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:

Country	2009	2010	2010 YTD	2011 YTD	Percent Change YTD2010 - YTD2011
	In 1,000 Dollars
China	64,426	76,910	67,242	70,962	5.5%
Bangladesh	612	5,324	4,238	5,367	26.6%
United Kingdom	451	298	182	268	47.1%
India	17	0	0	135	51,531.4%
Pakistan	2	6	3	75	2,863.9%
New Zealand	0	0	0	37	N/A
Canada	13	36	28	15	-44.5%
Czech Republic	6	2	2	11	641.1%
Australia	0	35	35	9	-75.2%
Hong Kong	26	100	100	8	-92.0%
Turkey	0	0	0	8	2,728.9%
Mexico	37	5	0	4	N/A
Taiwan	94	11	11	4	-63.1%
Estonia	0	7	7	4	-49.4%
Germany	11	13	13	3	-77.1%
Subtotal :	65,695	82,747	71,861	76,909	7.0%
All Other:	16	165	52	22	-58.5%
Total	65,711	82,912	71,913	76,931	7.0%

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."

Tuesday Quick Hits

Here are several headlines that are well worth your time:

• So the US and Mexico have apparently resolved their cross-border trucking dispute.  By my math, it only took the President two years - and many millions of dollars worth of needless tariffs on US exports - to "end" (only half the tariffs were immediately lifted) the dispute, and his big "solution" actually appears to be worse (i.e., more trade-limiting) than the program his party unlawfully eliminated back in 2009.  In that way this new "fix" is just like the President's solution to the US-Korea FTA - long delays, tons of lost export opportunities, and a worse agreement than the one his predecessor negotiated many years prior.  (Hey, are we seeing the emergence of an "Obama doctrine" on trade?)

• Simon Lester absolutely dismantles the latest trade-skeptical piece from Princeton's Uwe Reinhardt, which bizarrely characterizes the free trader's view of the world as "a giant cattle farm to be managed in ways that maximize the collective weight of the cattle."   Lester also gets in a good shot on everyone's favorite protectionist punching bag, Ian Fletcher.

• Speaking of Fletcher, Cafe Hayek's Don Boudreaux pens yet another devastating-yet-simple criticism of Flether's latest protectionist screed (be sure to read Don's enlightening follow-ups in the comments section);  AEI's Mark Perry follows-up by pointing out the basic economic ignorance of protectionism.  (I'd also note the utter insanity of Fletcher's assertion that mainstream media journalists "are well-paid and 'lean right' on trade."  Umm, WHAT?)

• Cato's Sallie James heartily fisks Sen. Sessions' silly press release extolling his new legislative "fix" to the GSP program.  I'd only add that, according to the his presser, Sessions is apparently proud to be aligned with this guy on the GSP issue.  (Err, congrats, Senator.  Way to think that one through.)

• Mark Perry highlights a fascinating study on the changing dynamics of the American and Chinese manufacturing sectors, and the fact that "some manufacturing is being brought back to the U.S. from China, especially for smaller American firms, because of: a) rising labor costs in China, b) inconsistent quality, c) shipping costs that have doubled in the last year (see chart above), and d) the lack of safeguards on intellectual property."  Put another nail in the "outsourcing" coffin. (Note: as I've previously noted, these "in-sourcing" and "re-shoring" phenomena have been happening for a while and seem to gain steam when energy prices are high.)

• EconLog's David Henderson efficiently undermines the misguided notion that unionization promotes the "middle class."  (Of course, one need only notice the unions' uniform opposition to free trade to realize the absurdity of that notion, but still....)

• The Examiner's invaluable Tim Carney mercilessly details how all those super-neato green subsidies aren't "driven by tree-hugging activists, earnest liberal bloggers, or ecologically minded citizens" and instead flow "from the lobbyists and executives of well-connected multinational corporations and built-for-subsidy startups that see profit in the loan guarantees, handouts, mandates, and tax credits Congress creates in the name of saving the planet." Shocking, I know.
  
• I think I'll be passing on this, uh, interesting business opportunity, thanks.

Enjoy, everyone.

Sen. Sessions Supports Lowering Corporate Taxes, Except When They're Called "Tariffs"

NRO's Andrew Stiles reports that Sen. Jeff Sessions (R-AL) has decided to vocally champion the much-needed reform of America's embarrassing corporate tax system:

During a Senate Budget Committee hearing today titled “Tax Reform: A Necessary Component for Restoring Fiscal Responsibility,” ranking member Jeff Sessions (R., Ala.) made an impassioned case for why corporate-tax rates must be significantly reduced — in addition to any general reform measures designed to simplify the tax code — if the United States wants to remain an attractive place to do business. Simply doing that, he argued, would go a long way toward bringing down the unemployment rate....

"The problem is far more serious than that. We have, even in real rate terms, one of the highest, if not the highest corporate [tax] rate in the developed world. Corporations are making decisions every day: where to expand, where to hire workers…"

"This is not academic. This is going on every day. We have an unemployment rate that is unacceptable and to have the highest corporate tax rate virtually in the world — and other nations are seeing the light in reducing it — and we remain high?"

"So even if we eliminate certain deductions and have a flat rate that appears lower, it seems to my simple mind that we’ve got no less real burden on the corporate community than we had before."

As readers of this blog know, I agree wholeheartedly with Sen. Sessions that we need to reduce taxes (and other government-induced burdens) on American companies to help them better compete and thrive in today's global economy.  However, Sen. Sessions' views on reducing corporate "burdens" would be a lot more believable if he weren't singlehandedly responsible for increasing taxes on American business to the tune of several hundred million dollars per year.

As I noted in December, Sen. Sessions alone blocked the 2011 extension of the Generalized System of Preferences (GSP) - a longstanding program that lowers or eliminates tariffs (which are taxes, of course) on developing country imports, including a lot of industrial inputs and equipment used by American businesses - because he couldn't get Congress and the administration to agree to increase tariffs (taxes) under the GSP on sleeping bags from Bangladesh in order to protect a small Alabama sleeping bag manufacturer from duty-free import competition.  So he pitched a fit, put a "hold" on the GSP legislation, and the program expired.  (And per the New York Times, it appears that he's still at it.)

Cato's Sallie James explains that the cause and effect of Sessions' actions are straightforward and significant:

The Generalized System of Preferences is a federal program that offers duty-free access to the U.S. market to certain goods from certain developing countries. Or, I should say, was a federal program, because it expired on December 31. My opinion of the program is ambivalent at best, but one cannot deny that the program brings real cost savings to American consumers and businesses -- to the tune of $580 million a year -- through lower import duties....

But those duty savings are, apparently, worthless in the face of special interest politics....

The GSP expired and millions of U.S. consumers and businesses (not to mention developing country exporters) are being penalized to save a hypothetical 20 (that's two-zero) jobs that don't even exist yet. The jobs being lost by businesses that depend on the GSP to keep them competitive are, apparently, not worth consideration. And as for consumers' buying power being eroded, well forget it.

By my math, that's about $29 million in increased taxes per hypothetical new job!  While that might beis probably a good deal by Washington standards, it's a pretty awful deal for the US business community, which is feeling real, not hypothetical, pain because of Sen. Sessions.  In fact, the Coalition for GSP has started a great new website chronicling the real American businesses that benefit - err, benefited - from the lower taxes on developing country imports made possible by GSP.  (It also provides a broader lesson about the benefits of free trade for US manufacturers and consumers, of course.)  Here's a taste:

Behr Dayton manufactures engine cooling and air conditioning technology for the automotive industry in a 1.1 million square foot facility in Dayton, Ohio. According to Heinz-J. Otto, President and CEO of Behr America, the 1,000 workers in Dayton “make engine-cooling and air-conditioning components and systems for cars built by GM, Ford and Chrysler, U.S.-built cars by BMW and Mercedes, and heavy trucks produced by Freightliner and International.”

In addition to being one of Dayton’s largest manufacturing employers, Behr is one of the most frequent importers of aluminum foil from Brazil. In the first 11 months of 2010, 99.98 percent of those imports entered the United States duty free under the GSP....

GSP saved manufacturers like Behr Dayton more than $2.5 million on imports from Brazil. Surprisingly, Brazil isn’t even the largest supplier of aluminum foil under GSP. That honor goes to tiny Armenia. About a quarter of the size of Ohio and with a population just over 3 million, Armenia exported more than $58 million worth of aluminum foil under GSP through November 2010 and saved American companies another $3 million.

Sen. Sessions selfish, nakedly-political actions have forced US manufacturers like Behr Dayton to face more than $5 million in new taxes in 2011.  Other manufacturers face similar pains, and even if (when?) GSP is eventually renewed and applied retroactively to January 2011, it's quite likely that many of these American companies will have already made other, more expensive sourcing plans (and that planning ain't exactly a costless exercise itself, you know).   And, naturally, with new taxes and more uncertainty come fewer jobs.

The junior Senator from Alabama talks a big game about eliminating taxes and other burdens on American businesses in order to improve the US economy and decrease unemployment.  And he's right: those burdens definitely need to be removed, and such reform could really help jumpstart our economy.  But if Sen. Sessions really believes all that great free market rhetoric, he can - and should - prove it.

Releasing his GSP hostages would be a great, and easy, place for the Senator to start.

UPDATE: The WSJ has more here.

Sen. Sessions Uses Jedi Mind Trick to Defend His Indefensible Sleeping Bag Protectionism

Question: When is a legislative provision imposing a tax on all Americans in order to financially benefit a single, politically-connected manufacturer in a Senator's backyard not an earmark?

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....

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.

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. 

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:

So if we revoke Bangladesh's duty-free status, the chart above makes clear that most likely outcome is not Exxel's resurgent dominance in the US market but instead (i) more market share for China, (ii) higher prices for US consumers and (iii) the denial of a critical lifeline to one of the world's poorest countries.  Awesome.

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.

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.”

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!

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 droidsearmarks you're looking for.  You may go about your business.  Move along.)