 1990s has begun to surface.

            One small-but-telling measure of how this anti-Yankee attitude could play out could involve the current rivalry between Miami and Panama City , each of which seriously is vying to become the permanent headquarters for a Free Trade Area of the Americas secretariat (assuming that the FTAA becomes a reality in 2005, of course).

             This is an important plum. Think of the prestige associated with being the headquarters of the largest “free trade” zone in the world. Think of the money that will flow to such a permanent secretariat: the corporate deals, the big diplomatic meetings, the lawyers and the trade arbitration cases that would come with an FTAA dispute-resolution center. While Port of Spain , Trinidad ; Puebla , Mexico , and Atlanta also are in the running, Miami — already the de facto capital of the Americas — should be the logical choice. Miami ’s got a $2 million lobbying campaign going, aided by the president’s brother, Florida Gov. Jeb Bush, and Florida ’s entire congressional delegation.

            But considering the pleasure that the Yankee president seems to take from embarrassing them in public, why should the presidents of Latin American countries agree to give this little gift to George W. Bush? Message to Miami : worry about what your president’s attitude could mean for your city. For resentful Latin Americans, voting for Panama over Miami could be one opportunity to repay Bush for his swagger.

U.S. Business to WTO: Get Serious

            Concerned that all the important deadlines in the WTO’s ongoing Doha Round of trade liberalizing negotiations have been missed, a high-powered U.S. business delegation representing the National Foreign Trade Council flew to Geneva last month with a strong message: Get serious.

            Scott Miller, Procter & Gamble’s top Washington international trade operative who chairs the NFTC’s Doha Round working group, headed the delegation, which included representatives from Caterpillar, Boeing, General Electric, Eastman Kodak, Pfizer, AES, and Schering-Plough.

            The businessmen met from May 20-22 with just about everyone who is important to the Doha process: including WTO Director-General Supachai Panitchpakdi; Deputy Director-General Rufus Yerxa; Ambassador Tim Groser from New Zealand , who chairs the committee that is negotiating rules on antidumping and subsidies; Swiss Amb. Pierre-Louis Girard, who chairs the non-agricultural market access negotiating group; and Uruguay Amb. Carlos Perez Del Castillo, who chairs the General Council, which is the WTO’s top negotiating body. The visiting Americans also had lunch with U.S. Amb. Linnet Deily, and met with representatives from countries that are important to the Doha process, including India , Malaysia , and China .

            In their meetings, the NFTC members basically supported the U.S. negotiating agenda. “We were looking for a way to re-energize the Doha process and lead to a success in the Cancun ministerial meetings in September,” explains P&G’s Miller.

            That’s easier said than done, of course. Miller doesn’t attempt to gloss over the long list of difficult issues that will have to be resolved for the Doha negotiations to work, but says he came away upbeat, sort of. “I came away not completely discouraged, but less discouraged than expected,” he says. “After the missed deadlines, everything looked stuck, but there is a little forward movement.”

            It would help that forward movement if the European Union would stop being so unconstructive about agriculture reform. “The U.S. has said over and over again that we are ready to negotiate,” Miller notes. “The burden is on the Europeans.”

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