Nearly every major U.S. trading partner (149 countriestotal) operates a value-added tax (VAT) or similar border-adjusted tax system. Because these countries rebate the VAT paid by their producers on exports and impose a VAT imports (the average rate worldwide is 15.4 percent), they simultaneously heavily subsidize exports and erect massive trade barriers to imports. VAT taxes rebatd on exports and assessed on imports resulted in a $428 billion dollar "border tax" disadvantage to U.S. producers and service providers in 2006. Normally, the GATT/WTO trading regime would ban rebates of VAT taxes on exported manufactured goods as an impermissible subsidy. But in the 1950’s the United States agreed to a loophole that allowed the assessment of these border taxes and their rebates to be permissible within the GATT/WTO system.

AMTAC believes the VAT disadvantage is the greatest contributing factor to the more than $4 trillion in U.S. foreign trade deficits racked up from 2000 to 2006. As such, AMTAC strongly supports legislation called the Border Tax Equity Act, H.R. 2600 introduced by Congressmen Bill Pascrell (D-NJ), Duncan Hunter (R-CA), Mike Michaud (D-ME), and Walter Jones (R-NC), that would negate the VAT disadvantage to U.S. producers. The legislation has two basic components. First, it would direct the United States Trade Representative (USTR) to negotiate a remedy for the VAT inequity through the WTO by 2009. Second, if there is no negotiated solution by that specified date, the United States then would begin charging an offsetting tax on goods and services at the U.S. border equal to the VAT rebated by the exporting country. The U.S. government would also rebate taxes to U.S. companies exporting goods to foreign countries at the same rate as those countries impose a VAT at their borders.

Trade Promotion Authority (TPA) is the procedure that governs the consideration and enactment of bills implementing trade agreements that have already been signed by the Executive Branch. The current grant of TPA expired on June 30, 2007 and the President has requested an extension. AMTAC opposes the extension of TPA because it allows the Executive Branch to usurp constitutionally enumerated powers of the Legislative Branch to regulate commerce with foreign nations and to impose duties on imported goods. Under the current TPA, the U.S. House and Senate (1) must introduce legislation completely drafted by the Executive Branch to implement a trade agreement, (2) are prohibited from amending the implementing legislation, and (3) are required to vote it up or down within 90 days. Congress may outline trade negotiating objectives, but the Executive Branch is not bound by them. Because TPA prohibits any amendments to the implementing bill, the terms of the underlying trade agreement must be either approved or disapproved in their entirety. This makes it much easier to implement flawed trade agreements – as Congress is reluctant to repudiate an entire agreement that may have taken years to negotiate, even if it has reservations about particular parts.

A few countries, most notably China, peg or fundamentally misalign their currencies’ value to the U.S. dollar at a level much lower than market value. For example, it is estimated that China's currency is pegged at least 15 to 40 percent below its actual value as compared to the U.S. dollar. Absent this peg, the massive $250+ billion U.S. trade deficit with China should trigger a natural free market reaction of raising the value of the Chinese yuan in relation to the dollar. Such a rise would increase the cost of U.S. imports from China and lower the cost of U.S. exports to China, thus partially correcting the trade imbalance. China, however, steadfastly has refused to float its currency freely on the market, handicapping U.S. producers versus their Chinese competitors and preventing a much-needed solution to this unfair trade practice. AMTAC strongly supports legislation called the Currency Reform for Fair Trade Act of 2007 – H.R. 2942, introduced by Congressmen Tim Ryan (D-OH) and Duncan Hunter (R-CA) to address the issue.  Consistent with the WTO's provisions, H.R. 2942 would discourage currency manipulation/misalignment by China and make those practices actionable under U.S. countervailing duty law.

AMTAC strongly supports the U.S. Department of Commerce’s recent decision to apply U.S. countervailing duty (CVD) law to China. CVD cases are legal actions filed against foreign export subsidies damaging U.S. producers. For more than twenty years, Commerce refused to apply CVD law to non-market economies like China under the rationale that one could not determine what was subsidized under such a state-controlled economy. That flawed policy allowed China to pour massive subsidies into its manufacturing sector for the purpose of exporting. The dramatic artificial price drops resulting from this policy allowed China to capture substantial market share in United States and other markets at the expense of U.S. manufacturers. Despite Commerce’s long overdue ruling, AMTAC believes it is necessary to codify into U.S. law the applicability of U.S. CVD law to non-market economies. Appropriate legislative language to remedy this problem is included in the Ryan-Hunter Fair Currency Act of 2007 and in other bills introduced in Congress.

The U.S.-South Korea free trade agreement (KORUS) was announced on April 2, 2007 and is expected to be submitted to Congress under the current grant of TPA. The pact is the largest free trade agreement since NAFTA and the first negotiated with an East Asian industrial exporting power. For industrial products, KORUS will either eliminate immediately or phase out tariffs, but not guarantee reciprocal U.S. access to the Korean market for such industrial products as autos. AMTAC opposes KORUS because the agreement gives South Korea (pop. 49 million) far more access to the $13 trillion U.S. market than the United States (pop. 301 million) receives in return to the $1.2 trillion Korean market. Moreover, with China, Vietnam and other low-cost Asian manufacturing competitors in much closer geographical proximity, the Korean market has a considerably smaller growth potential for U.S. products than the U.S. market has for Korean products. The United States ran a cumulative $75 billion trade deficit with Korea between 2002 and 2006. The largest Korean trade surpluses with the United States were in manufactured goods while, in contrast, the largest U.S. trades surpluses with Korea (with the exception of aircraft and medical instruments) were in agricultural products and raw materials.

Congress should preserve and strengthen current procurement laws and regulations like the Berry Amendment that encourage the U.S. military to buy U.S.-made products. Especially in these uncertain times, the U.S. military structure should not be dependent on foreign sources for critical products. Two years ago, in 2005, a pair of Berry Amendment strengthening provisions championed by AMTAC were passed – Rep. Robin Hayes' (R-NC) waiver notification mechanism and Sen. Elizabeth Dole's (R-NC) procurement officer training directive. Moving forward, AMTAC strongly supports legislation extending the Berry Amendment and Buy American provisions to other government agencies such as the Homeland Security Department. Congressmen Robin Hayes (R-NC) and James Langevin (D-RI) already have introduced one such bill, the Berry Amendment Extension Act, H.R. 917. 

AMTAC strongly opposes H.R. 3905, the New Partnership for Development Act (NPDA) introduced by Congressman Jim McDermott (D-WA). H.R. 3905 would give duty-free access to the U.S. market for imports of all products from LCDs and African Growth and Opportunity Act (AGOA) countries.

This bill represents a substantial threat both to U.S manufacturing, especially the domestic textile industry, and to our preference partners in Latin America and Africa. Several nations that would benefit from passage of this bill are already export superpowers in textile and apparel products.

Bangladesh and Cambodia are major sources of U.S. apparel imports by volume and by value. In 2007, U.S. textile and apparel imports from these two countries totaled $5.6 billion; apparel imports accounting for $5.5 billion. Since textile components are not produced in Bangladesh or Cambodia, China supplies the yarn and fabrics used in the garments they assemble. In 2007, China shipped $2 billion in subsidized textile and apparel compoments to Bangladesh and Cambodia. With approximately 40% of apparel exports from those countries are going to the United States, an estimated $800 million in Chinese components were included in U.S. imports from Bangladesh and Cambodia. As a result of duty-free treatment, $800 million will rise at the expense of the U.S. producer if Bangladesh and Cambodia gain even more market share.