US’s own policies could be stumbling block to greater exports
The recovery of Wisconsin’s manufacturing sector will hinge in part on more vigorous trade with other nations, according to US Rep. Paul Ryan, the Republican who was just returned to his seat representing the state’s first district.
But in addition to market-based barriers to exports – including strength of the dollar and low labor rates in developing nations – some US trade policy may be further hamstringing efforts of companies here to market their products overseas.
Ryan, who sits on the House Ways and Means Committee which oversees legislation having to do with international trade, said portions of the US tax code designed to help exporters may actually result in the US being slapped with penalties by the World Trade Organization (WTO) and hamstring negotiation of bilateral trade agreements under the president’s newly-granted Trade Promotion Authority (TPA).
Ryan was the scheduled speaker at the Nov. 21 International Trade Policy Conference hosted at the Polish Center of Wisconsin, Franklin, by the Wisconsin World Trade Center (WWTC). He spoke with Small Business Times prior to that engagement.
The trade deficit the US faces in many world markets could get worse if the World Trade Organization (WTO) makes good on threats to allow retaliatory tariffs on US goods. WTO has taken exception to portions of the Extraterritorial Income Act (ETI) and an earlier act, the Foreign Sales Corporation (FSC). In January, the WTO Appellate Panel ruled that the 5.25% US income tax reduction on export income the ETI Act provides was a prohibited export subsidy – the second time in two years WTO has taken such a measure against the US. That marks the fourth time in the last two years that the WTO has come after the US for ETI-related treaty obligations.
"We are facing a massive tariff retaliation this spring if we don’t work to change the tax code," Ryan said. "It all revolves around competition – and not just making our businesses more competitive in their operations, but making our nation more competitive in the areas of tax and trade policy. Other governments have been out-competing the US. Our tax code is less competitive from a jobs production standpoint."
Ryan said legislation is pending in the house that would address the situation. One bill has already been introduced by Rep. Bill Thomas, a Bakersfield, Calif. Republican who is chairman of the House Ways and Means Committee. But Ryan does not support HR 5095 due to "problems with the bill."
HR 5095 is designed to:
– impose a three-year moratorium on corporate inversions, or offshore re-incorporations to avoid taxes
– remove tax incentives for US companies to invert
– modernize, and streamline taxation of US multinationals.
– eliminate the unintended tax advantages the tax system bestows on subsidiaries of foreign owned companies operating in the United States.
– reduce the tax incentives for foreign acquisitions of US businesses
– prevent the use of abusive tax shelters.
Thomas’ bill is not all bad, according to Ryan.
"What the bill does do is simplify our tax laws with regard to exporters," Ryan said. "Right now, they have to jump through hoops."
HR 5095 was referred to the House Ways and Means Committee in July. Ryan implied a new bill would likely be written from scratch in time for consideration by the House this spring.
Ryan also expressed concern about a movement toward tax harmonization – tax agreements in which nations engaged in trade together adopt similar tax codes. That, according to Ryan, would work to the detriment of developing nations intent on attracting investment from multinational corporations.
The use of tax agreements and agreements by which nations engaged in trade would automatically exchange information that could lead to the closing of some tax loopholes has been lobbied against strenuously by a coalition of corporate interests.
"We have to be more competitive with our tax code," Ryan said. "We have to resist tax harmonization and tax competition. Some people want us to raise taxes with the rest of the world and penalize countries that lower their taxes. But what we really need to do is make our tax code more entrepreneurial."
Ryan stressed that the passage in August of legislation giving the president TPA was an important step. The Free Trade Act of 2002 gives the president the authority to negotiate bilateral trade agreements with other nations. Congress would still have to ratify treaties before they go into effect, but would not be able to make amendments.
But some at the WWTC event criticized the current administration for running in the opposite direction of free trade even as TPA was granted the president.
The Bush administration has taken protectionist actions on behalf of several US industries interests, including the lumber, steel, textile and agricultural product industries.
"It is not having the effect it was intended," WWTC executive director Craig Stephenson said. "It was certainly drafted during more peaceful times. The administration did not have the concerns and distractions it does now.
It certainly could be a powerful tool when some attention is paid to it. Our members would like to see that happen."
"The president has become pretty protectionist," Art Cyr, economics professor with Carthage College, Kenosha, said. Cyr is the former executive director of the WTC in Chicago. "The president has caved to pressure from steel, agriculture and other interests. While he has been getting TPA, he has been so responsive to American commercial interests that he is going to have a lot of trouble in these negotiations."
Both Stephenson and Cyr said the trend toward protectionism is in contrast with the trade policy of the previous administration.
"This is in great contrast with Clinton," Cyr said. "That president was extremely consistent in defending free trade. As a result, a few years from now Bill Clinton might not look that bad – at least on this issue. I just don’t think it has been a central issue yet in the Bush administration."
Nov, 22, 2002 Small Business Times, Milwaukee
