March 5, 2018 / 6:15 AM / 6 months ago

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

NAPLES, Fla. (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.

Korchmar President Mike Korchmar (L) and CEO Michael Korchmar (R) display a bag assembled at the Naples, Florida factory of Korchmar, a family-owned business in Naples, Florida, U.S., February 13, 2018. Picture taken on February 13, 2018. REUTERS/Andy Sullivan

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, for example, would pay reduced tariffs on Chinese-made toaster ovens, steam irons and other household items it used to make domestically.

Gap Inc 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 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

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