Proposal may tax imports of furniture, other goods

Manufacturing group says it would level playing field

Thomas Russell -- Furniture Today, June 19, 2009

WASHINGTON — Furniture importers might have to pay taxes on goods imported from countries with value added tax systems, under a bill before Congress.

House Resolution 2927 would charge a "border equity tax" on goods imported from countries that charge value added taxes on imported goods and that pay VAT rebates to their domestic exporters. Such rebates often are an incentive for companies to use domestic raw materials in the production of goods intended for export.

Its backers say the bill would negate trade imbalances between U.S. producers and manufacturers in countries with such tax schemes. The American Mfg. Trade Action Coalition, a key supporter of the bill, estimates that manufacturers and service providers faced a $474 billion disadvantage in 2007 from such foreign subsidies.

AMTAC also said the imbalance has contributed to the loss of more than 5 million U.S. manufacturing jobs in the past decade.

"Foreign manufacturers selling in the United States pay neither U.S. income/payroll taxes nor their own consumption/VAT taxes as the VAT is rebated by their government on exports," AMTAC said in a statement. "The severely tilted playing field places U.S. domestic manufacturing at a great competitive disadvantage."

AMTAC estimates the average VAT worldwide at 15.5%. This tax, it said, is on top of tariffs U.S. manufacturers already pay on goods they export to those same countries.

A similar bill was introduced in Congress in 2007 but never made it to the floor for a vote.

The latest bill, called the Border Tax Equity Act, is sponsored by U.S. Reps. Bill Pascrell, D-N.J.; Walter Jones, R-N.C.; Mike Michaud, D-Maine; Gresham Barrett, R-S.C.; Marcy Kaptur, D-Ohio; Lynn Westmoreland, R-Ga. and Steve Rothman, D-N.J.

The bill initially seeks to resolve the imbalance through negotiations with the World Trade Organization. If an agreement isn't reached by Jan. 1, 2011, it proposes assessing a tax on imports equal to the amount of VAT rebated to foreign exporters. This tax would be paid by the importer of the goods or services.

The bill also would provide U.S. manufacturers rebates equal to the amount of VAT taxes they pay on exports to countries that impose such border taxes.

The bill is being considered just as China implements measures to stimulate its economy. Earlier this month, the Chinese government raised VAT rebates to 17%. The 15% rebate on goods used in furniture production is up from 9% last July and is said to be the highest amount the government has made available to the industry.

The bill is likely to face fierce opposition from importers and retailers.

"We have to bear in mind that duties are hidden sales taxes paid by U.S. consumers," said Erik Autor, vice president and international trade counsel for the National Retail Federation. He said such measures are regressive sales taxes that would hit poor people the hardest.

He also said the bill would violate WTO rules and thus expose U.S. exports to trade retaliation.

"Any U.S. company that exports and that would get that subsidy could be the target of a countervailing duty action," he said. "This is a bad bill for U.S. exporters. In an effort to protect U.S. industry from foreign competition, they could do something that hurts U.S. exports."