Answer: When a United States Senator says it isn't, goshdarnit!
Please allow me to explain. A rather substantial stink has recently been building on Capitol Hill due to Sen. Jeff Sessions' (R-AL) desire to increase taxes on US sleeping bag consumers in order to benefit an American manufacturer of those products who just so happens to be located in Sessions' home state of Alabama. The Hill gives us a good rundown of the issue:
While Republicans mounted a chorus of opposition to earmarks in spending bills this week, Sen. Jeff Sessions has been quietly blocking a routine tax measure to demand the addition of what is basically an earmark: a new tariff that would benefit a single small business in his state....Ok, let's fill in a few blanks here that The Hill missed. The GSP and other tariff preference programs provide duty-free access for about 5000 different imported goods from developing countries not only to benefit those countries, but also to benefit the myriad American businesses and families that consume those imports. The bill essentially eliminates vestiges of protectionism - high tariffs that remain in the US tariff schedule due to old school cronyism - that force American consumers to pay more for the protected goods. In short, and to use a phrase that protectionists just love, US preference programs "level the playing field" for beneficiary developing countries seeking to compete in the US market by lowering or eliminating existing tariffs that have tilted the playing field in domestic producers' favor. This "leveling," of course, also provides lower prices for US consumers. Indeed, according to the US International Trade Commission, US prices for high-tariff goods like clothing, dairy products, shoes and ball bearings are significantly higher than global prices, thus imposing a regressive tax on all consumers and forcing American families to expend more of their paychecks on the protected finished goods (and American businesses to pay more for the protected inputs). So GSP and other preference programs essentially provide tax cuts for all US consumers - tax cuts that disproportionately benefit those on the lower-end of the income scale.
Sessions is arguing for a tariff on Bangladeshi sleeping bags to benefit an Alabama company called Exxel Outdoors, which claims to be the only U.S. manufacturer of discount sleeping bags.
CEO Harry Kazazian told Roll Call the tariffs are needed to close a loophole in the Generalized System of Preferences, which allow for duty-free import of certain products from developing nations.
Enacted during President George H.W. Bush’s presidency, the law applies to goods that would not provide direct competition to domestic manufacturers and was designed to help the economic growth of developing nations.
Since it was passed, the legislation has largely gone unnoticed. Aides in both parties said it has typically been renewed through unanimous consent agreements and has become one of the background bills agreed to during evening wrap-ups in the Senate.
But over the past year, Exxel has found its business threatened by the GSP, as companies have begun importing inexpensive sleeping bags from Bangladesh essentially duty-free.
Kazazian said Wednesday that could spell the end for his Haleyville, Ala., company....
Earlier this year, Sessions sought to include language in the renewal of the GSP to close the loophole and save Exxel’s Alabama plant, but he has been unable to reach an agreement with Democrats and Republicans, who are pushing to pass the bill as is.
After numerous proposals to address the situation, Sessions opted to place a hold on the bill, which at this late date in the session means the GSP is likely to lapse at the end of the year.
In the case of sleeping bags, the US tariff schedule imposes a 9% tax on all imports of these products, thus preventing typical foreign producers from competing freely in the US market and forcing American retailers and consumers to pay more of their hard-earned money for sleeping bags. GSP eliminates that regressive tax for imports from (economic powerhouse) Bangladesh, thus enabling Bangladeshi producers to compete with US producers on a truly level playing field (i.e. one without any artificial barriers to trade due to a 0% tariff) and allowing Americans to pay less for their sleeping bags, if they so choose. We don't know where the money saved will go - maybe to savings or camping trips or S'mores or whatever - but what we do know is that American consumers won't be forced to waste their money on non-competitive domestic sleeping bags. They, of course, can very well choose to buy the American sleeping bags if they want, but that choice simply is not good enough for Sen. Sessions and his cronies. They want to amend GSP such that we are all forced to pay more for sleeping bags in order to "save" (read: prolong the inevitable demise of) a tiny sleeping bag manufacturer in Alabama.
And Senator Sessions is willing to take down the entire GSP program to do it, thus jeopardizing exporters and consumers of not only sleeping bags but also lots of other things that we use everyday like tires, jewelry, carpets, luggage, gloves, etc etc. According to the Coalition for GSP, total 2009 trade in products covered by GSP totaled over $20 billion, thus saving American families and companies (and their thousands of workers) millions of dollars annually and providing poor countries with a fantastic, free market way to help their citizens escape abject poverty. Yet all of these benefits - and others resulting from another preference program targeting the Andean region (ATPA, which covers Colombia, Ecuador and Peru) - will disappear next week because of a little earmark for an Alabama sleeping bag manufacturer and its 70 workers. Nice, eh?
Now, some, including Sen. Sessions argue that Bangladesh doesn't compete "fairly" with the United States because of its cheap labor costs, so this 9% tax is desperately needed to truly "level the playing field" and allow Exxel to compete in the US market. Now, leaving aside for a moment the absurdity of calling a 9% tariff on fairly-traded goods a "playing field-leveler," or the cold-yet-important economic question of whether American citizens should be subsidizing labor-intensive industries that simply can't compete on price with other, lower-cost manufacturers (hint: they shouldn't), does Sessions' "competitiveness" argument hold any water? In short, no for two important reasons. First, it's a real stretch to believe that a 9% tariff on sleeping bags from a single country will solve Exxel's competitiveness problems over the long-term, when America's anti-competitive tax and regulatory regime pose a much higher threat than some manufacturers in poverty-stricken Bangladesh. As Exxel's own CEO admits, "I spend more on health care in one month than they spend all year on labor,” and ObamaCare will only make those costs worse. Moreover, the United States has the highest corporate tax rate in the developed world. So attacking GSP simply masks Exxel's real economic problem - a domestic business environment that is, at present, hostile to business - and in the process harms lots of other (over-taxed and -regulated) American businesses that rely on GSP-elgible imports to remain globally competitive. Clearly, the Senator's approach to America's competitiveness problems is an awful deal for the US economy.
Second, GSP has a built-in "surge protector" for hyper-competitive products from beneficiary developing countries called a "competitive needs limitation." If imports from a country break the CNL (either total import value or as a share of total imports), they lose their GSP status. So the idea that super-competitive duty-free sleeping bags from Bangladesh are flooding the US market simply defies reality. Indeed, a quick review of US import stats from 2008-2010 reveals that China dominates the import market for sleeping bags and is once again increasing its market share here, and that Bangladesh, while gaining market share over the last few years, is still running a very, very distant second:
Sen. Sessions, however, will have none of these measly economic or legal arguments. So let's talk in terms that he apparently does understand: politics and public image. Apparently, the good Senator isn't worried that his efforts might scuttle GSP, ATPA and all of the programs' attendant economic benefits, or that his efforts, while winning about 71 votes in Alabama, will do little to help Exxel in the long-run. But he is very, very upset that some people in Congress (and the media) are calling him (gasp!) a low-down dirty earmarker:
Sessions flatly denies the provision he is seeking is an earmark. His office claimed he is trying to undo an old earmark.
“Bangladesh gets to ship sleeping bags to America without paying a cent of taxes, and they get to use materials from China without paying a cent of taxes either,” Sessions spokesman Stephen Miller said Wednesday. “This outrageous earmark for Bangladesh is crushing America’s top sleeping bag manufacturer, Exxel, and threatening their workers’ jobs.
“Sen. Sessions is trying to end that injustice, and eliminate that earmark, by ensuring that Bangladesh and China have to play by the same rules as everyone else in the world. He is fighting to close a gaping loophole in our trade laws so that companies in America are at least allowed to compete on the same playing field. We need to stop giving Bangladesh workers an earmark so we can give these Alabama workers a fighting chance. Or is the message we want to send this Christmas that we will keep this loophole in place, even as our nation struggles with crippling unemployment?”
But that argument isn’t sitting well with Democrats or Republicans.
“Sen. Sessions is putting politics ahead of a remarkably successful program that supports more than 80,000 U.S. jobs and sustains economic growth and employment in Alabama and across the U.S. and the globe. Rather than working to sustain thousands of American jobs and small businesses — including many in Alabama — Sen. Sessions is looking to carve out protections for one single sleeping bag producer,” a Senate Democratic aide said.So to recap: Republicans and Democrats in Congress call Session's protectionism an earmark; the GOP's new ban on earmarks classifies Sessions' protectionism as an earmark; and existing Senate rules define Sessions' protectionism as an earmark (three cheers for that, by the way). Yet when asked about whether the Senator is demanding an earmark, his staffer responds with, in essence, "hey, he's not an earmarker; everyone else is the earmarker," and then angrily adds that his boss' attempts to increase taxes on Bangladeshi sleeping bags (which, by law, are paid by American importers who then pass those costs onto American consumers, of course) from 0% to 9% is actually "leveling the playing field." Touchy touchy!
A GOP aide agreed, arguing that, “You can call it whatever you’d like, but when you’re holding up legislation that effects a wide swath of the economy for a carve-out benefiting one company, it certainly doesn’t look good.”
The aide pointed out that the Senate GOP’s internal earmark ban for next year would bar not only traditional earmarks such as line-item appropriations, but also tax provisions and tariffs that would benefit an individual company.
Even the Senate’s earmark disclosure rules clearly define the tariff change Sessions is seeking as an earmark. For instance, the rules require the disclosure of any “congressionally directed spending items, limited tax benefits, or limited tariff benefits.” Limited tariff benefits are specifically defined by Senate rules as “a provision modifying the Harmonized Tariff Schedule of the United States in a manner that benefits 10 or fewer entities.”
But hey, maybe Sessions is right. I mean, if you think about it, the existing GSP program, which has been law for decades and benefits all American consumers at the expense of a few, insular domestic industries, is an "earmark"... for the American people. And raising taxes from 0% to 9% on sleeping bags from Bangladesh does "level the playing field"... for Chinese producers. So you see, folks, this is all just a silly misunderstanding.
(And remember, these are not the
