Analysis: As Congress moves to drop tariffs, some U.S. firms cry foul

Hamilton Beach Brands Holding

05/03/2018 06:00

By Andy Sullivan
    NAPLES, Fla., March 5 (Reuters) - Michael Korchmar was
hiring. His family-owned travel-goods company was planning to
make a new product, an insulated food bag, and he had put out
help-wanted notices for up to 30 workers to run the sewing
machines in his small factory on Florida’s Gulf Coast.
    Those plans are now on hold. The reason: a bill quietly
moving through Congress that would temporarily reduce or
eliminate protective tariffs on 1,662 products, including the
type of bag Korchmar had planned to produce. The bill would cut
costs for rivals who make their bags in low-cost countries like
China, he said, squeezing him out of the market before he had
even entered it.
    "Given that these products will be able to come into the
country duty free, it's not likely that there's any ability for
us to compete," Korchmar said in a recent interview at his
factory, which currently employs about 20 people.
    Even as President Trump threatens to slap protective tariffs
on steel and aluminum, lawmakers are moving forward with
legislation to lower trade barriers on hundreds of other
products, from chemicals to toasters, in a bid to lower costs
for U.S. companies and consumers. 
    Supporters of the so-called miscellaneous tariff bill, which
unanimously passed the House of Representatives in January, say
it would boost the economy by getting rid of tariffs designed to
protect U.S. industries that no longer exist. The National
Association of Manufacturers says U.S. companies pay hundreds of
 millions of dollars each year on unnecessary import fees. 
    Critics say that miscellaneous tariff bills, which began
decades ago as modest efforts to help U.S. manufacturers, have
in recent years become sprawling packages of tariff reductions
that undercut domestic producers without the means to defend
their interests in Washington.
    Ohio Senator Sherrod Brown, a Democrat who worked to get
several products removed from the current bill, said Congress
should do a better job to ensure tariff reductions do not impede
U.S. producers. 
    "Miscellaneous Tariff Bills should help, not hurt American
manufacturers," Brown said in a statement to Reuters. 
    
    BATTERIES, MOUTH GUARDS AND KNIVES
    Miscellaneous tariff bills were originally conceived in the
1980s as a way of lowering costs for U.S. manufacturers that
could not get chemicals and other component products from
domestic sources. The original point of the efforts "was to
encourage domestic manufacturing," recalls Jennifer Hillman, who
worked on the legislation as a Senate staffer in the 1980s and
1990s.
    All but two of the 163 items in a 1999 version of the bill,
for example, were used in the manufacturing process, according
to a House Ways and Means Committee report. 
    Since then, Congress has broadened successive tariff bills
to include many finished products that can go straight to store
shelves. 
    Only 55 percent of the items in the current bill are
"intermediate goods" used in manufacturing, according to
applications filed with the International Trade Commission. Many
of the rest are finished consumer products. 
    Hamilton Beach Brands  HBB.N , for example, would pay
reduced tariffs on Chinese-made toaster ovens, steam irons and
other household items it used to make domestically.
    Gap Inc  GPS.N  would be able to import vests, sweaters and
14 other types of clothing duty-free, while PetSmart Inc would
no longer have to pay tariffs on certain pet crates and chew
toys. Camera maker GoPro Inc  GPRO.O  would be able to import 31
types of camera accessories duty-free. 
    None of the companies responded to requests for comment
about the inclusion of their products. 
    Ron Sorini, a lobbyist who has helped clothing manufacturers
get items in the bill, says consumers benefit from reduced
tariffs, too, since companies can lower their prices. 
    "Why in the world would we put a tariff on a product that's
not made in the U.S.? It's kind of crazy," he said.
    Any importer can take advantage of rates lowered by the
bill, not just the ones that applied for them, and the
reductions last only three years to help ensure they don’t
permanently freeze out would-be domestic manufacturers. 
    Under the latest rules, set in 2016, companies seeking lower
tariffs submit applications to the International Trade
Commission, which then works with the Commerce Department to
determine whether any of the items are made domestically. If the
agencies learn of U.S. producers, they invite the companies to
submit objections. ITC staffers then assess whether the
objections are legitimate. 
    
    'GLAD WE GOT WIND OF IT'
    In the current bill, the ITC eliminated 385 products because
of objections from domestic producers. Even so, the bill
includes 145 items that are made domestically, according to a
Reuters analysis of ITC records. 
    An ITC spokeswoman declined to comment on the commission’s
actions beyond pointing to the recommendations it ultimately
made.
    Several companies told Reuters that the ITC was receptive to
their concerns. 
    "I'm just glad we got wind of it when we did and stopped
it," said Anson Martin, a vice president at Illinois battery
company Inventus Power, which successfully objected to the
inclusion of 18 types of batteries in the bill. He said he
learned of the proposed tariff reductions through his trade
association.
    Other companies said they were not aware they had missed a
chance to defend their interests. 
    Alan Peppel, president of Massachusetts-based knife
manufacturer Dexter-Russell Inc, said he had no idea until
receiving a call from Reuters that Congress was poised to
eliminate tariffs on a type of kitchen knife his company
produces. 
    Kansas City dentist Don Closson, who makes athletic mouth
guards at a Colorado factory, and Paul Cacciotti, who
manufactures fingernail clippers in upstate New York, also said
they were unaware the bill contained items competing with those
they make. 
    "Many American manufacturing companies have been put out of
business due to free trade agreements and tariff reductions, and
you think the politicians would have learned a lesson from past
experience," Cacciotti said.
    The bill's supporters say that businesses have only
themselves to blame if they do not defend their interests in
Washington.
    "If somebody doesn't know about something, that's a shame,
but that might mean that they didn't take steps to stay
informed," said Stephen Lamar, executive vice president of the
American Apparel and Footwear Association.
    Norman Cook, executive vice president of Genfoot America Inc
does not think it is that simple. Genfoot, which employs 200
people at a New Hampshire boot factory, managed to block 22
types of footwear on the grounds that they were too similar to
products the company makes domestically. 
    But the bill still includes 42 other types of boots and
shoes that Genfoot sees as a threat to its business. 
    "It's supposed to help manufacturers, not eliminate them,"
Cook said.

 (Reporting by Andy Sullivan
Editing by Kevin Drawbaugh and Sue Horton)
 ((andy.sullivan@thomsonreuters.com; +1 202 354 5864; Reuters
Messaging: andy.sullivan.thomsonreuters.com@reuters.net))