Washington (AFP) – A century-old US trade group on Monday pledged to work with the incoming administration to improve access to overseas markets for American companies, but also to fight against protectionism.Rufus Yerxa, head of the 300-company National Foreign Trade Council, said his organization is prepared to work with President-elect Donald Trump to improve conditions for US exporters.However, he declined to be drawn into discussing some of Tump’s more inflammatory statements, like threats to impose huge punitive tariffs on China and renegotiate free trade deals, saying he would wait to see what the actual policies are.”The reason I want to be optimistic is because I’ve seen this before, prior incoming administrations where there’s a lot of dire predictions about what’s going to happen, and in the end very positive things have happened,” said Yerxa, a former deputy director general of the World Trade Organization.”I don’t want to rule out that possibility,” he told reporters. “I think we can make progress once it becomes clear to people that protectionism isn’t the answer.”Yerxa presented the NFTC’s newest policy brief which favors many policies Trump has been pushing: better trade rules for US exporters, reduced corporate taxes and big spending to improve infrastructure.However, the organization, which accounts for about $3 trillion in worldwide sales, stresses the importance of a rules-based system where all countries, including the United States, abides by the global trade rules and keep markets open.”And we’re prepared to argue against the use of trade restrictions as a way of achieving greater economic growth — history has shown that really isn’t an effective way of doing that,” he said.The NFTC also recognizes that while one in five Americans depend on trade for their jobs, many have been left behind by globalization and technological change — an anti-trade sentiment that was a big part of Trump’s success.The group also urges a major focus on worker adjustment and retraining, something the US lags well behind other major countries.Yerxa said if done right, with these programs coupled with lower taxes, free trade and improved infrastructure, “there will be a lot less need for politicians to be focusing on taking counterproductive trade actions as a way of solving our economic problems.”
Category: NFTC In the News
The Hill: China risks undermining a unique economic and environmental pact
In Geneva this week, senior officials will seek to conclude a deal to lower the cost of environmentally-friendly technologies, but it will take greater leadership and increased flexibility from China to get this unique economic and environmental agreement over the finish line.
The Environmental Goods Agreement (EGA) would eliminate tariffs between China, Europe, Japan, the United States, Costa Rica and other innovative economies on a broad range of products beneficial to the environment from wind turbines to LED lighting.
Such a deal would have important economic benefits for all of the participants. For China, a study commissioned by the Coalition for Green Trade suggests that an agreement would increase China’s GDP and national income by billions of dollars. For the United States, the Office of the U.S. Trade Representative notes that American exporters produced and sent $130 billion of environmental goods abroad in 2015, and this agreement would enable American manufacturers to grab a larger share of the $1 trillion dollar global environmental goods industry. Other Asian, European and Latin American economies would see new markets open for their manufacturers.
An agreement would also have a positive effect on the global environment. In particular, it would help China and other participants meet their global climate commitments and reduce air and water pollution at a lower cost. The Paris-based International Energy Agency estimates that one million people die each year in China from outdoor air pollutants. This deal would help economies including China adopt air pollution control technologies at a lower cost. Ultimately, the Coalition for Green Trade study notes that China could gain approximately $659 billion annually in economic benefits that stem from improved environmental quality thanks to cost savings that an EGA would bring.
For all of these reasons, experts and business groups from around the world have strongly encouraged negotiators to finish the deal this year.
Last month at a seminar in Beijing, Professor Tu Xinquan, Dean of China Institute of WTO studies at the University of International Business and Economics noted that an EGA “will have very great environmental benefits,” and noted that China’s pollution “will challenge the Chinese government to make great progress in the EGA negotiations.” At the same seminar, Wang Zhuo, Vice Secretary-General of the China Association of Lighting Industry (CALI), highlighted how LED lighting can reduce energy consumption and called for a rapid conclusion to the negotiations.
In the United States, the effort enjoys strong and longstanding bipartisan support across multiple Administrations and Congresses, as well as from business groups from the Business Council for Sustainable Energy to the Business Roundtable and U.S. Chamber of Commerce.
And dozens of business groups, including the Australian Industry Group, Business New Zealand, Canadian Association of Importers and Exporters, Japan Machinery Center for Trade and Investment, Singapore Business Federation, and Solar Energy Industries Association, signed a letter earlier this year calling for a conclusion of the agreement by year-end.
Despite these clear, shared benefits for Beijing and Washington in particular, as countries send their senior ministers to Geneva in an attempt to finalize an agreement, China has arrived with a lengthy shopping list but little flexibility or currency in its pockets to pay for what it wants.
The hallmark of any successful negotiation is a good-faith give-and-take between countries that results in a deal which benefits all parties. To the extent that any one party to a negotiation arrives asking that all of its requests be accommodated while simultaneously refusing to accommodate the requests of others, as China appears poised to do, that is a recipe for failure.
Failure to conclude this unique agreement now would be more than another missed deadline. It would undermine the authority of world leaders who, under Chinese President Xi Jinping’s leadership at the G-20 Ministerial in Hangzhou, hailed a “landing zone” for the agreement and emphasized a shared commitment to finish an ambitious deal by the end of 2016.
The inability to conclude an EGA would be a particular blow to China’s credibility on trade. Last month, President Xi touted China’s commitment to free trade, saying at the APEC leaders’ summit that Beijing “oppose[s] all forms of protectionism” and wishes to “inject positive energy into economic globalization.” China’s state-run news agency touted the idea that China would “take the driver’s seat in terms of pushing for greater free trade” in the Asia Pacific.
Failure would also diminish the World Trade Organization (WTO), the umbrella under which this agreement is being negotiated. A failed ministerial meeting — on a topic that is relatively uncomplicated and enjoys broad support — could undermine the credibility of the organization as a forum to modernize other, more complex trade rules in the future.
The flip side is that an ambitious agreement would be an important shared victory for the participants’ economies, the global environment and the international institutions and rules that support the global marketplace. Success would also help cement the leadership of China, the United States, Europe, and the other innovative participants in the global economy.
We will soon find out whether world leaders can keep their word, and whether innovative economies can join forces and secure an ambitious agreement that enhances shared economic and environmental goals before time runs out.
Jake Colvin is Vice President for Global Trade Issues at the National Foreign Trade Council and Executive Director of the Global Innovation Forum. Follow the conversation @NFTC and @GlobaliForum
POLITICO Pro Morning Trade
THE BUSINESS DANCE ON TPP: With business groups calling on the administration to address their complaints with TPP even as they endorse it, the National Foreign Trade Council talked with reporters on Thursday about how that might play out. The main issues are insufficient monopoly protection for biological drugs, the carveout from the investor-state dispute settlement mechanism for tobacco-control-related complaints, and a provision that would allow governments to restrict where financial services firms can store data.
“We certainly understand there are 12 partners, and USTR endeavored to find the sweet spot, … but that said, we believe there are ways to improve the agreement,” Chuck Dittrich, NFTC’s vice president for regional trade initiatives, said at the group’s annual forecast press lunch, arguing similar improvements happen with every free-trade deal. He cited side letters, language in the implementing legislation, clarifications from trading partners, or wording in the “statement of administrative action” that accompanies the implementing bill as places where the administration could address business worries.
“That said, that doesn’t mean that we’re not supportive and recognize the significance of the agreement,” he added.
EASIER SAID THAN DONE? NFTC President Bill Reinsch acknowledged that some issues would be easier than others to address. For some, he said, the U.S. needs to get out of its own way.
“In a couple cases, I think the negotiation wasn’t between the United States and the other 11, the negotiation was between the USTR and the Treasury Department in the case of financial services,” he said. “And in the case of tobacco … that was really USTR negotiating with HHS. As long as we’re negotiating with ourselves, that’s a problem that we can fix, assuming the administration is willing to do that.”
On biologics, he said, it depends on whether industry is more concerned about the policy in other countries, or whether it’s worried about losing the existing level of protection in the U.S. “If the problem is getting other countries to provide the same level of protection as the U.S., that will be very difficult; they’ve been very clear they don’t intend to do that,” Reinsch said. “If the problem is a concern that in the process of doing all this the level of protection in the U.S. might erode, … that’s something the Congress can address by making clear that they don’t intend to have that happen, assuming that’s what they think.”
OTHER NFTC PREDICTIONS…
– On TPP, Reinsch predicted there will be hearings in March or April, followed by whip counts that will help the administration determine when to submit the implementing bill. But he noted the fast-track clock limits how long the president can wait because Congress has so few days in session this year, what with the presidential elections.
“Just looking at the clock, if you wanted to guarantee a vote by the end of this year, you probably have to submit the bill in the spring sometime, and that is a tricky calculation because that probably means submitting the bill before they have a very firm [vote] count,” he said.
Dittrich also said Senate Finance Committee Chairman Orrin Hatch will probably want assurances on biologics before holding a markup.
– On trade talks with Europe, Dittrich predicted they will be concluded this year. But he said a significant increase in political will was unlikely because of the European migrant crisis and the “specter of terrorism,” as well as public criticisms of the deal itself, which will make it hard to get “the attention necessary and the commitment necessary to make the changes in culture that changing regulatory processes represent.”
So he predicted the deal would be a “more modest agreement” along with a “beefed-up” set of consultation mechanisms.
Ryan’s Tax Counsel Cites Limited Chances for Tax Reform in 2016
The House speaker’s senior tax counsel on January 7 dampened hopes for significant tax law changes in 2016, pointing to limited legislative opportunities to achieve them.
“In my mind, the next must-pass legislation that has a tax portion of any significance, and it’s a relatively minor portion,” is reauthorization of the Federal Aviation Administration, which expires at the end of March, said George Callas, senior tax counsel for House Speaker Paul D. Ryan, R-Wis. “Usually in things like that, you stick to the theme — so you’re not talking about international tax reform attached to FAA reauthorization.”
Speaking on a webcast sponsored by PwC, Callas acknowledged that there is interest in passing some international tax reforms given the corporate inversions problem. “More household names are inverting, and it’s creating a lot of political pressure to actually do something there, so you could see something like that possibly happening,” he said. “There’s a lot of angst” about inversions, the base erosion and profit-shifting project, and foreign acquisitions of U.S. companies — “especially in industries like biopharma where companies get gobbled up even when they’re not inversions,” he said.
Ryan himself has avoided specific discussion of the tax reform agenda so far this year. At his weekly press conference January 7, Ryan said 2016 would be the year that Republicans would go on the offense on ideas, but when asked whether that includes any votes on tax reform plans, he said only that “everything is an option.”
Some congressional leaders, including House Ways and Means Committee Chair Kevin Brady, R-Texas, have expressed an intention to focus on international tax reform this year after the major year-end tax extenders bill, enacted December 18, helped stabilize the tax code, laying the groundwork for a broader tax overhaul. (Prior coverage 2015 TNT 244-4: News Stories.)
In a December interview with Tax Analysts, Brady said he wants the Ways and Means Committee to start looking at ways to pass an international tax reform package or provide incentives to companies that would bring back innovation to the United States. In doing so, he said he wants to use the innovation box draft 2015 TNT 146-22: Proposed Legislationreleased by committee members Charles W. Boustany Jr., R-La., and Richard Neal, D-Mass., as well as the work done by the international working group in the Senate as the framework for an international tax reform plan. (Prior coverage 2015 TNT 245-1: News Stories.)
On the webcast, Callas warned that one-off proposals giving U.S. multinationals a lower tax rate for voluntarily bringing offshore earnings home stand little chance of success. A one-year repatriation holiday is “problematic because it scores as a substantial revenue loss,” he said. “The most recent score I saw was over $100 billion over 10 years . . . and while I can’t argue with whether the number that [the Joint Committee on Taxation] comes back with is right, I think directionally it’s right.”
Callas said a repatriation holiday without base erosion protections would create opportunities for arbitrage — borrowing, deducting interest, and generating exempt income. “It is really hard to do a holiday without, number one, creating a big revenue problem and, number two, creating a perverse incentive with regard to the migration of intangibles,” he added.
When it comes to deemed or mandatory repatriation, Callas said, the Ways and Means Committee has historically supported proposals only when they are part of a broader international tax reform that replaces the United States’ system of worldwide taxation plus deferral with an exemption system. “Other folks have tried to use it as a money grab and the committee has always opposed that,” Callas said, noting prior opposition from Ryan and from, he’s “pretty sure,” Brady.
As for extenders, Callas said that time would tell whether there is pressure to renew them. “I don’t necessarily know that there will be because you can kind of wait until 2017 to deal with the extenders that expire at the end of 2016, so it is hard to see any action forcing tax items out there that other things could be attached to,” he said. “It would really have to be organic.”
Election Obstacles
Industry stakeholders have also shown pessimism about international tax reform in 2016. Catherine Schultz, vice president of tax policy at the National Foreign Trade Council, said January 7 at her organization’s annual economic outlook luncheon that reform will be difficult to achieve during the 2016 elections in large part because of concerns over the taxation of passthrough entities.
“If you just do corporate tax reform, it’s very hard for members to go back to their constituents to say, ‘We gave tax credits to large multinational corporations but nothing for you — the voters,'” she said.
Even if lawmakers pursue an international tax reform package without lowering the current corporate rate of 35 percent, such a plan would receive little fanfare from companies, Schultz said. “If you don’t have the corporate rate lowered below the 35 percent rate and to pay for some of the other changes — you do deemed repatriation or do minimum tax — you’re actually going to raise the tax rates of companies initially,” she said.
To achieve corporate tax reform properly, lawmakers must pursue comprehensive tax reform, she continued, otherwise “you’re not going to be able to lower the rate and [you will lose] some of the benefits.”
Multinationals fear more disputes from Paul’s hold on tax treaties
Corporations are heading into the new year bracing for years of costly tax disputes, according to the National Foreign Trade Council’s Cathy Schultz. And they’ll be fighting with one hand tied behind their back, thanks to Sen. Rand Paul’s (R-Ky.) hold on a raft of tax treaties.
Recently released guidelines from the Organization for Economic Cooperation and Development, including new rules on country-by-country corporate financial reporting, will open the door for “a large increase in the number of disputes,” Schultz said at an NFTC lunch today.
“There’s going to be more disputes because there are going to be mismatches on what people believe apply under the transfer pricing rules and how they’re going to be calculated,” Schultz said. “Without some of the mandatory binding arbitration provisions that we have in the treaties that are pending in the Senate, some of these disputes could go on for years.”
The full Senate has not approved an income tax treaty or protocol since 2010. Agreements with Chile, Hungary, Poland, Luxembourg, Switzerland and Spain, and a protocol to amend a multilateral convention, are pending.
Paul, a GOP presidential candidate, is blocking the treaties on the floor.
“Sen. Paul continues to have concerns about the privacy implications of the treaties,” a Paul spokesman said today.
Schultz said, “We expect that companies are going to have money tied up in [disputes] for many, many years to come. …Without binding arbitration, other countries do not have an incentive – because they’re sitting on these companies’ money, they don’t have a big incentive to try to negotiate” with U.S. authorities.
Corporate Inversions ‘Very Good’ Lawyers Can Finesse Inversions Absent Tax Revamp
Takeaway: Big inversions could pressure lawmakers to take up tax overhaul sooner.
Corporations will continue to work around Treasury Department guidance restricting inversions if Congress doesn’t overhaul corporate tax law, a National Foreign Trade Council executive said.
“Treasury rules are going to make it very restrictive of what you can do,” Catherine Schultz, vice president for tax policy at the NFTC, told reporters Jan. 7. “There are a lot of very good tax lawyers out there who are going to look at what Treasury is going to put out and see where the lines are being drawn and how they are going to change it.”
Treasury and Internal Revenue Service officials have said the government plans to release in the coming months more than 150 pages of regulations addressing deals where U.S. companies move their addresses outside the U.S. to reduce taxes. The rules will combine the provisions outlined in Notice 2014-52 and Notice 2015-79, released in recent years to stem the tide of corporations opting to reduce tax bills by inverting (244 DTR G-8, 12/21/15).
Government officials have said they can’t entirely stop the deals without a law change from Congress. Schultz said a inversion fix can’t happen without a broader look at U.S. corporate tax rates and policies.
Pharmaceutical Preference
The inversion discussion became increasingly heated in November when Pfizer Inc. and Ireland-based Allergan Plc agreed to merge in a $160 billion deal, making it the biggest inversion in U.S. history. The deal was structured in a way to skirt Treasury rules. Pfizer shareholders will end up holding about 56 percent of the combined company, just under the 60 percent threshold that triggers the inversion penalties (226 DTR G-4, 11/24/15).
Schultz doesn’t predict there will be an slew of companies seeking to invert prior to action by Treasury or Congress, but said a shift in market conditions could change that. Inversions have been particularly attractive to pharmaceutical companies seeking the tax benefits in addition to being a way to gain patents and market share amid sluggish growth.
More big inversions could nudge “Congress into trying to do something sooner rather than later on tax reform,” Schultz said, noting there is little expectation for major tax changes prior to the presidential election next year. “That is something out there that has members of both parties upset.”
