Long Awaited MTB Process Contains Two Problems for U.S. Manufacturers

Since 1982, nearly every Congress has passed legislation to temporarily reduce or suspend tariffs on certain imported products and make technical corrections to U.S. tariff laws. Although the official title of the bill varies from year to year, it is usually referred to simply as the Miscellaneous Tariff Bill ("MTB") The duty suspensions and reductions are designed to boost the competitiveness of U.S. manufacturers by lowering the cost of imported inputs without harming domestic firms that produce competing products.

The last MTB passed by Congress expired on December 31, 2012. Since then, U.S. manufacturers have faced an annual $748 million tax increase on their inputs and the U.S. economy has suffered a $1.875 billion economic loss, according to an analysis by the National Association of Manufacturers. As a result, manufacturers in a broad range of industries have experienced tax burdens and lost jobs, consumers have faced higher prices, and U.S. businesses have lost their competitive edge over foreign companies.

Now, nearly three-and-a-half years after the expiration of duty suspension congress has finally started to act on much needed legislation to make U.S. manufacturers more competitive internationally.

WHAT CONGRESS DID NOT DO.

Congress did not restore the expired duty suspensions, nor even start the process of restoring them. U.S. textile producers paying import duties on inputs, such as certain acrylic and rayon fiber, not available from any domestic source will continue to pay those duties for the next several months.

WHAT CONGRESS DID.

Congress created a process for doing an MTB. The new process has the initial request for a duty suspension filed at the U.S. International Trade Commission ("ITC"), not congress. After vetting the request to assure that they conform to the standards that historically have been applied to temporary duty suspensions: (1) must have no domestic opposition, (2) must not result in more than $500,000 in lost tariff revenue, and (3) must be something that Customs can administer, the ITC will give congress a of list of recommended duty suspensions for the MTB. Congress may delete from the list but may not add to the list.

SO FAR SO GOOD, HOWEVER.

The ITC is directed to start the process no later than October 15, 2016. If, as is likely, the ITC takes until that date to start the process, then, due to various comment and response periods built into the process, the likely earliest date for those duty suspensions that expired at the end of 2016 to be restored is in the fall of of 2017. U.S. manufacturers will, likely, have to wait another 14 months or more before they can enjoy their former duty savings.

The new procedure also calls on the ITC, once the suspension are in effect, to evaluate the economic impact of the suspensions and recommend whether any duty suspensions or reductions should be made permanent by unilateral act of congress. Unilateral action making a suspension or reduction permanent raises two concerns--

1. Temporary suspensions or reductions leave open the possibility that a producer may in the future wish to enter this market, knowing that the duty will snap back with the expiration of the temporary provision.

2. Permanently zeroing out a tariff unilaterally deprives the U.S. of a bargaining tool when negotiating trade agreements.

While we cannot tell in advance whether the ITC will recommend making any duty suspension permanent, or whether congress would act on such a recommendation, the fact that the new process envisions taking what, since 1982, has been mechanism for making temporary duty suspensions and transforms it into a potential mechanism to make them permanent is troubling.

Clients of Agathon Associates and subscribers to Agathon Associates' Trade Advisor Service can find an annotated version of the new MTB procedures, with background, explanatory test, and likely timeline at http://www.agathonassociates.com/textile-pri/mtb/114-hr-4923-Annotated.pdf. You will need to enter your username and password. If you do not know your username and password email David Trumbull at david@agathonassociates.com.