§ Mr. Rostasked the Secretary of State for Trade and Industry what recent representations he has made to the United States Government of the tax deferral scheme for exports operated through the Domestic International Sales Corporations.
§ Mr. NobleAnaide-memoire was delivered to the United States authorities on 3rd July. Following is the text:
Aide Memoire
Her Majesty's Government refer to their aide-memoire dated 18th October, 1971, which drew attention to the legislative proposals then under consideration which made provision for US manufacturers to set up Domestic International Sales Corporations (DISCs) to manage their export business and for these corporations to obtain deferment of their tax obligations.
Since the enactment of these proposals a large number of DISCs have been established and HMG have become increasingly concerned about the potentially damaging effects of the DISC legislation on international trade. Estimates published by the US Government and by the Joint Committee on Internal Revenue Taxation on the sum of tax relief on export trade earnings which will be enjoyed by US exporters under this legislation, and statements made by the US Government on their expected effects on export trade from the United States, indicate that the scheme can be expected to have a serious effect on the position of UK and other traders in competition with exporters from the United States.
It is the view of Her Majesty's Government that the indefinite deferment of direct taxes under the DISC scheme enables export prices to be reduced below the comparable price in the US domestic market. The DISC legislation is therefore clearly contrary to the obligations under the declaration giving effect to the provisions of Article XVI(4) of the General Agreement on Tariffs and Trade.
Her Majesty's Government further maintain that a measure of this kind involving a direct remission of tax is likely to cause serious disturbance in the pattern of international trade and, by provoking the widespread adoption of similar measures, could lead to a damaging and costly competitive struggle between trading countries which would be in the interests of none.
In view of the above consideration Her Majesty's Government request consultations under Article XXIII(1) of the GATT at an early and mutually convenient date.
Her Majesty's Government are, in addition, very concerned that the DISCs statute should provide for certain freight rates to qualify towards export costs of DISC provided that 330W the goods are carried in aircraft owned and operated by United States persons, or in ships documented under the laws of the United States. Her Majesty's Government expect these discriminatory provisions to have damaging effects on the trade both of UK air carriers and of UK maritime interests. In particular, the extension of discrimination into the field of normal commercial cargo could undermine the conference system in the North Atlantic and the efforts that have been made to restore order and profitability to the trade on these routes.
As was made clear to representatives of the US State Department on 20th March, 1972, in the view of Her Majesty's Government these regulations are totally inconsistent with US international obligations under the terms of the UK/US Air Services Agreement, and particularly with paragraph (4) of the "Final Act" of the Bermuda Civil Aviation Conference.
The regulations are also in breach of the obligations assumed by the United States Government under the 1794 Treaty of Amity, Commerce and Navigation, and under the 1815 Convention of Commerce.
In view of the obligations referred to in paragraph 7 and 8 above, Her Majesty's Government request early clarification of the steps the US Government propose to take to remedy this situation in order to fulfil their international undertakings.
British Embassy,
Washington,
3rd July, 1972.