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(FOREIGN OPERATIONS, EXPORT FINANCING, AND RELATED AGENCIES )Tj
5.834 -1.2 Td
(APPROPRIATIONS ACT, 1995 \(Senate - July 13, 1994\))Tj
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(Mr. CRAIG. Let me read the first paragraph. It says: )Tj
/T1_4 1 Tf
0 -2.557 TD
(Dear Senator Craig:)Tj
/T1_0 1 Tf
( We are writing to explain our concern about the power over state and lo\
cal taxes )Tj
0 -1.2 TD
(that the new General Agreement on Tariffs and Trade \(GATT\) will give t\
he World Trade Organization )Tj
T*
(\()Tj
(WTO \). Unless modified significantly, these provisions of the new GATT \
will undermine state and )Tj
T*
(local fiscal sovereignty and likely favor foreign business over U.S. tax\
payers. )Tj
0 -2.557 TD
(Let me repeat: )Tj
0 -2.557 TD
(* * * will undermine State and local fiscal sovereignty and likely favor\
foreign businesses over U.S. )Tj
0 -1.2 TD
(taxpayers. )Tj
0 -2.557 TD
(If that is true, Mr. President, this can simply not be allowed. I say if\
it is true. That is why the )Tj
0 -1.2 TD
(amendment as proposed by Senator )Tj
/T1_4 1 Tf
(Thurmond)Tj
/T1_0 1 Tf
( and that is why the State attorneys general have asked )Tj
T*
(that this Government stop, bring its people together, examine these crit\
ical issues before we move )Tj
T*
(toward fast track and implementation. )Tj
0 -2.557 TD
(Mr. President, there are also problems with the language of the Uruguay \
round agreement, which has the )Tj
0 -1.2 TD
(potential of infringing on State sovereignty. )Tj
0 -2.557 TD
(The phrasing of provisions to prevent State discrimination against forei\
gn businesses is dangerously )Tj
0 -1.2 TD
(vague and would favor foreign entities over American taxpayers in the re\
solution of disputes. )Tj
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(I cannot imagine that this Senate, blinded as we often times are and urg\
ed to promote world trade, would )Tj
0 -1.2 TD
(not have the willingness to stop and look and listen to authorities who \
can flesh out and explain for us )Tj
T*
(these important provisions. )Tj
0 -2.557 TD
(Both GATT and GATS are worded in a far less precise manner than existing\
State tax laws. )Tj
0 -2.557 TD
(A vague agreement opens the door for unfair and conflicting interpretati\
on. )Tj
0 -2.557 TD
(For example, under GATT, prohibiting unjustified discrimination against \
foreign businesses in the )Tj
0 -1.2 TD
(United States does not clearly define a specific standard. )Tj
0 -2.557 TD
(A State law which fulfills the requirements of the U.S. Constitution, ma\
y not meet the broader standard )Tj
0 -1.2 TD
(under GATT and GATS. )Tj
0 -2.557 TD
(The national treatment provision under )Tj
0 -2.557 TD
(GATS requires the United States to ensure that foreign services and serv\
ice providers receive `treatment )Tj
0 -1.2 TD
(no less favorable than that it accords to its own like services and serv\
ice suppliers.' )Tj
0 -2.557 TD
(Under the provision, only foreign businesses receiving a negative econom\
ic impact resulting from a )Tj
0 -1.2 TD
(State law could seek corrective action by the )Tj
(WTO while domestic businesses which are economically )Tj
T*
(harmed by a State guideline would have no similar avenue of redress. Thi\
s grants foreign businesses a )Tj
T*
(significant advantage which their domestic counterparts would not enjoy.\
)Tj
0 -2.557 TD
(The national treatment provision on the surface looks and sounds like th\
e foreign commerce clause of )Tj
0 -1.2 TD
(the U.S. Constitution, but it is significantly different. )Tj
0 -2.557 TD
(Mr. President, I would like to share some information that was included \
in a memorandum to State tax )Tj
0 -1.2 TD
(administrators from two organizations, the Federation of Tax Administrat\
ors and the Multistate Tax )Tj
T*
(Commission: )Tj
0 -2.557 TD
(It reads: )Tj
/T1_1 1 Tf
17.243 -2.562 Td
([Page: S8855])Tj
/T1_0 1 Tf
-17.243 -2.552 Td
(The standards for proving a violation of national treatment are lower th\
an for proving a violation of the )Tj
0 -1.2 TD
(foreign commerce clause. )Tj
0 -2.557 TD
(Because only foreign taxpayers can benefit directly from the `national t\
reatment' provision, they will )Tj
0 -1.2 TD
(have access to a more favorable set of rules than U.S. taxpayers. )Tj
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(State tax provisions that might well meet the requirements of the U.S. C\
onstitution may be found to )Tj
0 -1.2 TD
(violate GATS. )Tj
0 -2.557 TD
(The memorandum goes on to cover dispute settlement panels: )Tj
0 -2.557 TD
(The rulings of trade panels--`dispute settlement bodies'--may become leg\
ally binding on the States and )Tj
0 -1.2 TD
(local governments even though they are not legally binding on the Federa\
l Government. )Tj
0 -2.557 TD
(The Federal Government can decide to comply or not comply with an advers\
e trade panel ruling. )Tj
T*
(However, the dormant foreign commerce and national supremacy clauses of \
the Constitution are binding )Tj
0 -1.2 TD
(on States and localities. )Tj
0 -2.557 TD
(Thus, foreign taxpayers may use the trade panel ruling as evidence in su\
its against States or localities )Tj
0 -1.2 TD
(and could seek enforcement trade panel rulings in our courts on the basi\
s that they reflect the foreign )Tj
T*
(commercial policies of the United States. )Tj
0 -2.557 TD
(The memorandum also states that: )Tj
0 -2.557 TD
(Because of these interactions between trade agreements and the U.S. cons\
titutional law, we think that )Tj
0 -1.2 TD
(State and local tax authority will be undermined, tax burdens may increa\
singly shift from foreign )Tj
T*
(taxpayers to U.S. taxpayers, and desisionmaking authority over State and\
local taxes will increasingly )Tj
T*
(shift from the U.S. Supreme Court to `dispute settlement bodies.' )Tj
0 -2.557 TD
(For these reasons, we have sought protection for all State and local tax\
practices that conform to Federal )Tj
0 -1.2 TD
(law or that are determined by the domestic courts of the United States t\
o be nondiscriminatory under the )Tj
T*
(Constitution. )Tj
0 -2.557 TD
(These arguments and concerns cannot be summarily dismissed, Mr. Presiden\
t. The problems are real and )Tj
0 -1.2 TD
(need to be resolved. I hope that today's discussion on the World Trade O\
rganization will lead to a more )Tj
T*
(thorough discussion as is outlined in the amendment offered by Senator T\
hurmond. )Tj
0 -2.557 TD
(Mr. President, there is another document that I would like to have becom\
e part of the Record. )Tj
T*
(I highly recommend it to my colleagues who support States rights. )Tj
T*
(This testimony was delivered by Dan Bucks, the Executive Director of the\
Multistate Tax Commission, )Tj
0 -1.2 TD
(at the House Subcommittee on Trade hearing last February. The title, int\
erestingly, is `Free Trade, )Tj
T*
(Federalism and Tax Fairness.' )Tj
0 -2.557 TD
(I ask unanimous consent that his testimony before that subcommittee of t\
he House be printed in the )Tj
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(Record. )Tj
0 -2.557 TD
(There being no objection, the testimony was ordered to be printed in the\
)Tj
/T1_1 1 Tf
(Record,)Tj
/T1_0 1 Tf
( as follows: )Tj
/T1_2 1 Tf
19.3846 0 0 19.3846 10 677.4149 Tm
(Free Trade, Federalism and Tax Fairness)Tj
/T1_1 1 Tf
14 0 0 14 195.75 640.114 Tm
(\(TESTIMONY BY DAN R. BUCKS\))Tj
/T1_0 1 Tf
-13.268 -2.557 Td
(The Multistate Tax Commission is an interstate compact agency that works\
to ensure that multistate and )Tj
0 -1.2 TD
(multinational businesses pay a fair share--but not more than a fair shar\
e--of taxes to the states and )Tj
T*
(localities in which they operate. We encourage states to adopt uniform t\
ax laws and regulations in the )Tj
T*
(interest of tax fairness as well as administrative ease and efficiency f\
or businesses that operate in several )Tj
T*
(states and nations. )Tj
0 -2.557 TD
(This testimony substantially draws on a larger report prepared by the st\
affs of both the Multistate Tax )Tj
0 -1.2 TD
(Commission and the Federation of Tax Administrators, the latter being th\
e professional association of )Tj
T*
(state tax officials. The Commission appreciates and acknowledges the eff\
orts of the Federation in )Tj
T*
(helping to analyze the impact of international trade agreements on state\
taxation. )Tj
0 -2.557 TD
(The Commission views the General Agreement on Tariffs and Trade \(GATT\)\
and the General )Tj
0 -1.2 TD
(Agreement on Trade in Services \(GATS\) from this perspective of fundame\
ntal fairness and efficiency. )Tj
T*
(States are committed to treating foreign taxpayers as well as they treat\
U.S. taxpayers who do business )Tj
T*
(in their borders, and the Commission fully supports this principle of eq\
ual taxation. Equality of tax )Tj
T*
(treatment provides a level playing field for the expansion of internatio\
nal trade. )Tj
0 -2.557 TD
(The U.S. Constitution established a foundation for our nation based on t\
he principles of free trade and )Tj
0 -1.2 TD
(federalism. It has created the most successful free trade area known in \
modern times and establishes the )Tj
T*
(ideal pursued by other nations in international trade agreements. The Co\
nstitution also establishes a )Tj
T*
(successful system of federalism. In a world where other nations are bese\
t with social tension, and even )Tj
T*
(civil war, over issues of balancing the aspirations of local communities\
with central governments, the U.)Tj
T*
(S. system is a model for balancing local and national interests. )Tj
0 -2.557 TD
(Over the past two centuries, our nation has enhanced and developed an ef\
fective balance between free )Tj
0 -1.2 TD
(trade and federalism--a balance that flourishes today. However, GATT and\
GATS, which do not )Tj
T*
(recognize principles of federalism and the sovereignty of state governme\
nts, threaten to destroy that )Tj
T*
(balance. Thus, the Commission proposes measures that would restore, in t\
he context of GATT and )Tj
T*
(GATS, a proper balance between free trade and federalism and ensure tax \
fairness. )Tj
0 -2.557 TD
(The Constitution, as noted, guarantees that states and localities will t\
reat foreign taxpayers equally as )Tj
0 -1.2 TD
(compared to domestic taxpayers. Unfortunately, without significant adjus\
tment through the exemption )Tj
T*
(and reservation process and implementing legislation, GATT and GATS will\
violate the principle of )Tj
T*
(equality under the Constitution by granting rights and privileges in sta\
te and local taxation to foreign )Tj
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(taxpayers that are not available to domestic taxpayers. Without adjustme\
nts, GATT and GATS will over )Tj
0 -1.2 TD
(the long-term: )Tj
0 -2.557 TD
(Reduce state and local taxes paid by foreign taxpayers and unfairly shif\
t that tax burden to U.S. )Tj
0 -1.2 TD
(businesses and ordinary citizens, )Tj
0 -2.557 TD
(Transfer authority to determine state and local tax policy from the stat\
es, subject to the review of )Tj
0 -1.2 TD
(Congress and the U.S. Supreme Court, to international trade panels with \
little or no expertise in state and )Tj
T*
(local tax policy or constitutional law relating to federalism, and )Tj
0 -2.557 TD
(Erode the ability of states to perform their role as `laboratories of de\
mocracy' in our system of )Tj
0 -1.2 TD
(federalism--fashioning local solutions to local problems. )Tj
0 -2.557 TD
(These problems will arise from the interaction of GATT and GATS with sta\
te and federal laws. The key )Tj
0 -1.2 TD
(features of this interaction are as follows: )Tj
0 -2.557 TD
(First, GATT and GATS establish special rules and appeal procedures that \
are available only to foreign )Tj
0 -1.2 TD
(taxpayers and that are more favorable than the rules and procedures avai\
lable to U.S. taxpayers under )Tj
T*
(state and federal law and the Constitution. If a special class of taxpay\
ers has access to rules and )Tj
T*
(procedures that are more favorable to them than other taxpayers, those t\
axpayers will ultimately receive )Tj
T*
(tax benefits at the expense of those less favored. )Tj
0 -2.557 TD
(Second, unless Congress enacts appropriate provisions of implementing le\
gislation, rulings to )Tj
0 -1.2 TD
(international trade panels may be legally binding on state and local gov\
ernments, even though they are )Tj
T*
(not legally binding on the federal government. States are subject to the\
foreign commerce and national )Tj
T*
(supremacy clauses of the Constitution. Unless an international trade pan\
el ruling is specifically rejected )Tj
T*
(by the federal government, foreign parties may seek enforcement of that \
ruling. )Tj
0 -2.557 TD
(Third, states base many of their tax policies on either the federal tax \
laws or on mandates imposed by the )Tj
0 -1.2 TD
(federal government. The federal law may not conform to the trade agreeme\
nts, and states may find their )Tj
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(taxes vulnerable under the agreements simply because they are following \
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(The special rights and privileges that taxpayers will enjoy under GATT a\
nd GATS arise from the broad )Tj
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(and ambiguous terms used in the agreements and the `dispute settlement m\
echanisms' established by the )Tj
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(agreements. Specifically, the following features of the agreements creat\
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(The agreements use broad language that is much less precise than tax law\
and create the potential for )Tj
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(unpredictable, unintended and unfortunate decisions. For example, `unjus\
tified discrimination' is an ill-)Tj
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(defined, ambiguous standard in the agreements, and the limited history o\
f GATT authorities applying )Tj
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(that standard to state taxation is disturbing. )Tj
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no longer be required to bring an )Tj
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(action in the domestic courts of the U.S., but they could instead recrui\
t their government to lodge a )Tj
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(GATT complaint against the state or locality. `Dispute Settlement Bodies\
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T*
(persons from other nations who are trade experts, but most likely have l\
ittle or no tax or federalism )Tj
T*
(experience, would rule on complaints by foreign nations against a state \
or local tax practice. The Dispute )Tj
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(Settlement Bodies would not be bound by U.S. court precedents or any oth\
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(to, at its sole discretion. )Tj
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deralism, and more )Tj
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(specifically the rights of state governments, which are otherwise consti\
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(discriminating against foreign and interstate commerce, as a positive va\
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T*
(will be under no obligation to balance the claims of trading interests w\
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(rights. )Tj
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(These features combine to create opportunities for tax benefits for fore\
ign taxpayers that are more )Tj
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(favorable than any U.S. taxpayer can attain. This fact is illustrated by\
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T*
(that has been subject to a dispute settlement ruling under GATT. This ca\
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(Beer II and involved a Canadian-U.S. dispute over federal and state taxe\
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(affecting the beer industry. \(This GATT panel decision is commonly refe\
rred to as `Beer II.'\) The Beer II )Tj
T*
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cisions that will likely flow from )Tj
T*
(Dispute Settlement Bodies under GATT and GATS. Beer II ignores federalis\
m entirely and fails to )Tj
T*
(acknowledge the sovereign right of states in a federal system to establi\
sh different, but non-)Tj
T*
(discriminatory, laws that reflect local conditions that do not necessari\
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T*
(Beer II creates tax benefits in states for foreign breweries that no U.S\
. brewery could obtain in the U.S. )Tj
T*
(court system. )Tj
0 -2.557 TD
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(arbitrarily broad notion of `discrimination;' \(ii\) application of the \
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(Constitution. )Tj
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nterstate or foreign commerce. In )Tj
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(particular, )Tj
T*
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ion that is conditioned only on )Tj
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(the size of the brewery and is completely neutral with respect to the na\
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T*
(brewery, its product or its inputs. No microbrewery located in Canada is\
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(tax treatment. \(The Minnesota law is distinguishable from some of the o\
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T*
(Beer II that condition favorable tax treatment on geographic location.\)\
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(unwilling to make that distinction. Employing a `beer is beer' standard,\
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T*
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T*
(able to make reasonable or rational distinctions between beer produced u\
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(unrelated to geographic location. The `beer is beer' standard negates th\
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(policy choices where there is no evidence of an intent to discriminate a\
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(ruling may well provide large Canadian brewers with a special tax benefi\
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and GATS can undermine the )Tj
T*
(equality of treatment between foreign and domestic taxpayers that is gua\
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(Constitution. Unless adjusted, GATT and GATS tilt an otherwise level sta\
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(collection of taxes. )Tj
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(Beer II reasoning, if applied to state taxation: )Tj
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