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October 30, 2000

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U.S. Congress Bows to WTO Mandate

Our National Sovereignty is Violated

An extraordinary event occurred this week in Washington during the final days of the 106^th Congress, an event that did not receive comment in either the media or the halls of Congress, save for my office. This event had been termed "unthinkable" only a few months earlier. It occurred despite clear constitutional prohibitions and at the expense of our precious national sovereignty. For the first time in the history of our country, Congress voted to change our domestic laws because an international body told us to do so. The World Trade Organization (WTO) has begun to dictate American laws.

More specifically, Congress voted to change our tax laws relating to Foreign Sales Corporations (FSCs), solely because the WTO appellate panel deemed that our FSC tax rules constituted a "subsidy" - the EU contingent in the WTO had brought a complaint to the panel. Our FSC rules simply allow U.S. corporations to exempt a small portion of income earned abroad from taxes. No "subsidy" is involved; no tax dollars are given to FSCs. Moreover, most EU countries do not tax their corporations on any income earned abroad. Still, the appellate panel agreed with the EU and gave the U.S and October 1^st deadline to change our tax laws.

I have opposed our membership in the WTO throughout my tenure in Congress. I strongly support true free trade, which occurs in the absence of government tariffs. The WTO, however, represents the worst form of government-managed trade.

More importantly, however, our involvement in the WTO threatens national sovereignty. The Constitution clearly vests the power to regulate trade solely with Congress, and Congress cannot cede with mandates in areas such as environmental protections, worker rights, and trade policy. Congress either blindly or willfully chose to ignore this very serious constitutional conflict when it voted in favor of WTO membership. However, a Congressional Research Service report was quite clear about the consequences of our membership: "As a member of the WTO, the United States does commit to act in accordance with the rules of the multi-lateral body. It is legally obligated to insure that national laws do not conflict with WTO rules," (emphasis added).

Earlier this year I sought to address this terrible threat to our sovereignty by introducing a resolution withdrawing us from the WTO. I explained my concerns in a brief to the House Ways and Means trade subcommittee, pointing out the unconstitutionality of our involvement. I warned that the WTO could begin dictating our environmental, labor and tax laws. These arguments were met with hostility and condescension. Subcommittee members stated that we need the WTO to avoid "trade wars," and that the U.S. Congress would never change our domestic laws to satisfy the WTO. "Unthinkable" was how one member put it. Judging by this week's vote, the "unthinkable" has become reality.

We should never change our national laws at the behest of any international organization. Congress simply has ceded it legislative authority to the WTO, and it is shameful that this action likely will go unnoticed by the American people. If we want to help American businesses, we should simply stop taxing their foreign income. The FSC measure will not appease the Europeans; the EU already has indicated that the changes are unsatisfactory to them. We stand on the brink of a retaliatory trade war with the EU, even though we were told that the WTO was needed to avoid such conflicts. So the WTO has given us the worst of all worlds.

Rest assured that the WTO assault on American sovereignty will not end here. What will happen when the Europeans object to another area of our tax laws? Will we change the way we tax individuals also? Perhaps the Europeans will object to our relatively liberal immigration laws, because they resent losing their talented citizens to America. Whatever the issue, the threat remains the same. Americans who care about sovereignty have every reason to be outraged.

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http://www.house.gov/paul/tst/tst2000/tst103000.htm