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Factsheet #117

May 29, 2013

Tariff Reform: Flawed MTB Process Limits Tariff Relief, Violates Earmark Moratorium

Background

  • Tariffs Slow Growth, Jeopardizing Jobs: A tariff is a tax on imports.  The U.S. has thousands of tariffs that raise costs of consumer goods and jeopardize jobs at American companies that rely on imports. The 2013 Index of Economic Freedom, developed by The Heritage Foundation and the Wall Street Journal, demonstrates how citizens of countries that embrace free trade achieve higher average incomes than citizens of countries that do not. Countries with low tariffs, (i.e., New Zealand and Singapore) have seen more economic success than countries with high tariffs (i.e., India and Venezuela).
  • What Is an MTB? Each year hundreds of individual duty suspension (tariff cut) requests are introduced by Members of Congress. Congressional committees send those requests to the International Trade Commission (ITC) for review.  The ITC issues a report on whether the tariff relief meets the requirements including: they provide tariff relief of less than $500,000 per year, and there is no U.S. source for the item. A final package — known as a Miscellaneous Tariff Bill (MTB) — comes back to Congress for final approval.

Flawed MTB Process

  • Earmarks: According to figures from Customs and Border Protection, from 2005 to 2011, about 40% of duty suspensions have benefitted individual companies and the vast majority (about 90%) have helped 10 or fewer. Since 2007, both Republican and Democratic majorities have included duty suspension bills that affect 10 or fewer companies under the earmark moratorium, and they were right to do so. Passing an MTB would mark a return to earmarks.
  • Potential for Corruption, Picks Winners and Losers: Businesses often hire a lobbyist to petition their Member of Congress on their behalf. The process encourages a corrupt political system that rewards businesses for spending money on lobbyists and seeking influence with politicians instead of producing the best goods and services.
  • Lacks Transparency: Businesses are left in the dark if their tariff suspension request does not make it to the ITC for vetting. It is difficult to know if the request was simply ignored or lost, or if a Member of Congress objected to its inclusion because of local interests.
  • Not Far Enough: MTBs are of only marginal benefit, as qualifications for relief are too narrow and the flawed process stifles access. The last MTB that was enacted reduced U.S. tariff revenue by less than 1%. MTBs are limited in duration, typically lasting for just three years. This makes it difficult for businesses to plan for the long-term.
  • Distracts Congress from Broad Reforms: Instead of spending months managing a complex process with limited economic impact, Congress should focus on permanently lowering tariffs across the board, which would create new jobs and lower consumer costs.

The Next Step

  • Tariff Relief to Everyone: If Congress is serious about helping companies benefit from small tariff cuts, it could eliminate all tariffs that raise less than $500,000 per year, where there is no objection from domestic producers.
  • Cut Tariffs to Help Manufacturers: If Congress wants to boost manufacturing, it could copy Canada’s recent trade policy and eliminate tariffs on all products used as inputs by U.S. manufacturers. Canada began phasing out 1,541 tariffs on inputs used by manufacturers in 2009.
  • Promote Affordable Clothing: Help American consumers by eliminating regressive taxes on imported shoes and clothing.
  • Phase Out Tariffs: The long-term goal should be to eliminate the $30 billion in import taxes that stifle growth.

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