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June 18, 2020

Tax and trade discussed by USTR Lighthizer at Finance hearing

The Senate Finance Committee held a hearing June 17 with U.S. Trade Representative (USTR) Robert Lighthizer during which he was again asked, as he was in a morning House Ways & Means hearing, about press reports that the United States suspended its involvement in the OECD BEPS 2.0 project negotiations, along with trade questions regarding China, a potential UK trade agreement, and the World Trade Organization (WTO).

Asked about the Administration's plan to protect US tech companies from discriminatory taxes after walking away from the talks, Lighthizer said "what they are doing is fundamentally unfair to American companies; they are picking on them because they are the best and because they are not their companies." He said other countries are dug in on this, we have to show our strength, and what Secretary Mnuchin said is 'If you all think you are going to get a consensus around taxing our companies unfairly, we are not going to be a part of it.' A solution is still necessary, and he believes it should involve a tax scheme that treats countries fairly, and if the US is not treated fairly, the President will make a decision about whether to take action. Lighthizer said he doesn't think what happened at the OECD is the end of the process of trying to work out a solution. "We still have to do that," he said.

The comments were consistent with his remarks during the latter part of the Ways & Means hearing earlier during which Lighthizer confirmed reports that the United States suspended its involvement in the OECD negotiations to develop a new regime for taxing local profits of global companies under so-called Pillar 1 of the BEPS 2.0 project. According to a Financial Times report, Treasury Secretary Steven Mnuchin told counterparts from other nations in a letter that the talks had reached an impasse that prevented US agreement on even any interim implementation of Pillar 1 and the creation of new taxing right for countries that would augment the arms-length transfer pricing rules with a formulary approach to allocate profits into market jurisdictions. He reportedly said nations were "much closer to an agreement" on the Pillar 2 minimum tax element of the plan than Pillar 1.

If the tax development upstaged trade news during the Ways & Means hearing, then both issues seemed to be overshadowed during the Finance Committee hearing by newspaper reports on a forthcoming book by former National Security Adviser John Bolton and its discussion of the President's interactions with China, which multiple Democratic senators asked Lighthizer about.

The hearing comes as countries around the world begin to advance candidates for the soon to be open WTO Director General position. Chairman Chuck Grassley (R-IA) published an op-ed June 16 calling for the WTO to be nimble and reformed, including in areas like dispute resolution.

Regarding a potential US-UK trade agreement, Lighthizer said it would likely cut across all sectors but probably won't go to zero tariffs. As he did during an earlier House hearing, he said agriculture could be a sensitive area. Senator Ben Cardin (D-MD) said he has concerns about how poultry, which has a significant footprint in his state, would be treated under the deal.

Senator John Cornyn (R-TX), who co-sponsors the CHIPS for America Act to create a 40% refundable investment tax credit (ITC) for qualified semiconductor equipment, inquired about reshoring and agreed with Lighthizer that a suite of tax and regulatory policies are needed to bring manufacturing back to the United States. Lighthizer said the broad goals of the bill have support in the White House but he couldn't speak to specifics.

Senator Steve Daines (R-MT) asked about the status of negotiations with India especially with regard to agricultural issues like tariffs on pulse crops (like lentils and chickpeas). Lighthizer said some tariffs imposed are extremely high.


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