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American Manufacturing Trade Action Coalition
PRESS STATEMENT
Industry Supports Border Tax Equity Act
Newly Introduced Legislation Would Negate Disadvantage
to U.S. Producers Caused by Foreign Border-Adjusted Taxes
CONTACT: Lloyd Wood
(202) 452-0866 or
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June 18, 2009
WASHINGTON, DC – U.S. Representative Bill Pascrell (D-NJ) joined by fellow U.S. Representatives Walter Jones (R-NC), Mike Michaud (D-ME), Gresham Barrett (R-SC), Marcy Kaptur (D-OH), Lynn Westmoreland (R-GA), and Steve Rothman (D-NJ) introduced the Border Tax Equity Act, H.R. 2927, late yesterday. The legislation would negate the estimated $474 billion disadvantage to U.S. producers and service providers caused by foreign border-adjusted taxes, including value-added (VAT) taxes. Countries with border-adjusted taxes like a VAT use the tax as a trade barrier by assessing it on imports, including shipping, insurance, and tariff costs. They also use a VAT as an export subsidy by rebating it on exports.
“AMTAC thanks Congressman Pascrell and the other sponsors and supporters of this critically important bill. It represents a crucial attempt to rectify one of the largest inequities facing American manufacturers as they attempt to compete globally,” said George Shuster, CEO of the Cranston Print Works of Cranston, RI and Co-Chair of the American Manufacturing Trade Action Coalition (AMTAC).
“Border-adjusted tax schemes stand out as one of the very worst offenders when identifying the reasons why the United States has suffered terrible job and output losses, trade deficits, and spikes in debt in recent years,” continued Shuster.
“Unless the United States addresses the competitive disadvantage caused by foreign border tax schemes, it will never be able to level the playing field for its domestic manufacturers and other producers of goods and services,” Shuster concluded.
In 2007, the estimated disadvantage to U.S. producers of goods and services caused by foreign border-adjusted taxes was $169 billion for the combined 27 nations of the European Union, $58 billion for Mexico, $57 billion for China, $38 billion for Canada, and $11.6 billion for Japan.
Background
When the predecessor of the World Trade Organization (WTO) was set up in the late 1940s in the form of the General Agreement on Tariffs and Trade (GATT), one of its major policy purposes was to reduce the distortions to free trade flows inherent in import tariffs and export subsidies.
Over the years the use of border-adjusted taxes assessed on imports and rebated on exports has grown into a major violation of that core purpose. From one nation, France, with a relatively small level of such import taxes and export rebates, the system has grown to the point that around 150 nations now are using such schemes to evade the GATT's original intent and inflict trade deficits on the United States. The Border Tax Equity Act, however, would stop the charade and force counties to abandon these distortions.
Quick Facts on U.S. Employment, Deficit, and Markets
· the United States has lost 6 million non-farm jobs since December 2007 and U.S. non-farm employment is lower today than it was in November 2000;
· U.S. private sector employment is lower today than it was in November 1999;
· U.S. manufacturing employment is lower today than it was in June 1941;
· U.S. manufacturing has lost 5.35 million jobs in the last decade, including 1.57 million in the last year;
· in April, the United States suffered its first 10-year drop in industrial production since 1929-39 while the U.S. resident population increased by an estimated 36.5 million people (13.5 percent growth) during the same time period;
· From December 1993 to April 2009, U.S. (consumer) demand for Durable Goods and Non-Durable Goods has risen by 119 and 46 percent, respectively. Despite the healthy growth in demand until recently, imports (often heavily subsidized) have cut heavily into domestic market share as U.S. production of Durable Goods only grew by 64 percent and Non-Durable Goods grew by just 5 percent. Consequently, U.S. domestic manufacturing only has captured 53 percent of growth in demand for Durable Goods and a paltry 12 percent of growth in demand for Non-Durable Goods since 1993.
· the United States ran a $673 billion current account deficit in 2008 and has run a cumulative $5.85 trillion current account deficit since 1998;
· combined U.S. household and federal debt stood at $24.9 trillion at the end of 2008, doubling since the bursting of the dot.com financial bubble in 2000; and,
· the combined U.S. and federal household debt of $24.9 trillion was 175 percent of the $14.2 trillion U.S. Gross Domestic Product (GDP) at the end of 2008;
Border Tax Equity Act:
Leveling the Tax Playing Field for U.S. Producers Against Foreign Competition
· U.S. Representative Bill Pascrell (D-NJ) and fellow U.S. Representatives Walter Jones (R-NC), Mike Michaud (D-ME), Gresham Barrett (R-SC), Marcy Kaptur (D-OH), Lynn Westmoreland (R-GA), and Steve Rothman (D-NJ) have introduced the Border Tax Equity Act, H.R. 2927, legislation to negate the estimated $474 billion disadvantage to U.S. producers and service providers caused by foreign border-adjusted tax schemes. (As nearly all of the foreign taxes covered by the Border Tax Equity Act would be in the form of value-added (VAT) taxes, “VAT” is used in place of the term “border-adjusted tax” for brevity.)
How the Border Tax Equity Act Works
· H.R. 2927 would direct the United States Trade Representative (USTR) to negotiate a remedy for the VAT inequity on goodsand services within the World Trade Organization (WTO) by January 1, 2011; and,
· If there is no negotiated solution by that specified date, the United States then (1) would charge an offsetting assessment at theU.S. border on imports of goods and services equal to the amount of VAT rebated to the exporters by the country with a VAT. In addition, (2) the United States would issue rebates equal to the amount of VAT taxes paid by U.S. exporters on goods slapped with VAT taxes by countries that impose them.
· As an early incentive to produce a negotiated remedy within the WTO, if USTR fails to certify that VAT disadvantage has been eliminated by January 1, 2010, the United States would issue rebates equal to the amount of VAT taxes paid by U.S. exporters onservices slapped with VAT taxes when they reach the border of a country imposing VAT taxes. Because such export rebates on services are not prohibited under current WTO rules, imposition of this offsetting measure should not await revision of WTO rules.
Foreign VAT Taxes Tilt Playing Field Against U.S. Producers:
· In 2007, countries accounting for 95 percent of all trade with the United States (approximately 150 nations) employed some type of national border-adjusted indirect taxes (mostly VAT taxes) on services and manufactured goods.
· In 2007 alone, the estimated VAT disadvantage to U.S. goods producers was $368.6 billion and to U.S. services providers $105.6 billion – for a combined estimated disadvantage of $474 billion. Those numbers have only grown since then, as even more countries have adopted a VAT system and as U.S. trade with VAT countries has increased.
· Countries levying national VAT taxes impose them on imports and generally rebate them on exports. The average national VAT tax rate worldwide in 2007 was 15.5 percent.
The United States, however, levies no similar taxes at the border on imports. Foreign manufacturers selling in the United States, pay neither U.S. income/payroll taxes nor their own consumption/VAT taxes as the VAT is rebated by their government on exports.
This severely tilted playing field places U.S. domestic manufacturing at a great competitive disadvantage.
How VAT Taxes Tilt the Playing Field
· The rebate of any national taxes, whether VAT, income or corporate, on exported manufactured goods normally would be viewed as an impermissible subsidy under the GATT/WTO trading regime (rebates on services, however, are permissible). But in the 1950’s the United States agreed to a loophole that allowed the assessment and rebates of VAT taxes to be permissible within the GATT/WTO system.
· Congress has instructed U.S. trade negotiators to make rules changes to first the GATT and then the WTO to eliminate distortions inimical to U.S. producers caused by foreign VAT taxes as a part of granting fast track authorization for trade negotiations in 1974, 1988, and 2002.
· Despite the three-time insistence of Congress, the Executive Branch has been unable negotiate a solution to the VAT disadvantage.
As global trade negotiations over the last half-century have lowered tariffs on imports, new global trade rules have not regulated the rates of VAT taxes that countries may apply to imports. As a result, countries that imposed VAT rates decades ago have been free to increase those rates without any oversight by the WTO or effective remedy by the United States. Consequently, as countries have lowered tariff rates in accordance with commitments under international trade agreements, they have often raised VAT rates, thus denying U.S exporters any additional market access. As a result, foreign exports to the United States encounter a low average tariff and no VAT taxes while U.S. exports face relatively high tariffs plus an additional VAT averaging 15.5 percent.
The Results of a Tilted Playing Field
The tilted playing field against U.S. producers, caused in significant part by foreign VAT taxes, has had a significant impact on theUnited States in the form of:
*5.35 million lost U.S. manufacturing jobs in the last decade, and;
*$5.85 trillion in accumulated current account deficits between 1998 and 2008.
Business and Labor Supports Leveling the VAT Playing Field:
· Groups representing both business and labor support the Border Tax Equity Act.
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Economics, Trade Deficit, Government Spending Deficit, Jobs for Americans, and the Buying Power of the Dollar are all interrelated and very important. These subjects need to be understood by the General Public. Economics is not that complicated. It is interlocked with understandable cause and affect principals of various economic action options.
National economic wealth is created only when a country grows something in the earth, extracts something from the earth, or makes (manufactures or constructs) something that is consumable (or useful). Transportation, distribution, warehousing, taxes, sales, delivery, packaging and other similar costs are added to the value (cost) of the product that was initially created by these basic creative efforts. The USA has almost entirely ceased to generate wealth for future generations.
Industrious nations like China, India, Pakistan, and other foreign nations grow wealthy and secure by creating enough products to support their needs with their farms, factories and mines, plus they earn additional currency by creating additional wealth by exporting additional products that they manufactured. The health of every other business in that economic country depends upon these productive industries.
The US government is selling freshly printed US Bonds (that can be exchanged for title to US real estate) to China and other industrialized wealth generating nations in return for the US dollars that US importing companies paid them to make things for US citizens to consume. The US government uses these US dollars to pay US citizens for raking leaves, environmental cleanup, mortgage bailout, union retirements, TARP, wars, business failures, government payrolls, social programs, and etc. to stimulate the economy, but this just makes the existing US dollars have less value and less buying power. These are cosmetic economic stimulation changes that do not correct the structural problem that is the Trade Deficit.
The US Federal Reserve publicly received bids of almost double the expected interest for $100 billion of freshly printed paper US Treasury securities issued in May 2009 public auctions. The US government will need to "borrow" at least $6 trillion more US dollars from the people in industrial manufacturing countries before the end of 2009 by conducting more of these same US Federal Reserve auctions. Who knows how high the interest rates will be bid at these auctions. China, and other wealth generating nations already hold a large portion of all US federal debt securities, and they are exchanging these instruments for title to US real estate, farms, agri-businesses, food supplies, dairies, forests, industries, breweries, hotels, factories, casinos, financial institutions, retail businesses, and most other assets located in the USA that they do not already own as fast as they can, since the US government does not redeem these dollars for gold.
A Trade Deficit is created when the USA importing, transportation, distributing and retail sales companies such as WalMart, Home Depot, NTB and etc. pay companies and individuals in foreign countries like China with US dollars to manufacture the things that these US businesses import, distribute, and then sell to the US consumers. Manufacturers such as GM, Ford, GE, Chrysler, GE, Westinghouse and etc. manufacture vehicles, appliances, and equipment made with imported parts that they paid the companies in the foreign countries with US currency to manufacture these parts for assembly of the finished product in the USA that is then sold to US consumers.