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Fact: China trade produces nearly one-third of our trade deficit. Oil produces another third.
Fact:
China manipulates currency. This makes their exports to us about
40% cheaper and our exports to them about 40% more expensive.
Fact:
China has a value added tax system. The amount is 17% of the
value of goods. They rebate all tax when exporting, and assess all tax
when importing. This is a tariff on imports and a subsidy on
exports.
Fact: All major trading partners have a VAT, and do the same tariff/subsidy thing as China.
Fact: Comparative advantage is great. Perhaps we'll get it someday.
A
House hearing was held this week on China trade. Currency
manipulation and the VAT were big issues. The relevant transcript
excerpts are on the next page. (read more)
Thanks to Lloyd Wood, Director of Membership and Media Outreach, AMTAC for the excerpts.
Federal News Service
August 2, 2007 Thursday
PANEL II OF A HEARING OF THE TRADE SUBCOMMITTEE OF THE HOUSE WAYS AND MEANS COMMITTEE;
SUBJECT: TRADE WITH CHINA: CURRENCY, FOOD SAFETY;
CHAIRED BY: REPRESENTATIVE SANDER LEVIN (D-MI);
WITNESSES:
DAVID M. SPOONER, ASSISTANT SECRETARY FOR IMPORT ADMINISTRATION, INTERNATIONAL TRADE ADMINISTRATION, DEPARTMENT OF COMMERCE;
MARK SOBEL, DEPUTY ASSISTANT SECRETARY FOR INTERNATIONAL MONETARY AND FINANCIAL POLICY, U.S. DEPARTMENT OF TREASURY;
DANIEL BRINZA, ASSISTANT U.S. TRADE REPRESENTATIVE FOR MONITORING AND ENFORCEMENT, OFFICE OF THE U.S. TRADE REPRESENTATIVE;
DANIEL BALDWIN, ASSISTANT COMMISSIONER, OFFICE OF INTERNATIONAL TRADE,
U.S. CUSTOMS AND BORDER PROTECTION, DEPARTMENT OF HOMELAND SECURITY;
LOCATION: 1100 LONGWORTH HOUSE OFFICE BUILDING, WASHINGTON, D.C.
SECTION: CAPITOL HILL HEARING
LENGTH: 9291 words
PANEL II OF A HEARING OF THE TRADE SUBCOMMITTEE OF THE HOUSE WAYS AND
MEANS COMMITTEE SUBJECT: TRADE WITH CHINA: CURRENCY, FOOD SAFETY
CHAIRED BY: REPRESENTATIVE SANDER LEVIN (D-MI) WITNESSES: DAVID M.
SPOONER, ASSISTANT SECRETARY FOR IMPORT ADMINISTRATION, INTERNATIONAL
TRADE ADMINISTRATION, DEPARTMENT OF COMMERCE; MARK SOBEL, DEPUTY
ASSISTANT SECRETARY FOR INTERNATIONAL MONETARY AND FINANCIAL POLICY,
U.S. DEPARTMENT OF TREASURY; DANIEL BRINZA, ASSISTANT U.S. TRADE
REPRESENTATIVE FOR MONITORING AND ENFORCEMENT, OFFICE OF THE U.S. TRADE
REPRESENTATIVE; DANIEL BALDWIN, ASSISTANT COMMISSIONER, OFFICE OF
INTERNATIONAL TRADE, U.S. CUSTOMS AND BORDER PROTECTION, DEPARTMENT OF
HOMELAND SECURITY LOCATION: 1100 LONGWORTH HOUSE OFFICE BUILDING,
WASHINGTON, D.C. TIME: 10:18 A.M. EDT DATE: THURSDAY, AUGUST 2, 2007
(BEGIN EXCERPT)
REP. BILL PASCRELL (D-NJ): Thank you, Mr. Chairman.
Before I get to my points and questions, I would like to just respond to what I've just heard if I may.
The words as spoken by the trade representative is more evidence to me,
I think and to others, of how we can play with figures. In your warning
to us, Mr. Spooner, that we should depend more on dialogue rather than
legislation is a essential departure from what's going on in the
Congress right now.
Under Article I, Section 8, we, the Congress of the United States, this
present Congress, will exert itself on both sides of the aisle, in
cautious fashion perhaps. We are not in any manner, shape or form
relinquishing our responsibilities. We have a responsibility in the
Congress, as well as the administration and the trade representative.
We will exhibit our responsibilities, and we will fulfill our
responsibilities.
The Congress has set sail with a very different compass in the ocean of
trade. It will never be the same. We are able to see clearly, and we
will remove the pirates from the scene.
In addition to addressing trade distorting currency practices I believe
that this committee also must address the disadvantage to U.S.
producers and service providers caused by the imposition in rebating a
foreign border adjusted taxes, mostly in the form of value added taxes.
When identifying the causes of the uneven playing, and its massive U.S.
trade deficit, and manufacturing job losses, border- adjusted tax
schemes stand out as one of the very worst offenders.
In 2005 the imposition in rebating of border-adjusted taxes
disadvantaged U.S. producers and service providers, Mr. Chairman, by an
estimated $379 billion. U.S. trade with China in goods alone accounted
for an estimated $48 billion of that disadvantage.
China levies VAT taxes like many other countries on imports from the
United States, and generally rebates any VAT paid by producers in China
on exports to the United States.
As China's VAT rate in2005 was 17 percent, these impositions and
rebates have a significant impact on the price of goods and services.
In contrast, the United States which does not have a VAT, but instead
utilizes a direct tax on property, on income, levies no similar taxes
on the border, on Chinese imports, as well as the other hundreds of
countries, 137 countries that we trade with.
So producers in China selling in the United States pay neither the U.S.
income tax, pay neither the payroll tax or their own VAT. As a result
this severely tilts the playing field and places United States domestic
manufacturing at a great competitive disadvantage. And I -- my question
to the panel is this: I would like to hear from the panel their views
on the fact that most imports into the United States are subsidized by
foreign VAT rebates, value-added tax rebates, and all U.S. exports are
not.
To what degree do you feel this is unfair? How does it affect America's
workers? And what solution would you suggest to the Congress of the
United States?
REP. LEVIN: All in one minute. Who wants to try that?
MR. SPOONER: I'll try to be brief.
First of all, Congressman, I hope and believe I didn't say that we
should disregard enforcement at the expense of dialogue. We should use
all the tools in the toolbox, including enforcement. And for that
reason we just reversed 23 years of precedent and applied our anti-
subsidy law to China, which opens a tremendous avenue for U.S.
manufacturers to address unfair trade in China.
Also we have 27 percent of our dumping orders affect Chinese exports, a higher percentage than any other country.
Under our international obligations, in order for us to countervail of
that rebate or any other subsidy, we have to show that there was a
financial contribution by the government that conferred a benefit and
that was specific. There are also separate VAT rebate provisions in the
WTO which perhaps USTR can speak to a little better to than I.
But we wouldn't hesitate to countervail of that program or any other
program as long as we received a petition that jumps over the legal
hurdles and meets our international and domestic requirements for our
countervailing subsidy.
REP. LEVIN: I think to follow our rules, I'll cut this off, and maybe
we can come back to it in another hearing. I want to be fair to all of
our colleagues. We have a wonderful array of the subcommittee here.
REP. PASCRELL: Mr. Chairman?
REP. LEVIN: Yes.
REP. PASCRELL: Mr. Chairman, I've introduced the legislation, border
tax equity, which has bipartisan support, HR 2600, that would stop the
charade and force countries including China to abandon these
distortions.
China is not the problem; we're the problem. And unless we face up to
this -- the problems that you've heard on both sides of that desk
today, unless we address those problems, these are not going to go away.
So I'm not throwing caution to the wind. What I am saying is, we will
live up to our responsibilities, and that's all I'm asking.
Thank you, Mr. Chairman.
REP. LEVIN: And thank you.
(END EXCERPT)
Federal News Service
August 2, 2007 Thursday
PANEL III OF A HEARING OF THE TRADE SUBCOMMITTEE OF THE HOUSE WAYS AND MEANS COMMITTEE;
SUBJECT: TRADE WITH CHINA: CURRENCY, FOOD SAFETY;
CHAIRED BY: REPRESENTATIVE SANDER LEVIN (D-MI);
WITNESSES:
JOHN WILLIAMS, EXECUTIVE DIRECTOR OF THE SOUTHERN SHRIMP ALLIANCE, TARPON SPRINGS, FLA.;
SKIP HARTQUIST, PARTNER AT KELLEY DRYE AND WARREN LLP, REPRESENTING THE CHINA CURRENCY COALITION;
LEWIS LEIBOWITZ, PARTNER AT HOGAN & HARTSON LLP, REPRESENTING THE CONSUMING INDUSTRIES TRADE ACTION COALITION;
ROBERT LIGHTHIZER, PARTNER AT SKADDEN, ARPS, SLATE, MEAGHER AND FLOM LLP;
LOCATION: 1100 LONGWORTH HOUSE OFFICE BUILDING, WASHINGTON, D.C.
SECTION: CAPITOL HILL HEARING
LENGTH: 6785 words
PANEL III OF A HEARING OF THE TRADE SUBCOMMITTEE OF THE HOUSE WAYS AND
MEANS COMMITTEE SUBJECT: TRADE WITH CHINA: CURRENCY, FOOD SAFETY
CHAIRED BY: REPRESENTATIVE SANDER LEVIN (D-MI) WITNESSES: JOHN
WILLIAMS, EXECUTIVE DIRECTOR OF THE SOUTHERN SHRIMP ALLIANCE, TARPON
SPRINGS, FLA.; SKIP HARTQUIST, PARTNER AT KELLEY DRYE AND WARREN LLP,
REPRESENTING THE CHINA CURRENCY COALITION; LEWIS LEIBOWITZ, PARTNER AT
HOGAN & HARTSON LLP, REPRESENTING THE CONSUMING INDUSTRIES TRADE
ACTION COALITION; ROBERT LIGHTHIZER, PARTNER AT SKADDEN, ARPS, SLATE,
MEAGHER AND FLOM LLP LOCATION: 1100 LONGWORTH HOUSE OFFICE BUILDING,
WASHINGTON, D.C. TIME: 11:52 A.M. EDT DATE: THURSDAY, AUGUST 2, 2007
(BEGIN EXCERPT)
REP. WELLER: Thank you, Mr. Liebowitz.
Mr. Lighthizer, in your testimony you discuss the issue of essentially
border adjustability, that particularly our European competition is
able to take advantage of, allowing them to adjust their VAT taxes at
the border, meaning they can rebate the taxes and then impose the VAT
on imports. And of course that's a frustration for a lot of us, because
under our income tax system there appears to be a bias in the WTO.
Can you elaborate further on what you discussed in your testimony, but
also elaborate further on not only the consequences, but what we should
be doing to address that issue so that we're treated fairly in
comparison with our competition?
MR. LIGHTHIZER: Thank you, Congressman. Be happy to do that.
When you called on me, I was hoping you were asking for an alternate view on the issue of zeroing. But I'll wait.
REP. WELLER: I'm limited on time. Answer my --
(Cross talk.)
MR. LIGHTHIZER: Am I also limited on to my -- sorry --
REP. WELLER: Then you can go to that if you'd like.
MR. LIGHTHIZER: If you asked me, I --
REP. WELLER: (Laughs.)
MR. LIGHTHIZER: First of all, I'm a -- I'm a hawk on the trade deficit.
I'm Republican, I'm a hawk on the trade deficit, that's -- everybody
knows. If you said, what are the two most important things to me to get
us on track -- that have nothing to do with protectionism, the first
thing would be: you've got to do something about currency. And by far,
the most important -- second most important thing, is this value added
tax system. We have allowed a system to develop which makes absolutely
no sense. It never made any sense. It's something that, while I was in
the Reagan administration, I fought about and we've been fighting about
it ever since.
Most of the world funds their government through a value added tax.
And, as a result of just a happenstance of history, we've allowed those
people to rebate that tax whenever they export and to put it on imports
-- essentially, to have it as a barrier to imports and a subsidy for
exports. And then we take the United States -- we, because -- for a
variety of reasons we've decided income tax is the fair, better way to
tax. And I think you can make a good case that it is. Because we made
that judgment as a society, we have put ourselves in a position where
we now are letting everybody bring in their products, essentially tax
free, and we're exporting all of our products with a double tax. It is
just the stupidest thing that can imagine.
Let me say this -- because I'm already over your time so I apologize
for that -- but I would say this. The Congress of the United States has
passed fast-track legislation six or seven times. Every single time you
passed it, you've said "Deal with this issue. This is a critical
issue." We have an economist from MIT that said it's more than $140
billion a year on our trade deficit -- this one little issue. This guy,
Jerry Hausman, he's this great economist, this is his calculation.
Every time, you said that. And I'll bet you that my answer to your
question -- the amount of time that I've spent talking about this is
more than every administration has spent talking about this issue with
our trading partners in the entire seven (rounds?).
REP. WELLER: Ambassador, specifically -- and if you'll humor me, Mr.
Chairman -- specifically, what should we do to address this issue?
MR. LIGHTHIZER: Well, that's a great question. Ultimately, what I tell
people they should do is they should say, "Here's what we're going to
do: In the next 18 months, if this inequity -- which has no economic
justification at all, isn't corrected by an agreement, then we are
going to start countervailing against people who rebate their taxes
when they ship to the United States." That's what I would do.
Now some other people have said, take that money and subsidize exports.
All of this is creating a crisis. I think we have to create a crisis.
People -- the rest of the world has sort of had it their way for more
than 40 years. And at the beginning it really didn't matter because we
-- you know, if you look at the chart I put in there, we were basically
doing okay in trade and it was a small part of everything -- but when
you get to an $800 billion trade deficit, all this stuff matters. So I
think what you have to do is precipitate a crisis. I think you have to
pass a law that says, "Administration, in 18 months we're going to
start countervailing against these people that unfairly subsidize by
rebating their taxes."
REP. WELLER: All right. Thank you.
MR. LIGHTHIZER: I'm sorry.
REP. WELLER: Thank you, Mr. Chairman for being generous with my time.
REP. LEVIN: No, not at all.
(END EXCERPT)
Lloyd Wood
Director of Membership and Media Outreach
American Manufacturing Trade Action Coalition (AMTAC)
910 16th ST NW
STE 760
Washington, DC 20006
(202) 452-0866
(202) 452-0739 -- fax
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www.amtacdc.org
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