As the White House, government officials and businesses prepare for next week’s Washington visit of Saudi Arabia Crown Prince Mohammad bin Salman, manufacturers across America are calling upon the Saudi government to address a range of outstanding issues that are frustrating manufacturers seeking to export and grow in that market, activities that support good, high-paying jobs here at home.
The United States is Saudi Arabia’s second-largest trading partner, with nearly $35 billion in trade in 2016. In turn, Saudi Arabia is one of the United States’ largest and most important trading partners in the Middle East and the destination for more than $10 billion in investment across a range of business sectors.
Yet, manufacturers are urging the administration and others to raise outstanding commercial issues they face in Saudi Arabia that undermine that partnership and send the wrong signals about Saudi Arabia’s investment environment. Recent decisions by the Saudi Food and Drug Authority to promote local pharmaceutical manufacturing at the expense of U.S. products, for example, undermine Saudi Arabia’s attempts to promote innovation and transform its economy and raise questions about their compliance with both Saudi law and Saudi Arabia’s obligations under the World Trade Organization—questions that are important to a broad range of manufacturers, not just impacted industries.
Manufacturers also face other challenges in Saudi Arabia that directly impact manufacturing exports, such as problematic technical rules in areas from food to product testing as well as revised Saudi regulations that effectively exclude many international standards developed in the United States.
Removing these barriers and recommitting to a pro-business, pro-innovation investment environment must be a priority for these discussions. Manufacturers urge the crown prince and other members of his delegation to work within senior levels of their government to address these concerns and avoid similar steps in the future. These steps are an important part of affirming Saudi Arabia’s continued partnership with the United States.
Though many don’t know it, Americans pay both directly or indirectly about $1 million a day in government-imposed import taxes on products not made or available in the United States, including everyday items like swim goggles, smartphone cases and pepperoncini. Why? It’s a long story, but it essentially comes down to the fact that the United States has a very old tariff code, and it has been nearly a decade since Congress has gotten around to addressing these unfair, out-of-date, distortive and anticompetitive taxes by passing the so-called Miscellaneous Tariff Bill (MTB). Thankfully, the U.S. House of Representatives passed an MTB bill, the Miscellaneous Tariff Bill Act of 2018, on January 16 by a margin of 402 to 0. Now, it is the Senate’s turn to approve the legislation. It must do so without delay.
Here’s some important background on the issue.
Back in 2016, Congress took a major step toward modernizing the way products are considered under the MTB with its near unanimous passage of the American Manufacturing Competitiveness Act of 2016 (AMCA). The AMCA established a regularized process for Congress to consider the elimination of individual import taxes for products not made or available in the United States—and a few key elements from that rigorous and thorough process follow below:
- Detailed petition. Each request for tariff suspension required a detailed petition, identifying the product and providing information that it is not produced or available in sufficient quantities in the United States. A total of 2,524 petitions were filed and reviewed in this process. (An additional 638 petitions were filed but later withdrawn.)
- Public review, with comments. All petitions were posted online and comments were requested from the public, at the start of the process, on whether the petition met statutory requirements under the AMCA, including that there were no objections from domestic manufacturers of similar products. More than 800 comments were submitted on the petitions filed in 2017.
- Review of all petitions for eligibility. Each of the petitions was reviewed by the U.S. International Trade Commission (ITC) with input from the U.S. Department of Commerce, U.S. Customs Bureau Protection and other executive branch agencies to determine if each petition met all the eligibility criteria. Several reports were released to the public summarizing these findings. Overall, more than 27 percent (or 697 petitions) were rejected as not eligible, including for reasons of domestic availability, as discussed below.
- Broad U.S. government review of domestic production and availability. As required by the statute, the U.S. government review did not just look at identical products, but also products that were “directly competitive” with the product to ensure that no domestic industry was producing a similar product that might prefer to keep the tariff in place. U.S. government officials reviewed not only the comments received but proactively reached out to industry sectoral groups and individual businesses to ask if the same or competing product was available domestically. Nearly 500 petitions, or nearly 20 percent of the total, were not recommended by the ITC for inclusion in MTB legislation due to objections by domestic producers.
After all that work and more than nine months of engagement with stakeholders, a final package of eligible products was sent in August to the House and Senate, which also reviewed the products (with the ability only to strike products, not add them to the package). That rigorous process has produced a final MTB with nearly 1,700 products eligible for tariff elimination or reductions. Notably, such tariff relief is not permanent, as it only lasts for three years in case there are domestic manufacturers that want to produce any of these products and might prefer the application of the tariff. These products include both inputs used by many manufacturers throughout the United States (more than 75 percent of the products are inputs, according to National Association of Manufacturers (NAM) analysis), and some final goods that will directly benefit consumers and purchasers, in a manner that is fully consistent with the AMCA.
- As one example, certain U.S. imports of performance footwear face tariffs ranging from 20 to 37.5 percent, which add unnecessary costs to U.S. consumers and harm our manufacturers and workers. Such imported performance footwear products incorporate made-in-America components, such as the GORE-TEX® laminate that is manufactured in Cecil County, Maryland. GORE-TEX® laminate is exported, incorporated into performance footwear and ultimately returns to the United States. Tariff relief for such footwear products, which are included in the MTB package, would support American jobs and incentivize continued investments in technology such as GORE-TEX.®
- As another example, Lasko Products LLC is the only U.S. manufacturer of electric pedestal and desktop fans sold at retailers across the United States, but Lasko pays import taxes on fan motors not manufactured in the United States, making it more difficult for the company to compete with fans imported from China. These fan motors are also included in the current MTB package.
As required by international trade rules, these tariff suspensions also apply to all goods entering the United States from all countries. To do otherwise would invite retaliation and higher costs or barriers for U.S. manufacturers exporting overseas.
So, a lot of hard work has gone into addressing this issue, but we are not yet past the finish line. The NAM and manufacturers and other businesses across the United States are doubling-down to urge final congressional passage of the Miscellaneous Tariff Bill Act of 2018 as soon as possible so we can eliminate unnecessary taxes on families and manufacturers. Based on NAM analyses, the Miscellaneous Tariff Bill Act of 2018 would eliminate unnecessary import tariffs of more than $1.1 billion over three years, helping both consumers and manufacturers, with an estimated boost to U.S. manufacturing output of $3.1 billion.
The House already acted last month, and it passed this bill without a single vote in opposition. We are now urging the Senate to demonstrate its strong bipartisan support for the MTB by moving quickly to approve this important legislation.
We already knew confirming Scott Garrett to lead the U.S. Export-Import (Ex-Im) Bank would be a terrible trade deal for American manufacturing workers. But now we’re learning even before he has had his nomination voted on in committee, Garrett is already causing problems for the agency and potentially putting taxpayers on the hook, too. As The Wall Street Journal reports today:
C.J. Hall, the government agency’s acting chairman, who is stepping down Saturday, said in an interview that the bank will likely become a drain on U.S. taxpayers next year if the Senate doesn’t act to fill its board, because it has stopped bringing in enough revenue through the fees it charges to guarantee financing deals for U.S. exporters.
The negative fiscal impact of not having a fully functioning Ex-Im Bank is deeply concerning and underscores why the agency cannot be led by someone like Garrett, who spent years trying to shut the bank down. The Wall Street Journal report also notes that Garrett currently does not have the votes to advance his nomination. So here’s the bottom line: Garrett’s toxicity is holding the confirmation process up and literally exposing taxpayers to increased federal deficits.
Given this fiscal reality and the apparent lack of votes to get Garrett’s nomination out of committee, it’s time for a new nominee to lead the Ex-Im Bank who believes in the agency’s mission and can rightfully earn senators’ support.
We need to have a stable, fully functioning Ex-Im Bank and the jobs and revenue that come along with it. A fully functioning Ex-Im Bank is good for manufacturers, good for workers and good for American global competitiveness. When fully functional, the Ex-Im Bank is a model agency that actually returns a surplus to the U.S. Treasury. As The Wall Street Journal notes:
The bank’s revenue comes primarily from its largest deals. If no such new deals are approved, the bank likely won’t be able to cover all of its expenses. Without a quorum, taxpayers also could lose out on about $492 million in surplus funds the bank projected it would otherwise send to Treasury.
That’s why the National Association of Manufacturers has steadfastly opposed Garrett’s nomination from the start and has also supported the president’s other four nominations to the Ex-Im Bank, who share the administration’s vigorous and outspoken support of American manufacturing workers and the agency.
Click here to learn more about Garrett’s reckless opposition to the Ex-Im Bank that has put manufacturing jobs in America at risk.
According to the World Bank’s recent Doing Business report, India jumped 30 spots from last year and now ranks 100 out of 190 countries. Manufacturers in the United States are pleased to see improvements to India’s business environment as a sign of progress, but their day-to-day experience in India shows there is still much work to be done to improve India’s trade and investment environment. Such work needs to cut through the red tape that often faces manufacturers in the United States trying to succeed in India.
The Doing Business report is based on quantitative indicators related to how easy or challenging it is for companies to start and operate a business in India. These include policies and practices related to areas such as starting a business, dealing with construction and other government permits, obtaining critical business inputs ranging from credits to electricity, protecting contracts and investors, paying taxes and resolving insolvency.
To be clear, India’s jump in the rankings reflects improvements in various areas. Most of these steps primarily benefit domestic Indian entrepreneurs and businesses, but these moves did include some changes that have a direct impact on manufacturers in the United States. India’s biggest jumps this year fall in a few specific areas: “getting credit,” “resolving insolvency,” “protecting minority investors” and “paying taxes.” These jumps can largely be traced to two high-level reforms over the past year: the passage of India’s Bankruptcy Law and ongoing efforts to reform India’s complicated tax system with the passage of the goods and services tax.
Both improvements have a broad enough impact on the commercial environment that they were listed among improvements in a recent letter to United States Trade Representative Robert Lighthizer from business groups, such as the Alliance for Fair Trade with India, stating that “U.S. businesses have seen small positive steps in the right direction, including foreign investment openings in a few sectors, fossil fuel and energy-efficiency policy initiatives, efforts to address infrastructure project permitting and licensing challenges and passage of legislation related to bankruptcy and tax reforms.”
While manufacturers welcome these changes, India must step up its efforts to accomplish Indian Prime Minister Narendra Modi’s repeatedly stated goal of reaching the report’s top 50. India still trails countries such as the Dominican Republic, Tunisia and Guatemala in the current rankings. Despite progress, India still ranks toward the bottom of the report in areas such as “starting a business” (156), “dealing with construction permits” (181), “registering property” (154), “trading across borders” (146) and “enforcing contracts” (164). Moreover, India fell in the rankings for some of these areas, including cross-border trade, property registration and business start-up. Many of these areas, particularly cross-border trade and enforcing contracts, rank among the most troublesome areas for manufacturers from the United States.
In addition to the focused business indicators listed in the report, manufacturers in the United States still face a wide array of longstanding and new trade barriers in India that make it extremely difficult to do business and undermine India’s efforts to rebrand itself to attract trade and investment. These trade barriers prevent fair access to its markets and ultimately stunt innovation and economic opportunities for both U.S. and Indian manufacturers. Examples of issues include new price controls on innovative medical devices and agriculture products, a series of forced localization policies across high-value industries and ineffective protection of patents, copyrights and trade secrets.
India’s efforts to climb the rankings of the Doing Business report must be applauded, but it clearly still lags behind most large economies, and even other emerging economies, such as China, in terms of its business climate. To boost foreign direct investment and truly position India as a leader in trade and innovation, Prime Minister Modi must take this jump in the rankings not as a victory lap, but as a reason to accelerate reforms and concrete actions to eliminate trade and investment barriers preventing manufacturers in the United States from investing and operating in India.
Rules relating to investment overseas and the investor-state dispute settlement (ISDS) are back in the news. This morning, I had the opportunity to join several experts to explain some basics that seem to get lost in debate that seems to suggest that the sky will fall any day now:
1. Businesses invest at home and abroad to reach customers and participate in international projects. Most investment by U.S. companies is in fact domestic, helping companies reach customers here in the United States, the largest consumer market in the world. But 95 percent of the world’s consumers and more than 80 percent of global purchasing power is outside the United States. And that is why U.S. businesses invest not just here at home but in overseas markets to reach foreign customers. Indeed, investing close to your customers (as foreign companies do here in the United States) is often the best way to make a sale, including through activities to set up dedicated distribution networks and to tailor products to local consumer tastes.
In some areas, such as energy, natural resources or foreign infrastructure development, foreign investment is the primary way American manufacturers can participate and grow opportunities because that is where the resources and activities must take place.
The actual data collected by the Commerce Department’s Bureau of Economic Analysis confirms this basic, but often overlooked, fact: Year after year, decade after decade, the vast majority of sales by U.S. foreign affiliates—more than 90 percent—are made to foreign customers not returned to the United States.
2. The United States, its workers and businesses benefit enormously from U.S. investment overseas. U.S. companies that invest overseas are outsized participants in the U.S. economy and are stronger because of their access to foreign markets that help grow economies of scale and boost U.S. activity and wages here at home. The facts are clear. U.S. companies that invest overseas are America’s:
- Largest exporters, exporting 47 percent of all U.S.-manufactured goods sold overseas ($660 billion in 2014);
- Biggest producers, accounting for $1.363 trillion or nearly 65 percent of all U.S. private-sector value-added manufacturing output in 2014;
- Most important innovators, expending nearly $269 billion on research and development in the United States in 2014 (of that, 68 percent (or $183 billion) was expended by manufacturers in the United States);
- Largest investors in capital expansion, expending $713.5 billion or 24 percent of all investment in new property, plants and capital equipment in the United States in 2014; and
- Highest-paying employers, paying U.S. manufacturing workers on average $96,030, or about 18 percent more than average U.S. manufacturing wages in 2014.
3. Having strong legal protections, backed up by ISDS, helps America win in a highly competitive global economy. For more than 30 years, U.S. administrations and Congress have strongly supported a pro-investment and pro-ISDS policy because it helps America, its businesses and its workers win. The investment rules—taken right out of the U.S. Constitution and other baseline U.S. laws for the protection of private property against discriminatory, unfair, expropriatory government action—set the basic rules to combat against foreign government market-distorting activities. For example, prohibitions on government forced localization measures and incentives (e.g., government mandates to buy local products or transfer technology in exchange for allowing an investment) help ensure that U.S. investment overseas can continue to support the growth of U.S. exports and jobs. And when governments violate these basic rules, ISDS is critical so that companies have access to a neutral venue to seek compensation.
4. The same anti-ISDS critiques have been leveled for decades, and the sky has not yet fallen. Those opposed to ISDS have been rehashing the same tired, false and discredited critiques for years, and they continue to be rejected by policymakers, including most recently in 2015 when a bipartisan majority strongly rejected Sen. Elizabeth Warren’s (D-MA) amendment to eliminate ISDS from Trade Promotion Authority; Consider the main critiques:
- Types of cases: The vast majority of cases are about individual permit authorizations and the treatment of individual investors, not broad public interest regulation.
- Types of claimants: Most claimants are individuals and small and medium businesses.
- Impact on government regulation: ISDS panels can only order compensation, not a change in government policy. And not one case has ever found a violation of the investment rules through a nondiscriminatory, broadly applied public interest regulation.
- Number of cases: Less than 20 cases have been filed against the United States in more than 20 years, even though the United States is the largest destination for foreign investment. Loud claims that the Korea–U.S. trade agreement would lead to hundreds of cases against the United States, for example, have continued to fall flat; not one case has been brought against the United States in the five years that agreement has been in force. Contrast that experience to the tens of thousands of cases filed in U.S. Federal Claims court every year on similar property claims.
- Alternatives: Political risk insurance is a highly limited approach, far too expensive for small business and does not even begin to combat the broader investment rules that are vital to discipline foreign government market-distorting forced localization and other measures. When official government risk insurance is used, it would be the U.S. taxpayer, not the foreign government, bearing the cost of a foreign government seizure of America’s own property.
- ISDS arbitrators: Arbitrators are chosen collectively by both sides in a dispute, are respected experts and held to strict ethical standards. If there is a bias, it is in favor of governments that win the vast majority of cases.
And as for letters, let us take a look at some from those who are experts in this field. Take a moment to look at this letter from academics whose actual expertise is in international law, arbitration and dispute settlement that strongly support the ISDS system. Or consider this statement of the International Bar Association, the world’s leading organization of international legal practitioners, bar associations and law societies, that felt the need to correct the record on ISDS because “erroneous information is subverting debate.”
As more than a hundred business groups representing millions of small, medium and large companies across every sector of the economy recently explained, investment rules and ISDS are very much in America’s interest as we all seek to grow manufacturing, well-paying jobs and U.S. competitiveness in the global economy.
Manufacturers across the nation are seeking action this year to boost U.S. competitiveness and cut back on unnecessary taxes that have been holding back manufacturers in the United States. In addition to the very important tax reform effort that is underway right now, the House Ways and Means Trade Subcommittee will begin to review tomorrow another vehicle to eliminate out-of-date distortive taxes on manufacturers through the so-called Miscellaneous Tariff Bill (MTB).
For years, the National Association of Manufacturers (NAM) has been a leading advocate in support of congressional passage of the MTB because the United States’ own tariff code is imposing anti-competitive costs on manufacturers in the United States. Since the last MTB expired at the end of 2012, manufacturers have paid billions of dollars in tariffs on products not even made in the United States to the detriment of American competitiveness and well-paying American jobs. Consider that in some cases, manufacturers in the United States are paying import taxes on components not produced domestically, while foreign producers bring their final products in duty-free. These and other historical distortions in the U.S. tariff code must be corrected to create a level playing field for manufacturers right here at home.
In 2016, the House and Senate, with near-unanimous bipartisan support, created a transparent, objective, predictable and regularized process for congressional review and consideration of the MTB through the American Manufacturing Competitiveness Act of 2016 (AMCA). Through that process, thousands of petitions were reviewed over the past year by the independent U.S. International Trade Commission (ITC) and other parts of the U.S. government, and the ITC put together a final report for Congress with petitions that it deemed to meet the requirements of the AMCA. The more than 1,800 petitions to remove import tariffs on products included in the ITC’s report would eliminate tariffs of more than $350 million in 2018 and more than $1 billion over the next three years.
Congress now has the opportunity to move forward on an MTB that would remove—for three years—anti-competitive border taxes on imports of products not produced or available in the United States. Consider the stories of two manufacturers:
- Albaugh specializes in the production and packaging of post-patent crop protection products, and employs around 350 workers across the United States. Albaugh’s products are used throughout the United States by farmers who require access to competitively priced alternatives for their crop protection needs. In the past, the MTB benefited Albaugh by reducing the cost of raw materials not available domestically and enabling the company to maintain and grow jobs at its headquarters in Ankeny, Iowa, a production facility in St. Joseph, Missouri, and other locations throughout the country.
- Glen Raven is one of the world’s leading manufacturers of performance fabrics used in the furniture, automotive, safety, marine and sunshade industries, with more than 2,000 employees in the United States. Since the raw materials required to manufacture many of these fabrics are not available in the United States, Glen Raven relies on the MTB to ensure that these materials can be sourced competitively. The expiration of the MTB in 2012 resulted in a significant increase in Glen Raven’s manufacturing costs, which made the company less competitive in the global marketplace.
Tomorrow, the House Ways and Means Trade Subcommittee will hear from three additional manufacturers—Gowan USA, Lasko Products LLC and W.L. Gore & Associates—about how the MTB will help them grow manufacturing in the United States. There are many more stories like this across America, including from many small and medium-sized manufacturers, in industries ranging from chemicals and textiles to electronics, agriculture and beyond, all of which will be able to improve their competitiveness and their ability to sustain and grow well-paying American jobs with MTB passage.
The NAM applauds the Ways and Means Trade Subcommittee for holding this hearing and looks forward to working closely with both the House and Senate to move forward MTB legislation as quickly as possible, so manufacturers can knock down another anti-competitive tax.
America exports a lot, particularly to our border neighbors, Canada and Mexico, which alone purchase more manufactured goods from the United States than the next 10 foreign countries combined. They purchase almost as much from the United States as we buy from them, even though together they are less than one-sixth of the size of the U.S. economy.
But beyond the cars and corn, the tractors and trailers and the steel and soybeans, America has also been exporting its most basic Constitutional values. Through the original NAFTA Chapter 11, the United States sought to guarantee many of the same basic private property protections that we honor in our own country—due process, equal protection and compensation when a government seizes or “takes” private property. Those core provisions of the U.S. Constitution and U.S. law are part of the original NAFTA and have helped protect U.S. property in both countries when their governments have treated American businesses unfairly.
Since these provisions are not fully part of Canadian or Mexican law, NAFTA also established a neutral enforcement mechanism, known as investor-state dispute settlement (ISDS), to ensure that individuals, nonprofits and businesses could all have the ability, as we have in the United States, to recover damages when those governments harm U.S. property. This enforcement mechanism is a neutral, internationally recognized arbitration found in more than 3,000 agreements worldwide and more than 50 other agreements signed by the United States.
Manufacturers, service providers, energy, technology and food and agricultural producers and their workers all have a stake in ensuring that these basic property protections and enforcement tools are not weakened in the upcoming NAFTA talks. To the contrary, the Trump administration has an important opportunity to improve the coverage of these rules so that all forms of U.S. property, including major resource and infrastructure contracts and intellectual property, are fully protected and that the ISDS enforcement tool is strengthened. For that reason, the NAM was joined by 112 groups representing millions of businesses across the manufacturing, services, technology, energy and food and agricultural sectors of the U.S. economy to urge the Trump administration to maintain and upgrade these basic provisions of the NAFTA.
Why does this matter for workers and businesses in the United States? Consider one early case already decided under NAFTA Chapter 11—Metalclad Corporation v. Canada. In 1993, California-based Metalclad Corporation invested more than $20 million to clean up and operate a waste facility that had more than 20,000 tons of hazardous waste contaminating local water supplies. Metalclad’s investment in Mexico included support from American workers and U.S.-produced materials.
Mexican federal and local officials supported Metalclad’s investment before the purchase and Metalclad received all the necessary Mexican federal authorizations and permits following government review and an environmental audit. Just before opening the facility, however, the local Mexican government blocked Metalclad from opening. Metalclad filed an ISDS case after which the local authority filed a so-called “ecological decree” to prevent the site from operating. An ISDS panel and later a Canadian court enforcing the award found that the Mexican government’s failure to allow Metalclad to operate the facility was in violation of one of the most basic property protections—that governments must compensate private property owners when they seize their property, as found in the Takings Clause in the Fifth Amendment to the Constitution. As a result of the ISDS claim, Metalclad was awarded compensation for a significant part of the investment that it had made.
There are many more instances of foreign governments that have wholly seized U.S. property and turned it over to local competitors or that have lured millions of dollars in infrastructure development, only to refuse to honor the contract to the detriment of U.S. businesses and their workers.
The Trump administration’s focus on ensuring fair treatment by foreign governments is a critical part of a robust U.S. trade agenda and maintaining and improving ISDS enforcement and the protection of U.S. property overseas is a critical tool in the toolbox. Businesses across the United States agree.