The role of tariffs
Lobbyists work to maintain provisions in a tariff bill to support the U.S. fabric industry.
Specialty Fabrics Review | June 2012
Tariffs are essentially taxes imposed on the importation of goods. In early U.S. history, tariffs were the main way the federal government collected revenue, but over time, the government began to collect income in other ways—most notably, via income tax.
Tariffs remain in place today, but their purpose has changed. Rather than serving as a source of revenue for the U.S. Treasury, tariffs exist to protect domestic manufacturers from overseas competition. By tacking a tariff onto imported goods, the government puts U.S. companies on a more level playing field with manufacturers in countries with lower wages or with circumstances that might otherwise give them an undue advantage in our market.
During the 20th century, the U.S. put tariffs on the importation of rayon and acrylic fibers for this very reason: to protect companies here who made the same products. But rayon and acrylic fibers are no longer manufactured in the United States.
“Both of these are manmade or artificial fibers, meaning that they are produced through a chemical process,” says Auggie Tantillo, executive director of the American Manufacturing Trade Action Coalition (AMTAC), a Washington, D.C.-based lobbying organization. “Unfortunately, the production of those fibers is somewhat environmentally sensitive or difficult, and it is just not cost effective to produce them in the United States any longer. It was the ’90s when you had your last real credible supplier of those yarns [domestically]. As a result, U.S. manufacturers who weave or knit those yarns and fibers into a finished product simply don’t have any choice but to import them.”
What that means is that these particular tariffs have outlived their usefulness. In order for U.S. manufacturers of rayon or acrylic fabrics to remain competitive on a global level, the tariffs need to be waived. But Tantillo says there is not currently a process in place to make permanent changes to the tariff code. Instead, Congress deals with tariff changes every two to three years by renewing a bill called the Miscellaneous Tariff Bill, or MTB. The MTB is a compilation of hundreds of temporary product-specific duty reductions, meant to help reduce input costs for U.S. manufacturers.
The clock is ticking
The current bill, like many before it, includes a provision that exempts rayon and acrylic fibers from tariffs. It was renewed by President Obama’s signing of H.R. 4380, the United States Manufacturing Enhancement Act of 2010. The catch is that this renewal bill will expire on December 31, 2012. The MTB must be renewed again before this date, or the unnecessary tariffs will go back into effect.
Unfortunately, this time the usually uncontroversial MTB renewal has gotten bogged down in the political mire. Among some legislators, there’s a misconception that the temporary duty reductions in the bill are earmarks—legislative provisions that direct money to specific companies. And the word earmark can have negative connotations.
Missy Branson, a political consultant and lobbyist on behalf of Glen Raven, calls the earmark debate with reference to tariffs “misguided.”
“I think there’s a clear distinction between earmarks and MTBs,” she says. “[Tariffs are] a tax, and given there is no domestic supply, there can be no justification for that tax. Yes, there may be a revenue aspect in that; by eliminating this duty, it costs the government that lost revenue. But I think if you look at the entire chain, there is potential for much greater losses in revenue if companies close down.
“For each of these MTBs, there are, in the case of acrylic fiber, dozens to thousands of jobs that are affected. You lose those property taxes and federal and state income taxes if employees lose their jobs; you lose that tax revenue stream. You also will likely spend a lot of resources on unemployment benefits and retraining for those unemployed workers.”
The tariff reduction process, unlike an earmark, is transparent and is aimed toward whole industries rather than individual companies. Each time the MTB comes up for renewal, there is a public comment period. All it would take is one domestic manufacturer saying “I produce acrylic fiber,” and the tariff on that product would remain in place to protect that company. The affected industries have, in effect, 100 percent veto power over the legislation. Yet the debate over tariff reductions still roils in Washington.
What could happen
Tantillo says if the MTB’s rayon and acrylic provisions are not renewed, it could result in higher prices on rayon and acrylic goods, which would raise prices on fabrics and end products significantly, thereby negatively affecting U.S. companies’ ability to compete at home and abroad.
“If a company in the United States is importing rayon or acrylic—let’s say they’re paying an eight percent or six percent duty on that product—they have to factor that in to their overall cost. That is then reflected in whatever their selling price is,” he says. “They have to figure out a way to account for them, and then recover them whenever they sell the product to their customer.”
Individuals, lobbyists and organizations such as AMTAC and USIFI (United States Industrial Fabrics Institute) have been (and will continue to be) active on the MTB issue, contacting members of Congress to discuss the potential impact of rayon and acrylic tariffs. Jean Lineberger, general manager at Brawer Bros. Inc., Hawthorne, N.J., and a member of the USIFI board of directors, says she is cautiously optimistic that the message is getting through.
“It’s finally starting to move,” she says. “We think the extension could be passed this fall. I think it is just a matter of people who understand that there are no earmarks involved explaining to those who were protesting about them.”
Tantillo hopes the end-of-year expiration date of the current MTB will be a catalyst for the passage of a renewal. “Sometime between now and mid-December, I think, is the time frame,” he says. “I think those who have participated in the process hope that sometime this fall [Congress] will pass a package that implements a renewal of these existing Miscellaneous Tariff provisions and implements any new ones that are justified.”
Putting policy in a global context
Do other countries exempt raw goods such as fibers from tariffs when those inputs are not produced domestically? Indeed, they do. In fact, some countries have gone much further. AMTAC’s Auggie Tantillo says Canada has put in place a no-tariff arrangement on all manufacturing inputs across the board.
“Basically, the logic that they’re using is, if a Canadian manufacturer brings an input, a precursor, a chemical, into the country and further processes it in Canada, that creates jobs and that makes their producers more competitive,” he explains. “If they can get them access to those products as cheaply as possible, it benefits them.”
Some other countries, such as those in the European Union, have a Value Added Tax (VAT), which is a consumption tax on goods. These countries will rebate the VAT on imports when manufacturers bring inputs into the country, process them and then export them.
“So there are all kinds of mechanisms that are available to our competitors … specifically designed to lower their cost of production and to make them more competitive with us,” Tantillo says.
Tariff reduction bills such as those contained in the MTB are a first step in keeping the prices of U.S. goods competitive with goods produced overseas. In the long run, the U.S. may decide to pursue permanent no-tariff legislation as a means of leveling the playing field.