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Congress At Odds Over Tariff Relief

Duty suspensions on imports are caught up in the earmark debate

by Glenn Hess
July 9, 2012 | A version of this story appeared in Volume 90, Issue 28

Credit: Cal EMS
Chemical manufacturers will have to pay tariffs on many imported raw materials not made in the U.S. unless Congress passes a new duty suspension bill by the end of the year.
White tubes rise against a dingy blue sky as steam billows from several shorter buildings at a chemical manufacturing facility in California.
Credit: Cal EMS
Chemical manufacturers will have to pay tariffs on many imported raw materials not made in the U.S. unless Congress passes a new duty suspension bill by the end of the year.

The chemical industry is urging Congress to move forward with controversial legislation suspending duties on imports despite claims by some Republican lawmakers that it violates a self-imposed moratorium on earmarks—the practice whereby legislators direct spending to pet projects in their home districts or states.

At stake, proponents of the legislation say, are hundreds of millions of dollars in cost savings that allow U.S. companies that trade globally to maintain competitive operations, invest in new facilities, and preserve the country’s manufacturing base.

Just about every two years for the past three decades, Congress has passed a sprawling miscellaneous tariff bill (MTB) that brings together hundreds of separate pieces of legislation. The bill’s provisions temporarily waive import tariffs on certain chemicals, fibers, and a host of other specialized materials.

The MTB is critically important to specialty chemical companies and other U.S. manufacturers because many of their raw materials are not produced domestically and so must be purchased from overseas.

Congress last passed a tariff relief bill in July 2010 with overwhelming bipartisan support. That measure, H.R. 4380, which is set to expire at the end of 2012, includes duty suspensions on 665 products, benefiting 113 corporations, according to the House of Representatives Ways & Means Committee. If a new MTB isn’t approved by the end of this year, tariffs on those goods will be reinstated.

Tariffs have been around since the earliest years of the nation. In the 19th century, lawmakers began using them increasingly to protect U.S. manufacturers from having to compete against cheap imports. Before the federal government created the income tax in the early 20th century, most of its operations were funded by tariffs on foreign-made goods. Duties still provide billions of dollars to the U.S. Treasury.

But when certain products are no longer manufactured in the U.S., tariffs on those materials can make them expensive to import. So since 1982, companies have been saving hundreds of thousands and often millions of dollars by persuading their local members of Congress to secure temporary exceptions to these import duties. Making the tariff suspensions temporary avoids complications with trade negotiations.

But now, the lobbying aspect of this process has fueled the claim that tariff bills are essentially earmarks. Under the current system, the U.S. International Trade Commission (ITC) assesses each proposed duty suspension to ensure that the product is not made domestically, no U.S. business objects to the bill, and the amount of revenue lost to the Treasury is less than $500,000 per bill.

MTBs have typically sailed through the legislative process with little fanfare and no controversy. But in the past two years, the arcane issue of tariff suspensions has increasingly become ensnarled in the ideological wrangling over earmarks.

Earmarks—such as Alaska’s now-famous “Bridge to Nowhere”—account for only a tiny percentage of federal spending, but they have become a symbol of out-of-control deficit spending. Because many voters view earmarks as a waste of taxpayer money and a corrupting influence on politics, Republicans in the House put a two-year moratorium on those special projects after winning control of the chamber in the November 2010 elections.

The ban states: “It is the policy of the House Republican Conference that no Member shall request a congressional earmark, limited tax benefit, or limited tariff benefit, as such items have been described in the Rules of the House.” A limited tariff benefit is defined by these rules as any duty suspension that benefits 10 or fewer entities.

After President Barack Obama announced in his January 2011 State of the Union address that he would veto spending bills that included earmarks, Senate Democrats had no choice but to go along. Senate Republicans went a step further and said they would not support earmarked spending, limited tax benefits, or limited tariff benefits.

Into this mix comes this year’s effort to pass the MTB. Critics contend the legislation is merely an earmark by another name, given that it is a compilation of requests from individual lawmakers on behalf of companies in their districts or states to suspend the duties on specific import items.

The measures are defined as earmarks in the House rules because they are almost always advanced at the request of only one company, notes Steve Ellis, vice president of Taxpayers for Common Sense, a non-partisan group that tracks congressional spending.

In recent years, about 90% of the tariff cuts have benefited 10 or fewer companies, and roughly 40% have helped just one firm, according to Sen. James W. DeMint (R-S.C.), an outspoken opponent of earmarks and the current MTB process.

However, the chemical industry and the broader business community maintain that duty suspensions are not earmarks. “The benefits of a duty suspension are broader than the company that requests it,” says Justine Freisleben, a government relations manager at the Society of Chemical Manufacturers & Affiliates (SOCMA), a Washington, D.C.-based trade association representing small and mid-sized batch chemical manufacturers.

“The suspension is open to anyone importing the product, and benefits can be seen throughout the supply chain,” she remarks. The cost savings achieved by the MTB enable companies to reinvest in their business, whether through jobs, R&D expenditures, or capital investments, and keep current customers, Freisleben says. Without an MTB, she adds, “a tax is essentially being levied on American manufacturers.”

The money saved by tariff suspensions can help a small business support two to three jobs per year, argues Kurt Jones, vice president of sales and business development for Iofina Chemical. “For a small manufacturer with only 25 employees, that’s quite important,” he says.

On Capitol Hill, the dispute has opened a rift among Republican lawmakers and led to a stalemate in the bid to pass a new package of miscellaneous tariff provisions.

Rep. Dave Camp (R-Mich.), chairman of the tax-writing Ways & Means Committee, says duty suspension bills do not qualify as earmarks because they benefit consumers by giving manufacturers lower-cost access to products that aren’t made in the U.S. “The MTB offers broad benefits across our economy, including making American manufacturing more competitive,” he says.

The belief that the tariff breaks never should have been included in the earmark ban in the first place is shared by 65 of the 87 House Republican freshmen, including many Tea Party members who have vowed to reform the way Congress operates. In an April 20 letter to House Speaker John A. Boehner (R-Ohio), the group of 65 defended the existing MTB process.

“Over the past two years, there has been paralysis on moving forward on the MTB over whether MTB provisions are prohibited as ‘limited tariff benefits’ under House rules. As fiscal conservatives, we appreciate these concerns,” the freshmen wrote. “However, we believe it is an error to view duty suspension bills in that manner.” They stressed that duty suspensions are available to any U.S. manufacturer, including small businesses.

On the other hand, House Appropriations Committee Chairman Hal D. Rogers (R-Ky.) and members such as Reps. Jack Kingston (R-Ga.) and Jeff L. Flake (R-Ariz.) have continued to argue that the tariff bills are no different from earmarks and if one is banned, both should be.

Despite this party split, 74 House Republicans have come around to the idea that the bills grant a tax break and are not the equivalent of earmarks. Those members, together with 60 Democrats, have introduced 1,270 duty suspension bills.

For industry lobbyists, the bigger obstacle has been the Senate, where DeMint has been calling for a wholesale reform of the tariff suspension system.

“I fully support removing trade barriers that hurt American businesses and raise costs on American consumers,” DeMint says. “However, a process whereby a few companies, oftentimes only one, have to hire a lobbyist and ask a favor of their congressman to introduce a bill before it gets sent to ITC for review, unnecessarily creates a situation ripe for abuse,” he contends.

The controversy over whether or not duty suspensions qualify as earmarks has made Republican senators reluctant to sponsor them. “This year we have House Republicans on board and pushing for the MTB, but Senate Republicans have come out against this and refuse to introduce bills on our behalf,” Freisleben says.

“We’ve been working with Senate Republicans and also House Republicans and Democrats on a way forward because unless we find a compromise between Senate Republicans and the rest of Congress, we’re not going to move forward,” she remarks.

Most of the 793 duty suspension bills introduced in the Senate this year have Democratic sponsors. Sen. Robert Menendez (D-N.J.), for example, has introduced 118 bills to exempt a wide range of raw materials from import duties. Health care giants Johnson & Johnson and Bayer would each benefit greatly from the measures Menendez is sponsoring, as would a half-dozen chemical manufacturers, including Solvay’s Solexis and Rhodia units. All of the companies have facilities in New Jersey.

Credit: Courtesy of Sen. Portman’s office
Sen. Rob Portman (R-Ohio)
Credit: Courtesy of Sen. Portman’s office

“As long as the MTB process remains in place, Sen. Menendez will continue to make sure qualified New Jersey companies have an opportunity for reduced tariffs so they may invest more money in research and development, in expanding their facilities, and in hiring more employees,” a Menendez spokeswoman tells C&EN. “These companies—large and small—collectively employ tens of thousands of New Jerseyans,” she notes.

Credit: Courtesy of Sen. McCaskill’s office
Sen. Claire McCaskill (D-Mo.)
Credit: Courtesy of Sen. McCaskill’s office

Only two Republican senators are seeking tariff waivers on behalf of their constituents—Sens. Susan M. Collins of Maine and James M. Inhofe of Oklahoma. Collins’ bills would exempt duties on a variety of chemicals used by FMC, which has operations in Rockland, Maine. Inhofe’s proposal would suspend tariffs on certain fishing reels imported by several sporting goods companies in his state.

Without more Republican-sponsored provisions in the MTB package, it would likely be difficult to muster the 60 votes needed to advance the measure on the Senate floor.

In an attempt to break the impasse, Sens. Robert J. Portman (R-Ohio) and Claire McCaskill (D-Mo.) offered a bipartisan plan last month that would initially take Congress out of the equation and have companies seek tariff relief directly from ITC.

Under the Temporary Duty Suspension Process Act (S. 3292), the trade commission would review the requests for tariff exemptions, take public comments, and then submit its recommendations to Congress in a draft bill for final approval. The legislation is backed by Senate Minority Leader Mitch McConnell (R-Ky.), Minority Whip Jon Kyl (R-Ariz.), and other key Republicans.

“It’s gratifying to see that bipartisan compromise is possible in Congress, especially on an issue as important as boosting American jobs and helping our manufacturers,” McCaskill says.

Portman says he believes the proposed reforms “are the only way we’re going to get important tariff legislation through Congress this year. I think this is the best path forward, and I hope Congress will move quickly to provide more certainty for job creators through this merit-based approach.”

DeMint signaled that critics of the current MTB process will support the McCaskill-Portman effort. “I hope the Senate works together and acts on this reform quickly, so that American businesses will no longer have to hire a lobbyist and come grovel before a member of Congress to get relief necessary to save jobs” and keep consumers’ costs down, he says.

Whether the McCaskill-Portman bill can pass Congress and clear the way for a vote on an MTB package this year is far from certain. “We are pleased to see that members of Congress continue to actively seek a way forward on the MTB,” Freisleben tells C&EN.

It’s important, she says, that the process for securing tariff reductions be adjusted so that in subsequent years duty suspensions are no longer “incorrectly categorized as earmarks.” However, Freisleben adds, “some of our members are concerned that this does not necessarily solve the problem for this year, leaving the possibility that all of the duty suspensions might expire at the end of the year.”


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