Wichita Standard

Rep. Ron Estes (R-Kansas) delivered remarks during a Ways and Means Trade Subcommittee hearing, criticizing the U.S. Trade Representative's (USTR) abandonment of U.S. digital trade priorities at the World Trade Organization (WTO). He expressed concern over the Biden administration's damaging proposals that undermine U.S. sovereignty and harm the country's tax base.

Estes has been consistently vocal about the Biden administration's acquiescence to policies that disadvantage the United States internationally. He has previously published an op-ed with MP Priti Patel on the OECD Pillar Two Tax Scheme and led a letter to the Treasury demanding accountability. He also traveled to Germany and France with his Ways and Means colleagues to discuss Pillar Two with European leaders.

During the hearing, Estes addressed the issue of intellectual property theft and its impact on U.S. R&D competitiveness and tax consequences. He highlighted the importance of research and development in generating intellectual property and the incentives provided by the current tax system. Estes mentioned the immediate R&D expensing and R&D tax credit, which support small and medium-sized businesses engaged in cutting-edge research. He also emphasized the Foreign-Derived Intangible Income (FDII) deduction, which rewards companies for domiciling IP in the U.S.

However, Estes expressed concerns that the administration's participation in intellectual property theft acts as a disincentive for American businesses to conduct R&D within the country. He warned that the TRIPS waiver, which allows other countries to steal American businesses' intellectual property, sets a dangerous precedent. Estes stated, "We now have countries at the WTO proposing more tech transfers, localized operations, and data localization – in short, the complete abandonment of U.S. digital trade priorities."

Estes then turned to Ms. Shaw, asking for her opinion on the overall effects on the U.S. economy and research and development if the administration fails to oppose foreign government demands on localization. Shaw responded, expressing concerns that these proposals could lead to U.S. companies establishing permanent establishments in foreign countries, resulting in job migration and decreased payroll taxes remitted to the U.S. Treasury.

Estes further highlighted the interaction between these WTO policies, the global tax system, and the OECD's Pillar Two. He explained that the Tax Cuts and Jobs Act of 2017 created the FDII and GILTI regimes to incentivize IP localization in the U.S. and prevent corporate inversion. However, Estes voiced his opposition to OECD's Pillar Two, particularly the qualified domestic minimum top-up tax (QDMTT), which would be assessed by foreign countries on U.S. companies with a physical presence in those countries. He expressed concerns that QDMTTs would take priority over GILTI and FDII, potentially decreasing U.S. tax receipts.

Ambassador Shea was then asked about the overall effects on the U.S. tax base, to which she responded, "This has an impact on our trade just because of the way it's discussed and the work that you've done on the WTO has been so beneficial in highlighting the weaknesses there."

In conclusion, Rep. Ron Estes condemned the USTR's abandonment of U.S. trade priorities at the WTO. He emphasized the need for the USTR to focus on policies that benefit the United States and utilize the original purpose of the WTO to facilitate international trade.