Manufacturers in the United States are at a great competitive disadvantage to foreign manufacturers as a result of disparate treatment of tax systems under World Trade Organization (WTO) rules.  With the exception of the United States, nearly every developed nation in the world employs some type of border-adjusted consumption tax, also known as value added tax (VAT), on manufactured goods.  The average worldwide VAT rate is 15.5 percent.  These taxes are rebated on exports and levied on imports.  The rebate of taxes upon export normally is prohibited under the WTO trading regime.  In the 1950s, however, the United States agreed to allow the assessment of these border taxes and their rebates to be permissible the General Agreement on Tariffs and Trade (GATT), the predecessor to the WTO.  Despite numerous attempts to correct the inequity, this loophole still exists today.  In fact, VAT taxes rebated on exports and assessed on imports resulted in an estimated $474 billion dollar “border tax” disadvantage to U.S. producers and service providers in 2007 alone. 

AMTAC believes the border tax disadvantage is the greatest contributing factor to the more than $4.7 trillion in U.S. foreign trade deficits racked up from 2001 to 2008.  Noting this, AMTAC strongly supports enactment of legislation that would negate the border tax disadvantage to U.S. producers and service providers. Such legislation would need two basic components.  First, it would direct the United States Trade Representative (USTR) to negotiate a remedy for the border tax inequity through the WTO by a date certain. 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.  Congressmen Bill Pascrell (D-NJ), Duncan Hunter (R-CA), Mike Michaud (D-ME), and Walter Jones (R-NC) introduced legislation along these lines as H.R. 2600, the Border Tax Equity Act, in the previous 110th Congress.  AMTAC endorsed that bill and urges its reintroduction in the current 111th Congress.

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 35 percent or more below its actual value as compared to the U.S. dollar.  Absent this peg, the massive $266 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 that would discourage currency manipulation by China and other countries by giving U.S. producers and workers the right to seek a remedy for injurious export subsidies or dumping under U.S. countervailing duty (CVD) and antidumping law.  Congressmen Tim Ryan (D-OH) and Duncan Hunter (R-CA) introduced such legislation in the 110th Congress called the Currency Reform for Fair Trade Act of 2007 as H.R. 2942.  AMTAC strongly supports the reintroduction and enactment of legislation along these lines in the 111th Congress.

The United States must demand full reciprocity from our trading partners as a basic tenet of any new World Trade Organization (WTO) agreement.  As it currently stands the average U.S. bound tariff for industrial products is 3 percent, while the average worldwide WTO bound tariff for these same products is 30 percent.   Moreover, in 2007, the average trade-weighted U.S. tariff was actually 1.3 percent.  Clearly the United States should not make any additional tariff concessions until other WTO members come down to our level. 

Furthermore, countries under the WTO system are allowed to self-designate their economic status and thereby shield themselves from significant obligations.  For example, India and China claim to be “developing nations” for the purposes of the WTO and thus argue that they should not be required to make concessions similar to developed nations, like the United States.  This flawed system allows export superpowers like China and India to masquerade as developing countries and reap the benefits of greater access to key international markets while continuing to protect their home markets. 

As a result, if the Doha Round is concluded, there is little doubt that it will be detrimental for U.S. manufacturers and their workers.  The latest negotiating text which nearly produced an agreement in June 2008 mandates a very specific and harmful outcome for U.S. industry through drastic, non-reciprocal tariff cuts and numerous provisions granting “special and differential” treatment for developing countries including China.  In short, the United States will once again be required to make massive market-opening concessions, while the vast majority of our WTO trading partners will be allowed to maintain insulated markets from our exports. 

AMTAC has long-standing concerns with the failed U.S. policy of rampant proliferation of free trade agreements (FTAs) with countries that are major exporters to the U.S. market who, in return, buy comparatively few finished U.S. goods.  These “one-way” trade deals have contributed significantly to the massive debt crisis and job losses plaguing the U.S. economy.  AMTAC strongly opposes the proposed Trans-Pacific Partnership (TPP) agreement with Singapore, Chile, New Zealand, Brunei, Australia, Peru and Vietnam because it replicates this flawed trade policy model. 

For the U.S. textile and apparel sector in particular, a free trade agreement with Vietnam would be nothing short of catastrophic.  Vietnam’s ability to flood the U.S. import market with subsidized products is also well documented.  Paying full duties, Vietnam currently is the second largest textile and apparel supplier to the United States behind China.  Since Vietnam was given “normal trade relations” access to the U.S. textile and apparel market on December 10, 2001, its exports have increased by 10,897 percent and totaled $5.4 billion in 2008.  China, already the world’s largest exporter of textile and apparel products, is a major beneficiary of Vietnam’s growth as it supplied approximately $2 billion in textile components to that country in 2008. 

The TPP is the wrong endeavor at the wrong time.  It has the potential for severe, negative consequences for U.S. companies.  We urge the U.S. government to withdraw from the negotiations.  Resources should be used to study and modify our current FTA agreements and trade policy instead of continuing on the same path that has helped usher in the worst economic crisis since the Great Depression.

The U.S.-South Korea free trade agreement (KORUS) was announced on April 2, 2007, and is expected to be submitted to Congress under Trade Promotion Authority (TPA) rules.  The pact is the largest free trade agreement since North American Free Trade Agreement (NAFTA) and the first negotiated with an East Asian industrial exporting power.  For industrial products, KORUS will either eliminate immediately or phase out U.S. tariffs but does 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. 48.5 million) far more access to the $14.5 trillion U.S. market than the United States (pop. 307 million) receives in return to the $1.3 trillion South Korean market.  Moreover, with China, Vietnam and other low-cost Asian manufacturing competitors in much closer geographical proximity, the South Korean market has a considerably smaller growth potential for U.S. products than the U.S. market has for South Korean products.  The United States ran a cumulative trade deficit in goods of nearly $115 billion with South Korea between 2001 and 2008.  The largest South Korean trade surpluses with the United States were in manufactured goods while, in contrast, the largest U.S. trade surpluses with South 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 and the Kissell Amendment, that encourage the U.S. military and certain agencies within the U.S. Department of Homeland Security and to buy products made with U.S. content and labor.  Especially in these uncertain times, the U.S. national security structure should not be dependent on foreign sources for critical products.  AMTAC applauds two new provisions included in the now enacted stimulus bill, the American Recovery and Reinvestment Act of 2009 (H.R. 1).  The Kissell Amendment sponsored by Congressman Larry Kissell (D-NC) expands a modified version of the Berry Amendment procurement rules to the Transportation Security Administration (TSA) and the U.S. Coast Guard within the U.S. Department of Homeland Security (DHS).   H.R. 1 also included language offered by Senator Byron Dorgan (D-ND) requiring all iron, steel, and manufactured goods used in public works funded by the bill to be made in the United States.  AMTAC supports extending the Berry Amendment to the Federal Aviation Administration and U.S. highway and mass transit programs.  AMTAC also supports expanding the Kissell Amendment to cover all agencies within DHS.

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.