Monday, January 9, 2012

Congratulations Chinese Sleeping Bag Exporters!

While most of us were enjoying the holidays, the Obama administration quietly announced its intention to raise import taxes on sleeping bags from Bangladesh that used to qualify for duty-free treatment under the US Generalized System of Preferences (GSP).  According to the USTR announcement (emphasis mine):
United States Trade Representative Ron Kirk announced today the outcome of the Obama Administration’s 2010 Annual Review under the Generalized System of Preferences (GSP) program. Congress created the GSP program in the Trade Act of 1974 to help developing countries expand their economies by allowing certain goods to be imported to the United States duty-free.

Ambassador Kirk said, “GSP is an important element both of this Administration’s trade agenda and of its efforts to help developing countries grow their economies through increased trade. The annual review of GSP helps us to ensure that the program is working as it should and that developments affecting country and product eligibility are taken into account, consistent with the GSP statute. A well-functioning GSP program also helps U.S. businesses, workers, and consumers by lowering the costs of imported goods, including those used as inputs for U.S. manufacturing.”

Based on the Administration’s review of product petitions accepted for the 2010 GSP Annual Review, President Obama determined that one product – certain non-down sleeping bags – should be removed from eligibility for duty-free treatment under GSP because it is import-sensitive in the context of GSP.
As you may recall, the Bangladeshi sleeping bags were the subject of a big controversy last year as Sen. Jeff Sessions caused GSP to expire in an attempt to force USTR to stop granting those imports duty-free treatment and thus protect - allegedly - Alabama sleeping bag manufacturer Exxel Outdoors.  Well, it looks like the Senator was finally successful, as Congressional Quarterly[$] makes clear (emphasis mine):
The Obama administration is removing certain Bangladeshi-made sleeping bags from a special duty-free list, a victory for an American sporting equipment company and its congressional allies, including Republican Sen. Jeff Sessions of Alabama.

The U.S. trade representative’s (USTR) office announced Thursday that it is agreeing to a petition from Exxel Outdoors Inc., which has its main factory in Haleyville, Ala., to stop granting duty-free status to certain “non-down” sleeping bags under the Generalized System of Preferences, which reduces tariffs on certain imports from developing countries.

Exxel has been fighting to get the sleeping bags — which compete with its own sleeping bags — off the list for years. Many lawmakers went to bat for the firm, including Rep. Robert B. Aderholt, R-Ala., but Sessions, the state’s junior senator, became their highest-profile champion after he forced a temporary expiration of the GSP program in 2010 over the issue.

He fought repeatedly in 2011, during the debate over the stalled Bush-era trade bills with South Korea, Colombia and Panama, to force USTR to take the provision off the list.

Without GSP duty-free status, there is a 9 percent tariff on the sleeping bags, which are mainly made in Bangladesh. Sessions argued that exempting those products from tariffs violated the spirit of the GSP program, which is not supposed to help foreign companies at the expense of American firms....

Harry Kazazian, Exxel’s CEO, said Thursday that the administration had made the right choice. Kazazian argued that his company does business internationally and is not anti-trade....

“The way the trade laws were written in GSP, regarding sleeping bags, wasn’t fair,” he said from the company’s Los Angeles corporate headquarters, adding that the tariff waiver could have forced him to move the Alabama factory offshore. The company also has a plant in Shanghai.

Exxel has spent $90,000 on lobbying expenses related to GSP issues in the last three years, according to the Center for Responsive Politics.
So to recap:
  • Raising tariffs on sleeping bags and thereby preventing dirt-poor workers in Bangladesh (per capita income of $641/year!)  from enjoying the export and development benefits intended by GSP?  CHECK! 
  • Tens of thousands of dollars spent on shady corporate lobbying - and lots of hard work by the congressional beneficiaries - to raise those tariffs?  CHECK!
  • "Alabama" company with its corporate headquarters - and high-paid professional services jobs - in Los Angeles (not Alabama)?  CHECK!
  • "Alabama" company with production facilities in China?  CHECK!
Behold, protectionism in all its crony-tastic, poverty-inducing glory!  

And speaking of China (which doesn't qualify for GSP treatment), guess which foreign country has been gobbling up domestic market share for years and easily stands to benefit most from raising tariffs on Bangladeshi sleeping bags?  Oh, right:

Country200920102010 YTD2011 YTDPercent Change
YTD2010 - YTD2011
In 1,000 Dollars
United Kingdom45129818226847.1%
New Zealand00037N/A
Czech Republic62211641.1%
Hong Kong261001008-92.0%
Subtotal :65,69582,74771,86176,9097.0%
All Other:161655222-58.5%

So Exxel's Chinese manufacturing facility will all-of-a-sudden become 9 percent more competitive now?  Sweet!  But, hey, at least Exxel's employees in LA will be okay if/when those Chinese sleeping bag imports keep growing, right?

Thanks, Senator Sessions.

UPDATE: Heritage's Bryan Riley makes a great point on this decision that I totally missed: "President Obamas decision to hike tariffs on sleeping bags from developing countries came just one month after Hu Jintao, president of the Peoples Republic of China and General Secretary of the Communist Party of China, announced the elimination of tariffs on 97 percent of items imported from least-developed countries that have diplomatic relations with China."  Ouch.  He then rightly concludes: "Instead of sending billions of dollars in aid to developing countries every year, Congress should remove trade barriers that prevent Americans from doing business with people in those countries....  Congress should take these decisions out of the White House by permanently removing the tariff on imported sleeping bags along with tariffs on all other imports from the worlds developing countries."


Anonymous said...

1. United States as a member of the WTO
2. Bangladesh as a member of the WTO
3. Sleeping Bag manufacturers in the U.S.
4. Sleeping Bag manufacturers in Bangladesh
5. Workers in Sleeping Bag factories in the U.S.
6. Workers in Sleeping Bag factories in Bangladesh
7. Consumers in the U.S.
8. Workers in China working in Sleeping Bag factories of U.S. Companies Located in China
9. Lobbyists in the U.S. Context
10. Public representatives in all the member countries

@Scott- I was just summarizing the stakeholder analysis! Have I left out anyone?

Scott Lincicome said...

I think that's it, TMP.

Edward Gerety said...

Nice, well written, concise. Thanks.

This one touches me as a member of the outdoor industry association. Outdoor retailers and importing brands are starting to realize that they're hurt by tariffs. Check out the athletic footwear situation.

That the association is lobbying for lowering tariffs gives me hope.

Scott Lincicome said...

Thanks, Edward. Hopefully more retailers and importers in your industry will get involved and lobby for the elimination that 9% tariff (tax). There's no reason why the US government should force you (and the rest of us) to subsidize the US sleeping bag industry (or any other industry, for that matter).