News

NEWS USA

A weekly service provided to the American Chambers of Commerce in Europe

ECONOMIC NEWS

U.S. TRADE DEFICIT WIDENS TO RECORD $37.6 BILLION

The U.S. Department of Commerce reported that the U.S. trade deficit widened to a record $37.6 billion in May from $36.1 billion in April, with economic recovery fueling the United States' highest-ever demand for imports of motor vehicles and parts and consumer goods. Exports increased to $80.6 billion in May from $80 billion in April, while imports rose more sharply to $118.3 billion from $116.2 billion over the same period. The overall U.S. deficit comprises a deficit in goods of $41.5 billion and a surplus in services of $3.9 billion. In May, the United States imported $17.9 million dollars in motor vehicles and parts, up from $17 billion in May, while consumer goods imports rose to $25.6 billion from $25 billion. The U.S. goods deficit with Western Europe rose from $7.2 billion in April to $8.4 billion in May with exports falling by $300 million. Imports from Europe, primarily of civilian and military aircraft, rose by $900 million.

INTERNATIONAL TAX BILL MARKUP POSTPONED UNTIL AFTER AUGUST RECESS

House Ways and Means Committee Chairman Bill Thomas (R-CA) told reporters on July 25 that it is unlikely that his committee will markup his international tax legislation (HR-5095) this week but will do so after the August recess. Thomas stated that after consulting with his colleagues and others, he is collecting a series of potential amendments designed to improve the bill. The legislation would replace the Extraterritorial Income Exclusion Act of 2000 (found to be an illegal subsidy by the WTO) with 19 separate tax breaks that mainly benefit companies doing business overseas. The bill would also severely restrict so-called corporate inversions when U.S. companies relocate their headquarters overseas to reduce their US taxes. The bill also creates new penalties for abuse of tax shelter transactions.

HOUSE PASSES FAST-TRACK TRADE PACKAGE

On July 27th, the House of Representatives passed by a three-vote margin a trade package that includes fast-track negotiating authority until 2007. The omnibus trade legislation (HR-3009) renewed trade promotion authority (TPA), expanded trade adjustment assistance (TAA) programs for workers displaced by trade, renewed and expanded the Andean Trade Preferences Act (ATPA) and renewed the Generalized System of Preferences (GSP). The bill extends from 52 to 78 weeks the period workers who lose their jobs because of trade are paid to allow recipients to complete training. It extends eligibility to some secondary workers and extends benefits when manufacturing plants move to nations that have free or preferential trade agreements with the US. For the first time, this legislation extends health insurance to dislocated workers. Workers would be eligible for a 65% refundable tax credit to be used to pay federal or state-based group coverage rates. The training budget would also be increased from $140 million to $220 million. The TAA package would cost roughly $12 billion over ten years.

Trade promotion authority (TPA) gives the President and his negotiators the authority to negotiate international trade agreements that Congress must consider within a limited period of time and vote up or down without amendments. In return, the Administration pledges to consult with Congress throughout the negotiations. Language in this bill also sets overall negotiating objectives including: reducing trade barriers, strengthening dispute settlement procedures, improving adherence to international labor and environmental standards, protecting US trade remedy laws, and reducing barriers to US agricultural products. US trade officials say enactment of this legislation into law will allow the administration to begin work immediately on finalizing trade agreements with Chile and Singapore. The Administration also wants to reach agreements with Central America and Morocco.
Senate Majority Leader Tom Daschle (D-SD) said he will bring the trade bill conference report up this week and file cloture in an attempt to gain Senate approval before the Senate adjourns at week's end so that President Bush can sign the bill into law ASAP.

U.S. EXCLUDES ADDITIONAL IMPORTS FROM STEEL DUTIES

The U.S. Department of Commerce and the Office of the U.S. Trade Representative (USTR) have announced the fifth set of exclusions from temporary tariffs on steel imports imposed March 5 by President Bush under Section 201 of U.S. trade law. In a July 19 news release the department said that 14 additional steel products were excluded because they are not produced in the United States in sufficient quantities and their exemption does not undermine the effectiveness of the steel remedy. In making the decision, Commerce and USTR took into consideration information provided by U.S. and foreign steel producers as well as U.S. steel consumers. President Bush recently extended to August 31 a deadline for completing the exemption process. The department said that further exclusions would be announced on a rolling basis.

U.S., UK PROPOSE AMENDMENTS IN BILATERAL INCOME TAX TREATY

The Treasury Department announces that a Protocol to the Income Tax Convention between the United States and the United Kingdom was signed at the State Department on July 19, 2002. The Protocol amends the income tax treaty signed last year between the United States and the United Kingdom. The Protocol provides technical clarification of certain provisions of the proposed treaty and reinstates the article of the existing income tax treaty that provides benefits to teachers participating in cross-border exchange programs. Following completion of ratification procedures in both countries, the proposed Convention, as amended by the Protocol, will replace the existing tax treaty between the United States and the United Kingdom, which has been in effect since 1980. In the United States, the proposed Convention and Protocol are subject to the Senate's advice and consent to ratification.

ACCOUNTING-CORPORATE REFORMS LEGISLATION ON ITS WAY TO PRESIDENT

Congress approved legislation (HR-3763) intended to reduce accounting and corporate fraud. The House approved the measure by a 423 to 3 vote the Senate passed it 99 to 0. The White House said President Bush would sign the bill as soon as he gets it from Congress.

The bill includes the following key provisions: It establishes a five-member oversight board with broad investigative and disciplinary powers that will be overseen by the SEC. It prohibits auditors from offering nine types of consulting services to corporate clients and dramatically increases penalties for securities fraud, mail fraud, wire fraud and defrauding pension funds. It creates a new crime for destroying, altering or fabricating records in federal investigations, increases penalties for CEO or CFO false statements to the SEC, requires the preservation of key financial records and audit materials for five years, and requires CEOs and CFOs to certify financial reports. Executives would be prohibited from selling company stock during blackout periods. Insiders would have to report all company stock trades within two days. Executives would be prohibited from receiving loans unavailable to outsiders. The statute of limitations on securities fraud would be lengthened to five years or two from discovery. And officials facing fraud judgments would be prohibited from using bankruptcy to escape liability. The SEC budget would also be increased to $776 million for FY-2003. And, the bill sets up a new restitution fund for injured parties and wronged shareholders to seek compensation. It also establishes a new regulatory scheme that offers new grounds for investors to go to court.