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The Honorable William J. Clinton
President of the United States
The White House
1600 Pennsylvania Avenue, NW
Washington, D.C. 20500

Dear Mr. President:

The purpose of this letter is to provide you with the views of the President's Export Council on several tax matters affecting the international competitiveness of American industry. In particular, we urge you to work with Congress to include a permanent research and experimentation (R&E) tax credit and to extend for as long as possible the rules permitting U.S. financial services companies to defer U.S. tax on their active foreign earnings in any tax legislation that you may sign into law this year. In addition, we urge you to pursue every available avenue to maintain the foreign sales corporation (FSC) tax exemption.

At the outset, we would like to express our appreciation for your continued support of extensions for the R&E credit. We look forward to your continued support in the future, as you have long recognized the importance of technology to our national ability to compete in a global marketplace. As you know, the credit provides a significant incentive for private sector investment in research and innovation to enhance America's economic performance and productivity.

The members of the PEC believe that the active financing exception to subpart F of the internal Revenue Code is vital to the goal of putting U.S. financial services industry on an equal footing with foreign-based competitors. These rules comport with the tax treatment accorded most other U.S. companies.

On the FSC, we view the recent adverse WTO decision to be a serious blow to the position American exporters and their U.S.-based manufacturing employees. We pledge to work with you on any appeal that is filed in the case and on any future efforts to enhance the competitive position of U.S. exporters while fully complying with our international trade obligations.

We believe that the R&E credit, the active financing exception to subpart F, and the FSC rules illustrate the significant impact of tax policy on competitiveness. There are a number of considerations that shape U.S. international tax policy, but we believe that competitiveness and fairness are the primary factors. It is clear that the tax burden on U.S. multinationals is a major factor affecting their competitiveness. And if this tax burden is excessive compared with that of their foreign competitors, the competitiveness of U.S. multinationals will suffer.

Moreover, the specific impact of international tax policy on competitiveness has received heightened attention in recent months in congressional hearings. We believe that these hearings demonstrated the important point that U.S. multinationals should not be hampered by higher effective taxes than their foreign competitors.

This point arises from the premise that it is important in the long run for U.S. based corporations to be represented in significant global industries. U.S. headquartered companies significantly enhance the economic well being of the United States. Examples of the benefits to the U.S. economy from U.S.-based multinationals include: over 70 percent of the assets and jobs are located in the U.S; the company will perform 88% of its R&D in the U.S. (vs. 67% of its sales); the company will invest and pay more per job at home than abroad (including developed countries); and the company will supply foreign subsidiaries much more heavily from U.S. sources.*

Specifically, we urge you to seek and support changes in the foreign tax credit rules on interest allocation, treatment of domestic losses and the unlimited recapture of foreign losses. We recommend that you carefully review the U.S. international tax system to root out major impediments limiting U.S. multinationals' ability to compete globally with foreign-based multinationals.

In closing, we would like to reiterate our commitment to working with you further in an advisory capacity on these issues. We appreciate the opportunity to share with you our views on these important and timely matters.

Sincerely,

/s/
C. Michael Armstrong
Chairman

___________________________ * Source: L. D'Andrea Tyson, They are not us: why American ownership still matters, The American Prospect, Winter 1991, pp. 37-49.

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