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The Coalition for a Prosperous America filed official comments with the U.S. Trade Representatives office. The 1974 Trade Act, as amended, requires the USTR to annually inventory the most important foreign barriers affecting U.S. exports. This report is submitted to the President and Congress.
USTR has not, in the past or present, commented on the impact of foreign consumption taxes (VAT) or currency manipulation. It seems the belief is that those are U.S. Treasury issues. However, when USTR formally published a request for comment, CPA responded by placing the VAT and currency issues front and center.
The foreign VAT issue is quantifiably the biggest trade distorting practice we face. Currency is likely second.
CPA's comments are below. The full 48 page submission is here.
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Re: Docket No. USTR-2009-0033
Dear USTR Trade Policy Staff Committee
The Coalition for a Prosperous America (CPA) appreciates the opportunity to provide input relating to significant barriers to the export of U.S. goods. CPA represents the interests of 2.6 million Americans - through our association and company members - who make and grow things.
Your Request for Comment seeks information on trade barriers including:
- Import policies (e.g., tariffs and other import charges, quantitative restrictions, import licensing, and customs barriers);
- Export subsidies (e.g., export financing on preferential terms and agricultural export subsidies that displace U.S. exports in third country markets)
We provide information on two foreign practices, each of which are both export barriers and export subsidies. Those practices are (1) consumption taxes, including value added taxes; and (2) persistent currency misalignment.
Consumption Taxes
Estimate of Increase in Exports: Over $500 million
Foreign countries consumption taxes (such as value added taxes) are the largest systemic, trade distorting practice among our trading partners. The consumption taxes are border adjustable, meaning they are charged on incoming goods, and rebated to foreign domestic companies upon export. The taxes are also known as border adjustable taxes (BAT).
The average BAT is 17%. U.S. companies, to export, must not only underbid the competition, but underbid by over 17% to have the bid accepted. CPA members have lost foreign export sales because they could not afford to bid low enough to overcome the border taxes in, for example, China.
The foreign subsidy effect is that the trading partner country rebates the BAT upon export. Thus, products enter the U.S. with an unfairly reduced cost.
A recent economic analysis conducted by Pat Choate shows the 2007 trade distorting effect of foreign BAT is $356 billion. We have attached the documentation for this claim, broken down by country.
The BAT problem has been treated as a tax problem within the purview of the U.S. Treasury Department. Because the BAT is the single largest trade distorting problem facing the U.S. economy today, the USTR should recognize this fact and begin planning actions to counter the problem. The topic should be included the USTR National Trade Estimate.
Currency, Persistent Misalignment of
Estimate of Increase in Exports: Over $500 million
Persistent currency misalignment is the second largest export distorting problem facing the United States economy. Most of our trading partners are state-managed economies. Some countries, particularly in East Asia, do not allow their currency to truly float on world currency markets. China, in particular, is well known to peg its currency to the U.S. dollar.
The result is a massive export barrier on U.S. goods, and a tremendous subsidy to goods destined for the U.S. market. U.S. companies export prices are artificially high to those markets, constituting an export barrier. Imports to the U.S. from those countries are subsidized through monetary policy, and are thus artificially cheap.
Two reports were released at the July 15, 2009 CPA Issues Forum. One report was called “Estimate of the Fundamental Misalignment of the Chinese Renminbi,” by the then-named China Currency Coalition (now Fair Currency Coalition). Using IMF methods, the report (attached) calculated a 35% misalignment.
The second report released at the same CPA Issues Forum entitled “Appreciation of the Remnimbi - What’s Happened and What Hasn’t”, by IAS Group, discusses the broader impacts of the problem. That report is also attached.
This year, the Chinese economy has grown and the U.S. economy has shrunk (until the last quarter). The dollar has fallen substantially against other major currencies, but the Chinese remnimbi has been stable. We believe that the misalignment spread has grown since July 2008.
CPA members could export to China but for the export barrier in the form of currency misalignment. CPA members could enjoy a larger U.S. market share but for the foreign currency subsidy resulting in unfairly cheap imports.
We understand that currency is treated as a monetary policy issue under the purview of the Treasury Department. But we urge you to include the trade aspects of this trade distorting practice in your National Trade Estimate.
Respectfully,
Coalition for a Prosperous America
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