WASHINGTON, D.C. – Today, U.S. Representative Bill Pascrell, Jr. (D-NJ), a member of House Ways and Means Committee, and U.S. Representative Walter B. Jones (R-NC) introduced the bipartisan Border Tax Equity Act, which would mitigate the negative impact of border tax adjustments on U.S. exporters. The bill addresses disadvantages for American exporters – estimated to be $204 billion annually in trade with the European Union alone.
“In America, we produce high-quality goods made under conditions that protect workers and buyers alike,” said Rep. Pascrell, who is also a member of the House Budget Committee.
“When our producers export to foreign markets, they are hit with a value-added tax. Foreign competitors get rebated at the border for their taxes paid, but U.S. companies, paying direct U.S. income tax, do not. The difference between direct and indirect taxation creates an economic disparity hitting U.S. producers to the tune of hundreds of billions of dollars. Our proposal corrects this discrepancy and serves as another tool to help encourage manufacturing job growth in America.”
Current World Trade Organization (WTO) rules allow 164 nations with indirect tax systems (i.e. value added tax systems, or “VAT”) to subsidize their exports, while the U.S. is not allowed to do so.
Today, every OECD country – except the United States – uses some form of a VAT system for a significant portion of their revenue needs. This allows other nations the benefit of lower U.S. tariffs for their exports, while allowing them to protect their domestic producers by imposing a high VAT on U.S. imports, and also providing a rebate for the VAT their producers pay when they export to the U.S. This means that U.S. manufacturers, agricultural producers, and service providers are disadvantaged on multiple levels – from effectively subsidized foreign goods competing with U.S. products here, to higher fees on U.S. exports abroad.
Furthermore, European Union governments can negate tariff reductions negotiated through trade agreements by increasing their VAT rates. Addressing this issue has been a negotiating objective in each of our Trade Promotion Authority laws going back to the 1970s, but the problem remains unresolved. To resolve the inequitable treatment of tax policy impacting domestic industry, the Border Tax Equity Act would:
• Instruct the United States Trade Representative (USTR) to negotiate at the World Trade Organization (WTO) an agreement that eliminates the VAT inequity
• Impose a fee on imports from countries that employ indirect taxes and grant rebates upon export if an agreement cannot be reached at the WTO by 2018
• Make U.S. exporters eligible to receive payments to neutralize discriminatory effect of border taxes
• Require a report from USTR on the status of this issue in our current free trade agreements