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Foreign Trade Demands
A Level Playing FieldWednesday, July 4, 2007
By Phyllis Schlafly
Value Added TaxesThe bipartisan Border Tax Equity Act (H.R. 2600) has just been introduced by Congressmen Bill Pascrell (D-NJ), Duncan Hunter (R-CA), Mike Michaud (D-ME), and Walter Jones (R-NC). The purpose is to correct border-tax inequities that currently disadvantage U.S. producers and service providers to the tune of $379 billion a year.
The goal of our post-World War II trade agreements, such as the GATT (General Agreement on Tariffs and Trade) and the World Trade Organization (WTO), was to lower tariffs mutually in pursuit of worldwide free trade. The trouble is that it takes two to tango and we trade with at least 137 other countries that dance to a different tune.
When other countries reduced their tariffs, they simultaneously imposed border tax schemes, particularly Value Added Taxes (VAT), which add up to almost exactly the same amount as the tariffs that were supposedly reduced or eliminated. This sleight-of-hand trick is achieved by imposing VAT taxes on imports (a de facto tariff) and rebating VAT taxes on exports.
These de facto tariffs in many countries, including the European Union, are now as high or higher than tariffs were at the beginning of the GATT. Today, 94 percent of all U.S. exports and imports of goods are traded with VAT countries.
The scheme started as a historical accident. The VAT (a consumption tax) was labeled an "indirect" tax, while income/payroll/property taxes paid by U.S. businesses were called "direct" taxes.
Incompetent U.S. negotiators agreed in 1955 that indirect taxes, such as the VAT, "shall not be deemed to be a subsidy." At that time the rates of VAT taxes were only 2-4 percent and U.S. negotiators looked upon this concession as no big deal.
However, foreign countries caught on to how to use the VAT to cheat the United States. Over the years, other countries' use of the VAT has grown into a major violation of GATT's primary purpose: the reduction of border barriers.
The average VAT imposed by all our trading partners today is a whopping 15.7 percent of the cost. European Union nations average a VAT of 19.2 percent.
The VAT is one of the major factors causing the loss of 3.2 million manufacturing jobs since 2000 and the dramatic increase in our trade deficit to $763.6 billion in 2006.
The disparate treatment of border taxes is harmful to American workers in two ways. First, the refunds of indirect taxes amount to subsidies to foreign companies that export to the U.S. (although subsidies are supposed to be prohibited by WTO rules).
Second, U.S. exporters are subjected to double taxation. They pay U.S. "direct" taxes, and then they pay a so-called "indirect" tax at the foreign border in order to get their products and services admitted. The VAT import tax is levied on the price of the "landed cost," which includes the costs of the product and transportation.
The Border Tax Equity Act accurately calls this discrimination against U.S. producers "arbitrary," “inequitable," and "a primary obstacle to more balanced trade relations between the United States and its major trading partners."
The Border Tax Equity Act is designed to level the trading field by forcing other countries to eliminate their de facto tariffs. The bill would direct our trade representatives to negotiate a remedy for the VAT inequity on goods and services by January 1, 2009.
Then comes the mailed fist in the velvet glove. If the VAT countries refuse to agree to a reasonable negotiated solution by then, the United States would charge an offsetting assessment on imports of goods and services equal to the amount of VAT the foreign government rebates to its exporters.
In addition, the United States would issue rebates equal to the amount of VAT taxes that U.S. exporters are forced to pay on goods which they sell to other countries.
U.S. businesses have complained of this border-tax discrimination for 40 years, and Congress has repeatedly tried to resolve it by good-faith negotiations with VAT countries. But other countries continue to say "no dice," and the WTO turns a deaf ear.
This differential fuels the trade deficit, cripples U.S. competitiveness, and provides a powerful incentive for U.S. companies to shift production and jobs overseas. Thousands of U.S. companies have shifted production to nations that use a VAT where they avoid the double taxation.
To those who say that this bill is not WTO compliant, we reply that the WTO's refusal to address this discrimination proves its anti-American bias. It's time to speak up for American industry and jobs.
Phyllis Schlafly has been a national leader of the conservative movement since the publication of her best-selling 1964 book, A Choice Not An Echo. She has been a leader of the pro-family movement since 1972, when she started her national volunteer organization now called Eagle Forum. In a ten-year battle, Mrs. Schlafly led the pro-family movement to victory over the principal legislative goal of the radical feminists, called the Equal Rights Amendment. An articulate and successful opponent of the radical feminist movement, she appears in debate on college campuses more frequently than any other conservative. She was named one of the 100 most important women of the 20th century by the Ladies’ Home Journal.
Mrs. Schlafly’s monthly newsletter called The Phyllis Schlafly Report is now in its 42nd year. Her syndicated column appears in 100 newspapers, her radio commentaries are heard daily on 500 stations, and her radio talk show on education called “Eagle Forum Live” is heard weekly on 75 stations. Both can be heard on the internet.
She is the author or editor of 20 books on subjects as varied as family and feminism (The Power of the Positive Woman and Feminist Fantasies), nuclear strategy (Strike From Space and Kissinger on the Couch), education (Child Abuse in the Classroom), child care (Who Will Rock the Cradle?), and phonics (First Reader and Turbo Reader). Her most recent book: The Supremacists: The Tyranny of Judges and How to Stop It.
Mrs. Schlafly is a lawyer and served as a member of the Commission on the Bicentennial of the U.S. Constitution, 1985-1991, appointed by President Reagan. She has testified before more than 50 Congressional and State Legislative committees on constitutional, national defense, and family issues.
Mrs. Schlafly is a Phi Beta Kappa graduate of Washington University, received her J.D. from Washington University Law School, and received her Master's in Political Science from Harvard University.
Phyllis Schlafly is America’s best-known advocate of the dignity and honor that we as a society owe to the role of fulltime homemaker. The mother of six children, she was the 1992 Illinois Mother of the Year.
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