Sec. 2. Findings and declarations of policy
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Congress makes the following findings: The United States largely relies on a direct tax system, whereas 164 countries currently employ one particular form of indirect tax known as value-added taxes
(VAT)as well as direct taxes. The worldwide VAT average in 2015 was 15 percent, and in countries of the European Union it was 21 percent. Under the rules of the World Trade Organization (WTO), direct taxes, such as corporate income taxes, if rebated or refunded upon the export of goods, are viewed as export subsidies and prohibited on most goods and are at least potentially actionable on all goods. However, indirect taxes, such as sales taxes and VAT, may be rebated or refunded upon the export of goods and such rebate or refund is not defined as constituting a subsidy and hence is not actionable under WTO rules. At present, there are no WTO rules on subsidies as applied to trade in services. However, a number of countries currently impose taxes on the import of services and exempt or rebate or refund taxes upon the export of services, to the disadvantage of United States service providers. The disparate treatment of border taxes detrimentally affects United States agricultural producers, manufacturers, and service providers in that— refunds of indirect taxes effectively act as export subsidies to foreign exporters; and United States exporters are subject to double taxation, by paying direct taxes on domestic production in the United States and having their exported product or service face a border tax in the importing country consisting of indirect taxes. As one example, governments of member states of the European Union, with an average VAT of 21 percent in 2015 and total exports to the United States of $427.5 billion, paid their producers an estimated $91.9 billion of VAT rebates on goods exported to the United States in 2015. These governments collected from United States producers an estimated $28.7 billion of VAT-equivalent taxes on their imported goods. For services, these governments paid their producers an estimated $47.6 billion of VAT-equivalent taxes on services exported to the United States and collected from United States producers an estimated $36.3 billion of VAT-equivalent taxes on services imported from the United States. The combined goods and services disadvantage in 2015 was $204 billion. For more than 45 years, United States businesses have complained of border tax inequity and, since 1968, prior United States administrations and Congresses have sought to resolve it. Congress has repeatedly recognized the prejudicial effect of the disparate treatment of border taxes with respect to goods and has directed the United States to seek a negotiated solution: In passing the Trade Act of 1974 ( 19 U.S.C. 2101 et seq. ), Congress sought revision of GATT articles with respect to the treatment of border adjustments for international taxes to redress the disadvantage to countries relying primarily on direct rather than indirect taxes for revenue needs. . In section 1101(b)(16) of the Omnibus Trade and Competitiveness Act of 1988 ( 19 U.S.C. 2901(b)(16) ), section 2102(b)(15) of Bipartisan Trade Promotion Authority Act of 2002 ( 19 U.S.C. 3802(b)(15) ), and section 102(b)(18) of the Bipartisan Congressional Trade Priorities and Accountability Act of 2015 ( 19 U.S.C. 4201(b)(18) ) Congress declared that a principal trade negotiating objective of the United States is to obtain a revision of WTO rules with respect to the treatment of border adjustments for internal taxes to redress the disadvantage to countries relying primarily on direct taxes for revenue rather than indirect taxes. The disparate treatment of border taxes is arbitrary, inequitable, causes economic distortions based only on the type of tax system used by a country, and is a primary obstacle to more balanced trade relations between the United States and its major trading partners. Congress declares the following: It is critically necessary that the issue of border taxes be addressed and resolved during current and future WTO negotiations. If such WTO negotiations fail to achieve the United States trade negotiating objective of revising rules with respect to the treatment of border taxes in order to redress the disadvantage to countries relying primarily on direct taxes for revenue rather than indirect taxes, then effective action through legislation is warranted given the massive and inequitable distortions to trade that United States agricultural producers, manufacturers, and service providers face as a result of border taxes.
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