Bridges Weekly Trade News Digest • Volume 14 • Number 30 • 8th September 2010

US Cuts Duties on Raw Materials to Help Industry; EU Contemplating Similar Move

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Governments’ trade policies tend to be full of contradictions. They preach the virtues of free trade, then fight tooth and nail at the WTO to preserve the right to levy import duties and subsidise farmers. But in the absence of import-competing interests, it becomes easier for theory and practice to line up. Such was the case for a tariff bill signed into law last month by US President Barack Obama, which temporarily suspended or reduced duties levied on hundreds of industrial inputs, in order to help reduce costs for US manufacturers.

The ‘Miscellaneous Tariff Bill,’ which passed the US Senate on 11 August, covers raw materials and intermediate products not produced domestically, or where there is no domestic opposition to lowering tariffs.

As a result of the bill, a wide range of US industries will pay lower costs on imported inputs. Bicycle manufacturers, for instance, will save money on importing things like speedometers and certain kinds of brakes and other parts. The Congressional Budget Office estimated the tariff revenues foregone from 2010 to 2015 as a result of the bill at about $230 million.

US manufacturing groups welcomed the passage of the bill. The National Association of Manufacturers said it would “cut the costs of doing business in the United States and boost American manufacturing exports.” In a letter urging senior Congressional leaders to pass the bill, companies such as 3M, BASF, Nike, and Reebok cited estimates that the duty cuts would support more than 90,000 US jobs and US$3.5 billion in GDP growth.

But some suggest that broader tariff reform would have been better than the highly specific tariff cuts.

A report in the Charlotte Observer quoted Steve Ellis, of the non-partisan government watchdog Taxpayers for Common Sense, as saying that the tariff suspensions amount to “earmarks,” a US political term referring to legislative provisions directed at benefiting individual projects or companies. Though commonly used, earmarks are widely criticised as a tool lawmakers use to deliver benefits to influential constituents. Ellis said he would have preferred reforms to the overall tariff structure, or at least more transparency, according to the article.

The same report said local lawmakers wrote very specific provisions into the bill to ensure that the Glen Raven textile mill in Warren County, North Carolina would save $1.6 million over three years in tariffs on the European-made acrylic material it imports to turn into yarn used to make fade-resistant outdoor fabrics. The savings were helping to create jobs in the economically depressed region, it said.

In Europe, Italy has called for similar temporary duty cuts on industrial inputs from places like China and Brazil to help EU manufacturers through the economic crisis – but has run into opposition from France, Germany, and Spain, which manufacture the very same products. Reuters reported in July that the inputs in question are for industries including steel, cosmetics, footwear, textile, furniture and auto manufacturing. Commission officials said EU member states routinely discuss revisions to tariff policy, but that there was no list of specific products slated for tariff cuts. The issue is set to be discussed by the EU’s trade policy committee in the coming weeks.

ICTSD reporting; “President Obama Signs MTB Bill,” BICYCLE RETAILER AND INDUSTRY NEWS, 11 August 2010; “Relaxed tariffs help poor, spark questions,” CHARLOTTE OBSERVER, 7 September 2010; “EU considers big tariff cuts to help manufacturers,” REUTERS, 28 July 2010.