10:35 AM Nov 23, 1993

US RISKING HARD WON GAINS, SAYS SUTHERLAND

Geneva 23 Nov (Chakravarthi Raghavan) -- Senior US tax official, US Asst. Treasury Secretary for tax policy, Leslie Samuels was taking back to Washington the strong message from the GATT chief Peter Sutherland that by insisting on a tax derogation provision in the GATS, the US risked undercutting its hard-won gains in the services negotiations in the shape of right of establishment/commercial presence abroad for its service enterprises, trade officials said Tuesday.

Samuels had met Sutherland and got the same message as at the GNS Monday. He was told by Sutherland that if everyone followed, as they were bound to, the US example and took a horizontal exception for their tax policies in their schedules of initial commitments on services, the US as the largest service supplier and whose TNCs have the maximum presence abroad, would lose the security for investors provided in the GATS by the right of establishment and sealed in the market access commitments.

The effect of the US 'exception' would be to grant the US complete freedom to discriminate against foreign service suppliers in tax policy and when that is emulated by others, there would be really nothing left in the GATS package.

The legitimate concerns of tax authorities, over possibilities of tax evasion by foreign suppliers, had been considered at length for nearly two years by the GATS negotiators and compromise language, drafted by the US treasury itself, had been accepted, but it was now being reopened.

How could 114 countries in the Round, with all their tax expertise, come to the conclusion that no Party's domestic tax system or double taxation agreement was threatened by the GATS, while the 115th, the US, could feel threatened, Sutherland reportedly asked Samuels.

The unlimited right to discriminate between foreign and domestic service suppliers through tax laws would completely undermine the security for investors provided by the guarantee of right of establishment of the GATS and sealed in the schedule of initial commitments.

If the US had no intention, now or in the future, to discriminate thus between foreign and domestic service suppliers, why was it raising this issue at this late stage again and risking the whole package.

The US was by far the biggest services exporter and its firms had the largest presence in other countries and thus stood to lose more by lack of multilateral discipline and dispute settlement and should reconsider its position, Samuels was advised.