WASHINGTON - Clinton administration officials last week affirmed their commitment to try to keep tax breaks for U.S. exporters who handle their overseas transactions through offshore subsidiaries called foreign sales corporations.
'We don't want to put our businesses at a competitive disadvantage,' said a spokesman for U.S. Trade Representative Charlene Barshefsky.
Under the practice, exports channeled through foreign sales corporations qualify for a lower corporate tax rate. Automakers and parts suppliers are among those taking advantage of the breaks, which the World Trade Organization has ruled are an improper export subsidy.
Ruling on a complaint by the European Union, the WTO has ordered that the tax breaks for U.S. companies - estimated at about $4 billion annually - must be terminated by Oct. 1. They have existed in their current form since 1984.
Proponents say they are needed because of similar benefits European nations give their exporters. Clinton administration officials say they hope to negotiate a resolution of the dispute with the EU.
Companies that take advantage of foreign sales corporations are reluctant to talk about them. Brian Wallace, spokesman for DaimlerChrysler, would say only that they exist to keep 'a level playing field with the EU's tax regimes' and that the benefit to DaimlerChrysler is 'not significant.'
General Motors spokeswoman Mia Walton said the company considers tax matters to be proprietary, as did a Ford Motor Co. spokesperson.
The offshore subsidiaries exist more in name than reality. Typically, a service provider handles the paperwork for dozens or even hundreds of foreign sales corporations set up by U.S.-based exporters.
'Everything is really done stateside,' said Leslie Dawson, assistant vice president of ABN Amro Trust Virgin Islands Inc., a St. Thomas service provider with about 400 foreign service corporation clients.
She said there are about 10 companies like hers in the Virgin Islands providing similar services for large groups of foreign sales corporations.
The European Union estimates half of U.S. exports are handled by foreign sales corporations. The total value of U.S. exports of manufactured goods is estimated at about $600 billion annually. Motor vehicles account for about $28 billion and automotive parts about $40 billion, suggesting that tax breaks to the automotive sector reach hundreds of millions of dollars each year.