Tag: tariff bill

Celebrating ‘World Trade Week’ by Remembering Smoot-Hawley

Carrying on an annual tradition dating back to President Franklin Roosevelt, President Obama issued a proclamation on Friday declaring this third week in May “World Trade Week.”

Of course, every week is world trade week at the Cato Institute’s Herbert A. Stiefel Center for Trade Policy Studies, but in order to do our part as good citizens, we’ve organized a book forum this Tuesday, May 17, at 4 p.m. on a new book by Dartmouth College economist Douglas Irwin, titled, Peddling Protectionism: Smoot-Hawley and the Great Depression.

The Smoot-Hawley tariff bill is a fitting subject for any World Trade Week. As we note in the invitation:

More than 80 years after its passage, the Smoot-Hawley Tariff Act of 1930 still resonates in today’s debate over trade policy. Advocates of trade blame the law for deepening the Great Depression and warn of the economic damage from a reversion to protectionism. Skeptics of trade say its impact has been exaggerated. Economist and historian Douglas Irwin tells the messy and, at times, amusing story of how Congress dramatically raised tariffs in 1930 just as the world was plunging into depression, and analyzes the economic consequences of the most infamous trade bill ever enacted by Congress. Irwin then draws important lessons that can help today’s trade policymakers avoid the costly mistakes of the past.

Professor Irwin will talk about his book and answer questions about this turning point in U.S. trade history. There is still time to sign up here to attend the event in person at Cato’s F.A. Hayek Auditorium, or you can watch the live video feed online here.

A Most Frustrating Press Release

My colleagues and I see many questionable quotes and policy pronouncements from members of Congress, but one crossed my desk recently that really pushes the envelope.

Senator Jeff Sessions (R -AL) – he who caused some important trade policies to expire in December – is attempting to “right” that wrong by introducing new legislation (S. 433) to reinstate the policies. Essentially, he is trying to succeed where others (thankfully) failed, i.e., to carve-out legislatively certain products (sleeping bags) made in his state. In so doing, however, he filled his March 2 press release with a retinue of half-truths, disingenuous mis-interpretations and damaging dog-whistles.  Let’s examine them one at a time, shall we? (All emphases are mine.)

WASHINGTON¬—U.S. Senator Jeff Sessions (R-AL) today introduced a bill that would modernize and reauthorize the Generalized System of Preferences (GSP) through 2012, along with the Andean Trade Preference Act.

By “modernize”, Senator Sessions means “set a damaging precedent of individual members of Congress being allowed to create loopholes from law to favor certain constituents.”

The GSP, originally authorized to avoid domestic job losses,…

From my fairly extensive reading about the GSP, I can find no explicit intention to avoid domestic job losses, even though the exceptions for textiles and steel (and other products) were probably driven by those considerations.

extends duty-free benefits to products in developing countries that do not compete with products made in the United States.

This part is misleading. The program has no provision to say it applies only to goods that do not compete with U.S.-made products (perhaps Senator Sessions is getting the GSP confused with the Miscellaneous Tariff Bill?).

When Congress originally authorized GSP in 1974, it explicitly excluded many sensitive products, such as textiles and steel. However, due to a loophole in the law, foreign sleeping bags are allowed duty-free treatment even though they compete directly with American manufacturers, therefore threatening American jobs.

When Senator Sessions says that sleeping bags can enter the United States duty-free because of a “loophole in the law,” it depends on what he considers the loophole to be. If he means sleeping bags are a textile product and therefore should be exempt from the program, he might have a reasonable case to make on definitional grounds, even if I think it would be poor policy. (Update:: A reader of our blog has pointed out the following: “You don’t need to concede anything on the fact that sleeping bags are textile products… The GSP statute does not exclude textile products from the program, so there are no definitional grounds. The GSP statute excludes products “subject to textile agreements.” As the USITC pointedly noted in its most recent advice to the US Trade Representative…sleeping bags are not and never have been subject to textile agreements.” A publicly released, redacted version of the USITC report is available here, and the note about sleeping bags not being subject to textile agreements is in footnote a to the table on page 2-1.) If, however, he means the “loophole” exists because the sleeping bags compete with U.S. products, then I’ve explained above why no such condition applies in the GSP. No loophole is needed to allow sleeping bags to enjoy the benefits of duty-free status.

In other words, sleeping bags are in a unique situation by being forced to compete with a foreign competitor that pays no taxes under the GSP.

From what I can tell of this case, sleeping bags are not in a unique situation. Many U.S. producers compete with imported products (of course, many also benefit from having access to imports). It is not clear to me why sleeping bag manufacturers deserve special treatment.  Sleeping bags have been through a number of administrative reviews, and each time were found to be subject to the general provisions of the GSP. Not to be dissuaded, however, the sleeping bag manufacturer in question has asked for yet another review.

Senator Sessions’s dog-whistle about a foreign (ooh, scary!) competitor that “pays no taxes” is reprehensible, even if nationalistic rhetoric is commonplace in public debates about trade policy. And in fact, it is the importers of these products (i.e., Americans) who pay no import duties. His statement, however, implies that somehow the Bangladeshi company is avoiding “tax”. Yes, tariffs are taxes – if only more politicians would recognize that! – but his choice of words is confusing at best.

“The current loophole in the GSP is an unfair policy and an injustice to American industries,” Sessions said.

Even if you think having to compete with imports is an injustice – and I surely do not –  I can find only one company and at most one “industry” (and not “industries,” plural) that would suffer it. But “an inconvenience to a company in my constituency” doesn’t sound nearly as good in a press release, does it?

Members on both sides of the aisle have acknowledged this is a threat to American workers.

I’m assuming he’s referring to the Casey-Brown bill (named for two Democratic Senators) that tried last month to carve out sleeping bags from the GSP, but from what I can tell, the Senators included the carve-out because they wanted the larger bill (about the Trade Adjustment Assistance program and, to a lesser extent, the Andean Trade Preference Act) to pass and needed to get around Senator Sessions’s objections that caused the programs to expire in the first place. The main “threat” of which these senators appeared to be afraid was that emanating from Senator Sessions’s office.

The legislation introduced today would not only fix this loophole in the GSP but also reauthorize the program to allow for trade to continue in a fair way….

On the contrary, Senator Sessions is seeking to create a loophole in favor of the Alabama manufacturer.

…The Exxel Outdoors Plant located in Haleyville, Alabama is the largest sleeping bag manufacturer in the United States. Exxel Outdoors nearly shut down this past year because of unfair competition from a Bangladesh company that imported sleeping bags to the United States.  Sessions blocked the trade bill in December because of this unjust loophole.

There was nothing in the administrative reviews to suggest the competition from the Bangladesh manufacturer was “unfair” in the sense it is normally meant in trade policy (i.e., the imports are subsidized or dumped).  Maybe Senator Sessions is seeking to paint the competition as “unfair” in the general sense of the word.

If all that hasn’t left you exhausted, and you still want to know more about the Generalized System of Preferences, including it’s flaws, then my recent study is a good place to start. The Coalition for GSP, an advocacy group, also has an interesting blog.

The Miscellaneous Tariff Bill: No Trivial Matter

As soon as today, the House may vote on a trade bill that sounds trivial but is in fact quite important: H.R. 4380, the Miscellaneous Trade and Technical Corrections Act of 2010.

Without passing judgment on the specific bill, the miscellaneous tariff bill (MTB) process has been a quiet trade policy success for almost 30 years. MTBs typically contain hundreds of provisions suspending tariffs on imported goods important to U.S. manufacturers but no longer made in the United States. The most common items included in the bills are parts, specialty manufactured products, and industrial chemicals with long, tongue-twisting names. The suspensions are usually temporary, lasting three years.

At least eight such MTBs have been enacted since 1982, most recently in 2006 when Congress passed two such bills. The bills tend to garner broad bipartisan support because the tariff suspensions do not negatively affect specific domestic producers, since no domestic producers compete with the imports, or at least do not object to the tariff suspensions.

A broad range of companies and industries also support MTBs, including the National Association of Manufacturers, because it helps U.S. producers cut costs to better compete in global markets. A 2009 study by Andrew Szamosszegi of Capital Trade Inc. concluded that passage of an ambitious MTB would boost GDP by $3.5 billion and manufacturing exports by more than $1 billion. Passage of an MTB would be right in the spirit of the Obama administration’s National Export Initiative.

Complicating passage of an MTB this time around is the curious stance of GOP leaders in the House, who insist that tariff suspensions be included in an “earmark moratorium.” I’m all for banning spending earmarks, those secretive provisions in huge spending bills that dole out tax dollars for bridges to nowhere and other unnecessary projects. But the provisions of an MTB are a completely different type of legislation.

In contrast to pork-barrel spending, a tariff suspension repeals a narrow tax that falls disproportionately and unfairly on a small group of producers. Instead of granting a favor at the public’s expense, a tariff suspension relieves individual producers of a burden that falls on them and nobody else. Unlike a spending earmark, a tariff suspension creates no new claim on public resources. It does not expand the scope or size of government.

Republicans should suspend their moratorium on tariff suspensions and give the latest miscellaneous-tariff bill a fair hearing.